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Arkansas Timber Rides Wave Of DemandLock Icon

5 min read

This year’s hurricanes are likely to boost Arkansas’ timber industry, which was already experiencing a surge of new investment.

That lift to the sector comes in addition to a decades-old scourge of mountain pine beetles, which have decimated timberlands in the Western United States and Canada, pushing Canadian timber companies south in their search for supply.

The investments are large and global: Sun Paper, a Chinese company, is spending more than $1 billion to open a pulp mill near Gum Springs in Clark County, Conifex Timber of Vancouver bought a sawmill in El Dorado in January with plans to restart production, and Interfor Corp. of Vancouver bought and modernized a sawmill in Monticello.

Also contributing to change in the industry this year was the acquisition by Potlatch Corp. of Deltic Timber Corp. of El Dorado, announced late last month. The $1.2 billion all-stock deal, which Deltic calls a merger, will give Deltic shareholders 1.8 Potlatch shares for every Deltic share. PotlatchDeltic, the new company, will be based at Potlatch’s headquarters in Spokane, Washington.

The importance of the sector to Arkansas’ economy — it employs more than 24,000 people — puts it at the forefront of the state’s economic development efforts. Mike Preston, executive director of the Arkansas Economic Development Commission, said Gov. Asa Hutchinson promoted the industry during his recent trip to Asia.

“The timber industry is so strong in Arkansas,” Preston said. “It’s one of the most targeted industries that we go after. That was actually the first one out of the gate that we hit. We think the market is going to continue to go up.

“As it is, we have an overabundance of timber. We see that as being a positive. That’s why we have the investments from the Chinese and interest in Sun Paper because of the abundance of timber resources. Those natural resources are what drew them to Arkansas.”

Matthew Pelkki, the George Clippert Endowed Chair of Forestry at the School of Forest Resources, University of Arkansas at Monticello, agreed. “We’ve seen in the last three years announcements of about $1 billion worth of new construction and expansion in the southern half of the state in softwood sawmills,” he said.

“Weyerhaeuser [and] Georgia Pacific are expanding and rebuilding and modernizing their facilities. We had the Canadian firms — Canfor, Interfor, West Fraser — come in and bought a lot of mills and modernized them. The mill in Monticello, they just announced they’re going to double its capacity.”

And Then the Storms
And then came hurricanes in Texas and Florida, destroying or damaging wide swaths of residences and other structures.

Pelkki said the widespread damage caused by Harvey and Irma amounts to the equivalent of about a quarter of the material produced by the Southern timber industry in a year.

Pelkki said the higher demand for lumber will help sawmill owners and those who work in the production and the logging segments. The commodity price for lumber was approximately $350 for 1,000 board feet at the beginning of the year; it surpassed $500 in early November and was at $429 at closing Nov. 20.

Pelkki said that, unfortunately, the higher demand won’t be felt in landowners’ wallets. Because of the state’s ample supply of timber, Pelkki doesn’t expect a significant increase in the price of the raw material.

“We’re looking at reconstruction time on all of those homes running between 18 to 36 months,” Pelkki said. “It’s going to be an annual 5 to 10 percent bump in demand for lumber, which is good. It’s good for communities with sawmills. It’s good for those producers; they have to put on extra labor to expand production. For the softwood lumber industry, it’s a not a bad thing.”

Arkansas can handle the extra demand. The state has more than 18.5 million acres of timberland, which represents more than 54 percent of the state’s land; 83 percent of the timberland is privately owned.

“You hate to see a natural disaster occur anywhere, but certainly after multiple ones go through the country as was the case this year with Florida and Texas, there is going to be an opportunity in the construction and building industry,” Preston said. “What does that mean for Arkansas? There is going to be a demand for that raw material, and that is going to be wood. Our proximity to Houston and [other] Texas areas and the Gulf states and even some to Florida, you’re going to see an increased demand.

“I wouldn’t be surprised to see a mill or two that may have been shuttered for a while come back open. It means an impact. Arkansas’ part in that is supplying the raw material. That translates into investments and for jobs in our state.”

And, Preston said, Arkansas economic development officials are going to do the best they can to attract more investments.

“We’re going to do everything we can to push and promote it and bring in more investments,” Preston said. “It’s a renewable resource. It’s something great for our state. We will continue to build on that because it’s something we naturally have there. We are going take advantage of it and grow our economy through it.”

‘Good Globalization’

Canadian companies are among the most active investors in Southern timber operations. Companies such as Interfor, West Fraser and Conifex have struggled for years with the mountain pine beetle, which has destroyed millions of acres of timber in the western provinces of Canada and Rocky Mountain states of the United States.

Bugs aren’t the only fly in Canada’s ointment. An ongoing trade disagreement with the United States resulted in the Trump administration putting an 18 percent tariff on Canadian lumber exports.

Matthew Pelkki, the chairman of the School of Forestry & Natural Resources at the University of Arkansas at Monticello, said the tariff dispute isn’t the main factor in Canada companies coming south, since they have been doing it for a few years now and the dispute is decades old. The companies are attracted by the state’s abundance of timber and its proximity to markets.

Pelkki views Canadian investment in Arkansas as a good thing because a company that spends millions of dollars to modernize a sawmill isn’t looking to duck out after making a quick buck.

“It’s definitely a hedge for Canadian companies against the tariffs; they can ship their production to the Southern United States and they don’t face the tariffs,” Pelkki said. “Tariff or not, the Canadian companies would come down. They’re actually good for Arkansas. They’re committed to the long term. They know how to run these mills and they’re bringing us an influx of capital. It’s a good globalization for Arkansas.”

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