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Domestic Demands

Pulp and Paper Sector

The paper sector consumes a large share of fiber products in the southeastern US—hardwood and softwood pulpwood comprise 42 percent of timber consumption. In addition, the location of paper mills is concentrated in a few areas of the region where plentiful water is available. These include southeastern Georgia, northeastern Florida, and southern Alabama and Mississippi. Concentration of paper production capacity organizes the demand for pulpwood within the South—i.e., demand for pulpwood is strongest in the vicinity of mills and dissipates with distance from the mill gate (Figure 8). While satellite chip mills spread the demands for pulpwood to a somewhat broader proportion of the region during the 1990’s, pulpwood markets are still much more concentrated geographically than markets for solidwood products.

Figure 8. Distance in miles by county from the forested center of the county to the closest pulpmill or chipmill. Yellow dots are pulpmills and chipmills within the southern states. Note that the universe of all pulpmills and chipmills within the U.S. and a circuity factor of 1.4 were used in the distance calculation (Source: R. Huggett, preliminary findings, economics of biomass removals, USFS, Research Triangle Park, North Carolina).

Raw material utilized for production of paper products is composed of pulpwood residuals from other wood product manufacturing, and pulpwood. The utilization of recycled fiber has become increasingly important in the production of paper products. Ince et al. (2005) report that use of recycled material, “increased from 24 % of total fiber in 1985 to 36 % in 1997, thereby decreasing the derived demand for pulpwood.” They also find strong indications that the amount of recycled material used in US paper manufacture has perhaps reached a maximum, especially given strong export demand for recovered paper. So it is likely that expanding recycled consumption mitigated demand and price increases during the rapid growth phase, but changes in recycled demand have not been a major influence in the adjustment phase.

Pulping capacity within the region defines an upper limit on the demand for pulpwood. Because capacity expansion requires an enormous commitment of capital (construction of a typical paper mill costs approximately $2 billion), trends in capacity provide a strong indicator of current and anticipated demands for pulpwood within the region. In this section, we examine dynamics in pulping capacity and the implications for derived demand for pulpwood in the region.

For several decades, the US has produced more wood pulp than any other nation. Through 1998, total US pulpmill capacity, and the share of US pulpmill capacity located in the South, was on an upward trend (Figure 10). Since 1998, US pulping capacity declined slightly while southern capacity dropped by about 16 percent (Figure 11). These declines in domestic capacity have occurred as other countries have expanded their capacity. For example, Sweden, Finland, Chile and Brazil increased their capacity between 1995 and 2002 (Figures 12 and 13). While the US and the South continue to lead the world in pulpwood production, their proportion of worldwide capacity has declined somewhat since 1991. By 2003, southern US pulp capacity had approximately returned to its 1985 level.

Figure 10. US pulp output processing capacity, 1961-2000 (Source: Smith et al. 2003).

Figure 11. Pulp mill capacity in the US and US South, 1983-2003 (Sources: Forest Resources Association, USDA Southern Research Station, Pulp & Paper North American Factbook, Timber Mart South)

Figure 12. Pulp production for various countries, 1995 and 2002 (Sources: Pulp and Paper International, Paperloop.com).

Figure 13. Average annual rates of change in pulp production for various countries, 1995 to 2002 (Sources: Pulp and Paper International, Paperloop.com).

New pulp mill capacity and pulp production is feeding increased worldwide demand for paper products, especially in Asia. With level to declining capacity in the US it is clear that new capacity is being developed in other countries. There is no evidence of expansionary activity in pulp and paper manufacturing in the southern US. These changes are likely explained by shifts in comparative advantage relative to several factors, including labor costs, raw materials costs, and proximity to final product markets.

Manufacturing costs in kraft linerboard mills in the US and abroad (Figure 14) provide an example of differences in comparative advantage. The US South is competitive in this market compared to the US West, Canada and Europe, but lags behind Latin American countries (primarily Brazil and Chile) in its cost structure. Fiber and labor costs are significantly higher in developed countries than they are in South America. The US South retains comparative advantage because of proximity to US demand centers (i.e., lower transportation costs) but labor and wood input cost differentials make Latin American producers viable competitors.

Figure 14. Kraft linerboard mills manufacturing costs, 2003 (Source: Jaakko Poyry Management Consulting).

A detailed examination of the costs of fiber delivered to mills shows that in 1995, 1999, and 2004, both Brazil and for the most part Chile could deliver both coniferous and non-coniferous (mostly Eucalyptus) pulpwood at substantially lower delivered costs, compared to the US South (Figures 15 and 16). Based on 2004 figures, delivered fiber costs are 24 and 27 percent less in Brazil and Chile, respectively, for coniferous pulpwood, and are 21 and 27 percent less for non-coniferous pulpwood. Price differentials are not static however, and relative prices in Brazil have risen considerably since 1999 (less so for Chile), thereby reducing comparative advantage from these regions if this trend continues.

Figure 15. Delivered coniferous pulpwood prices (Source: Wood Resources International).

Figure 16. Delivered non-coniferous pulpwood prices (Source: Wood Resources International).

Solidwood Sector

Lumber and panel production comprise the large majority of output from the solidwood sector. These products utilize about 46 percent of fiber products in the South and the location of mills is, unlike the pulp and paper sector, widely dispersed (Figure 17).

Figure 17. Average distance in miles by county from the forested center of the county to the closest five sawmills within 150 miles. Yellow dots are sawmills within the southern states. Note that the universe of all sawmills within the U.S. were used in the distance calculation. (Source: R. Huggett, preliminary findings, economics of biomass removals, USFS Research Triangle Park, North Carolina)

Unlike southern pulpwood capacity, softwood sawmill capacity has not declined in the South. Softwood sawmill capacity remained stable to slightly increasing since 2000 (Figure 18), even as capacity in the western US declined. Comparable data are not available for hardwood lumber capacity in the South, but sustained production and prices generally does not signal declines in capacity.

Southern panel capacity in the South expanded significantly in the 90’s (Figure 19). Southern pine plywood, which dominated panel production through the 1970’s peaked in the 1990’s and has since declined. Capacity for producing OSB and medium density fiberboard (mdf) grew strongly through the 1990’s. More recent data indicates that although southern panel production has remained stable, OSB production has continued to grow (Figure 20). Expanding OSB capacity coupled with declining plywood capacity indicates increasing demand for less expensive, small diameter timber, especially compared to veneer logs used in plywood production.

Figure 18. Softwood sawmill capacity (Source: Spelter and Alderman, 2003).

Figure 19. Panel capacity in the US South (Source: McKeever and Spelter 1998).

Figure 20. Southern panel production (source: The Engineered Wood Association).

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modified: 07-Feb-2017
created by: John M. Pye
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