Wood Bioenergy Sector Continues to Shake Out; Viable Projects Down; Wood Volume Up

30 04 2012

Wood bioenergy projects continue to either gain traction or fall to the sidelines as investors shake the sector like a sack of Scrabble tiles.  While the number of projects that pass Forisk’s screening methodology in April fell from 297 to 295, the estimated volume of wood consumed by viable projects edged up 2.4%.  As of April 29, 2012, Wood Bioenergy US reports that projected wood demand for all 452 announced projects in the U.S. totaled 123.7 million tons, while the 295 projects that passed Forisk’s screen could consume up to 72.1 million tons of wood annually by 2022.

Project specific activities include:

  • Green Circle Bioenergy announced plans to expand its plant in Cottondale, FL to produce 600,000 metric tons of pellets per year. The company hopes to complete the expansion in 2012.
  • Traxys Power Group plans to purchase the former General Motors Fiero assembly plant to convert it to a biomass power plant in Pontiac, MI. (Trivia:  Ferris Bueller’s sister, Jeanie, drives a white Pontiac Fiero in the 1986 movie “Ferris Bueller’s Day Off”.)
  • Cate Street Capital met with the Millinocket, ME town council to discuss plans for a $35 million torrefied biomass machine at the Millinocket paper mill site.
  • Russell Biomass received a Clean Water Act permit for its proposed 50 MW cogeneration facility in Russell, MA. The project was originally a stand-alone electricity plant, but Russell Biomass changed the project to a cogeneration plant to meet Massachusetts efficiency standards. Construction is currently on hold pending the finalized RPS standards for the state.

For a complete Wood Bioenergy US summary of projects and associated wood demand statistics, click here.


Clear Communications and Strong Relationships Strengthen the Wood Supply Chain

20 04 2012

This week in Jacksonville, Florida, the Wood Supply Research Institute (WSRI) held its annual meeting.  WSRI is a non-profit organization that funds research to improve efficiencies in wood supply systems in the U.S. forest products industry. Amanda Lang, Senior Consultant at Forisk and Managing Editor of Wood Bioenergy US, attended the meeting and contributed the following post:

How valuable are good working relationships in forestry?  Or, from the other side, what are measurable impacts on loggers and wood-using mills from poor communications or strained relationships?  At the WSRI annual meeting, Don Taylor with Sustainable Resource Systems LLC presented the findings of a supplier-consumer relations project. The project interviewed over 220 wood suppliers and wood consumers (procurement foresters) in the U.S. to evaluate the working relationships between the two groups. The study findings are timely and relevant as the U.S. forest products industry emerges from the recession, and as new and announced wood bioenergy projects develop their wood procurement strategies.

The study found that logging contractors reduced investments in their businesses during the recession, by closing, downsizing, or foregoing normal equipment replacement and maintenance to reduce costs. More frequent equipment break-downs resulted in lost production.

Poor relations between mill procurement personnel and logging contractors also resulted in lost production. Examples include frequent variable quotas, truck delays due to poor woodyard management, poor communications and poor planning. The study found that, on average, 7% of annual production in the U.S. is lost due to poor relationship management. In addition, some consumer-supplier relationships deteriorated as the recession hit. For example, some wood-consumers cancelled pre-recession commitments and put orders on a week-by-week basis with no firm commitment for volume or delivered pricing.  The demise of these relationships contributed to reduced investment in logging capacity.

The WSRI study highlights the importance of clear communications and relationships in the wood supply chain. Many procurement organizations are concerned about future logging capacity as wood demand returns to pre-recession levels. Strong relationships, communication, and support between procurement teams and wood suppliers will be critical as the industry moves forward.

For more information about WSRI or the Supplier-Consumer Relationship Study, click here or contact Jim Fendig.

ForiskForecast for Stumpage Prices: What Do We Expect?

9 04 2012

In 2011 for the second consecutive year, Forisk’s localized pine sawtimber forecast hit within 4% of actual on average at the state-level.  South-wide, Forisk’s regional pine sawtimber average of $26.57 per ton exceeded Timber Mart-South’s actual price of $23.97 for 2011 by 4.7%.  The just published 2012 ForiskForecast takes on 11 states in the US South and Oregon’s and Washington’s Douglas-fir and hemlock markets in the Pacific Northwest.

Our research develops three economic and forest industry scenarios.  The baseline and “low growth” forecasts expect more of the same, with relatively flat to negative pricing in 2012 for pine sawtimber, with modest strengthening in 2014 as housing returns.  Higher sawtimber prices require more than simply increased housing starts; prices require a suitable balance of forest industry capacity to lumber demand and production, with sawmills exceeding 85% utilization for six to twelve months to “reset the floor.”  Pine pulpwood markets vary across the US South, as those states with concentrated pulp mills and “viable” bioenergy projects – as specified in Wood Bioenergy US – show strong pulpwood stumpage markets.

Meanwhile, other market activities provide opportunities to supplement needed demand, including active export markets and the expansion of the Panama Canal.  Forisk developed a “high growth” scenario that accounts for both strong economic and housing market growth, and potential increased log export activity from the US South by state.  This scenario expects pine sawtimber strengthening in 2012-2013, with prices in 2014 $2.86 per ton higher than the baseline forecast.

To learn more about the 2012 ForiskForecast, click here.

Forisk’s Equity Research and Timber REITs in the Spotlight

5 04 2012

As of March 30th, publicly-traded timberland-owning REITs, as measured by the Forisk Timber REIT (FTR) Index, returned 11.45% year-to-date.  This culminated a month of coverage and articles that highlighted both Forisk’s equity research of timber REITs and the performance and characteristics of timber REIT investments generally.  Key takeaways included:

  • Individual timber REIT performance varies.  Clay Risher, in his REIT Magazine article “Planting the Seeds for Timber REIT Growth” (March 14, 2012), focused on this theme from our research.  While Rayonier (RYN) lapped the field in 2011 thanks to its specialty fibers business, other firms, such as Weyerhaeuser (WY) have led in 2012.  In addition, he summarizes Steve Chercover’s thesis that timber REIT conversions have run their course for now….
  • Investing in timber REITs differs from investing in timberland.  Ellie Winninghoff, in her Financial Advisor Magazine article “Balance Sheets that Always Keep Growing” (March 28, 2012), summarizes our emphasis on the local and regional nature of timber REITs and timberland investment performance.  Geography matters for both publicly-traded and private-placement investment vehicles.  In the article, Winningham also captures Clark Binkley’s assessment of the realizable versus theoretic portfolio diversification benefits from timberland investments.
  • Timber REITs “were strong performers” this quarter, according to the Wall Street Journal, in the A.D. Pruitt article “Small REITs Put UP a Big First Quarter” (April 4, 2012).  While correctly recognizing recent timber REIT strength, this article was more notable for getting its facts and insights wrong on the sector.  For example, there are four (4) timber REITs (PCH, PCL, RYN and WY), not three (3) as reported (it’s unclear who got left out by A.D.).   And multiple factors outside of housing have driven recent timber REIT peformance….[A.D. – As Alvin the Chipmunk says, next time, “call me.” 🙂 ]