RTL Revisited in Nor Cal
- Hannah Hammond
- Apr 11
- 7 min read
by Roy C. Anderson, The Beck Group Consulting
Service Spotlight: Feasibility Studies and Biomass and Small Diameter Tree Utilization.
Return to logs? We never left!
Then the manufacturing cost for converting that material into products is subtracted from the products’ value. The remaining amount, if greater than zero, is the break-even value that the manufacturer could pay for the raw materials delivered to the manufacturing facility. Pay less, profit; pay any more, and the result will be a net loss.
Since then, we have had the opportunity to work with the North Coast Resource Partnership (NCRP) in Northern California to calculate RTL values in their region. Working with our partners at NCRP, we identified 10 hypothetical forest products businesses. The key parameters in conceptualizing the businesses were that they be:
Small-scale
Appropriate for the types of raw materials produced from the forests of Northern California
In proximity to accessible markets for the products produced
Additionally, to help ensure apples-to-apples comparisons among the RTL values for each business considered, we assumed consistent cost rates for labor, salaries, power, depreciation schedules, etc. across all businesses.
The table in the images below illustrates the results. (The spreadsheet images are best viewed on a desktop computer.) Several things to note:
Units of Measurement: We developed a financial model for each of the 10 businesses. In each model, all costs, revenues, yield factors, productivity rates, etc. were converted to a bone dry ton basis (i.e., what the wood weighs with all the water baked out of it). As a result, the RTL values are expressed using units of $/BDT. Each of the forest products businesses considered uses different units of measurement for raw materials, products, etc., so converting everything to a bone dry ton basis allows for comparing RTL values across all the businesses.
Economic Viability: Wood Wool Cement Large Wall Elements (WWC-LWE) show the highest return potential, but there are uncertainties about the value of the material in the marketplace. Also, its acceptance in US building codes presents an obstacle to viability, which would need to be overcome.
For all technologies, co-locating several businesses on one site can significantly increase viability because it can reduce costs while allowing sales values to be enhanced by selling products to co-located businesses. Add-ons like TMT decking, lumber treating, pallet manufacturing, and cogeneration provide strong diversification opportunities for sawmills.
In all cases, it is critical to reduce the startup capital cost. Strategies in this direction include using existing mill sites and buildings, opting for used equipment over new, and co-locating with other businesses. Also, several of the technologies evaluated do not create products with high value on a $/bone dry ton basis. Examples include fuel briquettes, cogeneration, and sawmilling. For these types of businesses, strict control on operating costs and raw material costs is critical to financial viability.
Market Challenges: Regulatory hurdles, lack of established markets for newer products such as WWC-LWE, and high power costs limit some opportunities. There’s potential to overcome these issues by starting with small, pilot-scale operations that prove the technology, refine operational processes, and develop market acceptance.
Raw Material Sources: All of the technologies considered here can utilize roundwood sourced directly from the forest. However, for technologies such as cogeneration and wood briquettes, other raw materials such as mill by-products are available at a lower cost and in a more readily usable form. In those cases, the business will need to obtain raw materials from the lowest-cost source in order to compete.
Combine Proven Demand with Emerging Techs: Investments in technologies with proven demand, such as post and pole manufacturing or cogeneration, combined with diversification into emerging markets like TMT decking or packaging, can maximize resource use and profitability. There may be opportunities for existing forest product manufacturing operations to diversify their operations into one or more of these businesses. This strategy would maximize the value of reducing capital and operating costs, and would open up future possibilities while getting the facility well established.
Each of the following sections briefly describes the technologies considered in the analysis.
Wood Wool Cement-Large Wall Elements: This technology involves converting small diameter roundwood into wood wool strands, mixing those strands with Portland cement, and then placing the mix into a mold to produce panels up to 1’ thick by up to 10’ feet wide and 20’ long. After curing, the resulting panel is essentially a structural wall that can be used in residential and commercial construction.
Post & Pole Manufacturing: Wood post and pole manufacturing involves a series of processes that transform small diameter logs into durable and functional products such as fenceposts and rails, hop poles, small utility poles, furniture, and balusters. As posts, poles, and rails often expose wood to weather and soil, most are treated with preservative chemicals to enhance their resistance to weathering, decay, and insect damage.
Sawmill – Base Case: Sawmilling is the process of converting logs into lumber—a fundamental step in the timber industry. This operation typically begins with harvesting logs and selecting those best suited to a given sawmill. The selected logs are then transported to a sawmill where they undergo various cutting techniques. Most softwood logs are delivered to the mill in “long log” form (i.e., typically 30’ to 40’ long). The logs are then debarked and cut into the desired shorter lengths, typically between 8’ and 16’, but some mills specialize in producing longer lengths of lumber. The cut-to-length logs, often called mill length blocks, are then processed into lumber.
Sawmill + TMT Decking: Thermal Modification Treatment (TMT) of lumber is a process that involves heating wood to high temperatures, typically above 320°F, in specially designed kilns where there is little oxygen. This treatment permanently alters the wood's chemical and physical properties, enhancing its durability, stability, and resistance to decay and insects. The process reduces the wood's moisture content, which minimizes the risk of warping and cracking. Additionally, thermal modification can improve the wood's color, giving it a richer, darker appearance.
This process is a small but growing market because it offers a non-chemical method of increasing wood’s decay resistance and dimensional stability properties, making it environmentally friendly. The most common applications are lumber used in outdoor decks and siding. The business considered here converted a portion of the sawmill’s output into TMT decking.
Sawmill + Treating: The sawmill modeled in this scenario would operate like the Base Case sawmill, except that all upper-grade ponderosa pine and hem-fir 2” thick and 4” thick products are treated with preservative chemicals for use in applications exposed to the elements and/or soil. Note that hem-fir refers to a common practice in the lumber industry of grouping certain species into a larger, mixed species category. Thus, the hem-fir lumber category can contain a mix of various hemlock and true fir species common to the Western US. For example, it may contain a mix of grand fir, white fir, and hemlock. This scenario models an opportunity to add value to its lumber products; as with the Sawmill + TMT, it assumes treatment of a portion of the mill’s lumber production.
Sawmill + Pallets: This scenario is based on a small pallet manufacturing facility co-locating at the sawmill. The pallet plant would operate one shift per day and produce an average of 1,000 pallets per shift. The plant would use all of the low grade lumber produced by the sawmill and more low grade lumber would have to be purchased from outside sources. Like the other Sawmill + Scenarios, this would be an add-on to the Base Case sawmill; thus, there are no additional administrative offices, crew facilities, etc. An extensive review of the pallet market was beyond the scope of the study, but a preliminary analysis indicated that there are few existing pallet manufacturers in Northern California.
Biomass Cogeneration: This technology, also known as combined heat and power (CHP) from biomass, is a renewable energy source that simultaneously produces electricity and useful thermal energy from woody biomass. In California a program called BIOMAT pays small-scale CHP plants above-market rates for the power produced. This analysis incorporated the BIOMAT program parameters. If it can pay its way, biomass cogeneration can be a valuable site partner because at least some of the fuel originates on site and the thermal energy can be useful for some forest products manufacturing processes.
Wood Wool for Packaging: This business’s basis involves producing and selling shredded wood wool (excelsior) for packaging. Unlike synthetic packaging materials, wood wool is biodegradable and made from renewable resources. Also, its natural properties provide excellent shock absorption and protection for products during transportation.
Wood Briquettes: This business would utilize mill by-products to manufacture wood briquettes (compressed sawdust and wood shavings) for heating, a renewable energy source offering an alternative to fossil fuel energy sources.
Wood Fiber Growing Media: This business involves the production of wood-based substrate used in horticulture and agriculture, replacing more commonly used peat moss as growing media.
Takeaways in order of importance:
First, controlling cost is the most important factor governing most forest products manufacturing profit or loss. Strategies for controlling cost include: choosing a site that requires the least amount of infrastructure improvements; optimizing site to minimize transportation costs for both raw materials and finished products; co-location with other businesses to share equipment and even management and labor.
Second, also cost-related, is siting the facility in a location where the raw material supply is secure, its characteristics are known, and there is limited competition for the raw material. (Many firewood businesses begin that way.)
Third, everywhere we go and everyone we talk to describes the difficulty in finding labor. It is important for the planning process include an assessment of the availability, skills, and cost of labor in the area. It does take some time and effort to establish a business that is a welcome destination for local employment. In short, if you don’t locate it near enough capable people looking for work, you might not find anyone to work there.
Are you wondering about the best possible way to start a forest products business? We help people with this every day. Drop us an email at info@beckgroupconsulting.com or phone us: (503) 684-3406. We are believers in personal service in a world that seems to become more impersonal by the day. Therefore, we don’t have a fancy multi-tiered bot that talks at you for long periods of time, or wants you to have a discussion with a computer. We have an office manager who answers the phone and email, checks and responds to voicemail, and looks forward to routing your project to the most appropriate Beck Group Consulting team member.
The Beck Group, Inc.
Forest Products Planning and Consulting Services
Telephone (503) 684-3406
Email: info@beckgroupconsulting.com
