With timber supplies diminishing across Canada and log supplies tight in the U.S. West, the Southern Pine region is poised to capitalize on abundant timber supplies and rising demand for lumber across North America. Big changes are afoot across the Southern region, including consolidation, dramatic capacity expansion, and modernization. Those changes mean the competitive landscape is also changing and with today’s volatile lumber markets, understanding your competitive position and key areas of opportunity are more important than ever.
From 2012 through 2018, approximately 40 Southern Pine sawmills changed ownership. Many of these had been family owned operations but are now part of large corporations. Leading the tally of mill acquisitions, Interfor picked up 9 Southern Pine sawmills in 5 transactions. Fellow Canadians West Fraser acquired 8 mills, and Canfor picked up 6. Georgia Pacific completed acquisitions totaling 6 sawmills. The majority of Southern Pine lumber production is now controlled by 5 companies at 69 sawmills (not counting recently announced greenfield operations).
The total amount of lumber production capacity is growing rapidly across the South, with part of the new volume coming from new sawmills and the balance coming from reinvestment in existing operations.
The Beck Group is tracking progress on 16 new sawmills going online between 2017 and 2020, and rumors of more are still circulating. Most of the 16 mills are totally new, greenfield operations, but a few are significant rebuilds (and expansion) of older mills. The total expected capacity of these new operations will total nearly 3.5 billion board feet.
Expansion at existing operations will also add significant capacity at Southern Pine mills including independently owned operations, and those belonging to large corporations. Hundreds of millions of dollars of capital are flowing into these operations as mill owners position themselves to take advantage of abundant supplies of sawtimber across the region. Upgraded sawing and planing equipment, new drying capacity and expanded operating hours will add another 1.5 to 2.5 billion board feet of capacity at Southern Pine mills by the end of 2020.
In total, The Beck Group projects that total Southern Pine sawing capacity will expand by 5 to 6 billion board feet in the space of five years – an increase of more than 30% over 2016 capacity.
Competitive Landscape is Changing
With new, large scale sawmills being constructed and existing mills moving to expand production, the face of the Southern Pine lumber industry is changing rapidly. The Beck Group projects that capacity will rise by nearly two-thirds at the average sawmill, and the average productivity (on a per employee per hour basis) will more than double. Increasing scale and productivity will drive unit manufacturing costs down. The new mills will also take advantage of the latest technology to drive improvements in log-to-lumber recovery.
Sky high lumber prices and record profits over the past couple of years have lulled some mill managers into complacency, but with lumber prices plummeting in the second half of 2018, many started having flashbacks of the extended downturn in the lumber market just a few years ago. In volatile markets, it is more important than ever for mill management to understand where they fit in the competitive landscape, and to identify their top opportunities for improving their position.
The Beck Group is well positioned to help you understand your mill’s competitive position, and to help identify ways to improve and get ahead of the pack. Please contact us if you would like to learn more.
The Beck Group is a forest products planning and consulting firm based in Portland, Oregon. We take a results-oriented, practical approach to helping clients make better decisions and improving their financial and operational performance. We offer a variety of services and we operate throughout North America and overseas. Our blog posts highlight work from recent consulting assignments and feature topics relevant to anyone interested in forest products. We welcome your feedback and comments.