South Arkansas Timber, Proximity to Texas Attracts Conifex

Ken Shields, President and CEO of Conifex Timber

Conifex Timber Inc. of Vancouver now owns two sawmills in south Arkansas, one in El Dorado and the other in Glenwood. The company acquired the Caddo River plan in Glenwood and the Suwannee sawmill in Cross City, Florida on Tuesday in a deal worth more than $250 million.

In addition to the three U.S. sawmills, Conifex owns two sawmills and a power plant in British Columbia, Canada. The power plant produces electricity from wood waste.

Ken Shields, Conifex’s president and CEO, spoke to Arkansas Business late Wednesday about why the Glenwood plant was an attractive buy.

“We really like the lumber manufacturing business in south Arkansas for two main reasons. No. 1, the saw timber baskets are very robust, and we have plenty of good saw timber available at an affordable price. In our business, the cost to fiber is probably 70 percent of the cost of manufacturing lumber. So, if you’ve got a competitive fiber cost, it really gives you a good advantage,” he said. “The second attraction … is that we’ve got good access to the Texas residential construction market, and it’s one of the strongest housing markets in the U.S. So that’s a great, logical destination for the lumber we produce.”

Being competitive in fiber costs means being competitive in overall costs, Shields emphasized.

“I have visited timberlands in Europe and in Siberia, and in New Zealand and Australia, and I haven’t come across timberlands that are as attractive as they are in south Arkansas,” he said.

Shields said Texas consumes about 4 billion board feet of lumber a year, but manufactures about 1 billion. 

“So there’s a big deficit in softwood lumber consumption in Texas that can’t be met by the mills in that state, so Arkansas is a natural and quite logical supplier of the growing Texas market,” he said.

In addition, Shields said Conifex, a 10-year-old business that, “by some measures,” is one of the top 15 lumber producers in world, “is not done yet.” It plans to continue growing and is open to acquiring more sawmills in the U.S.

He also spoke about why lumber prices are historically high and described challenges the industry is facing.

“My feeling is that a majority of the price increase we’ve had on lumber to date has been delivered because of the supply-side considerations … In my home province of British Columbia, we’ve had this huge [insect infestation] that has destroyed about 25 percent of our timber inventory, and it means that our lumber production from the interior region of B.C. is going to decline about 25 percent from where it was a decade or so ago,” he said. “So we’ve got the supply side contracting, and, in the U.S., we’re enjoying a slow but steady increase in new residential construction.”

Shields said prices have increased because the U.S. housing market is seeing 1.3 million new units a year now, and most experts believe 1.5 million units should be built each year.

Headwinds

But the industry is not without its challenges, mainly a shortage in truck drivers that has driven up the cost of transporting lumber by truck. Fortunately for Conifex, an alternative is available. 

“One is that, at our El Dorado site, we have a rail line that goes right into the site. So we can deliver a lot of lumber on the rail system, and we’re not completely dependent on trucking,” he said. “Secondly, in Canada, one of our subsidiaries is a logistics company, and so we’ve got about a dozen people that are just focused on transportation solutions for lumber companies. So we’ve got a little more bench in that area.”

Conifex’s plan for the Glenwood mill is to reactivate the rail line that runs through that site. If unsuccessful, lumber will be trucked to a rail site about 30 miles away, Shields said.

Another challenge is the 20 percent tariff the Trump administration has levied on Canadian timber this year. Shields said that’s made doing business in Canada less attractive. 

“Many Canadian companies have been buying mills in the U.S. that are not burdened by the tariff. The imposition of the tariff by the U.S. has actually helped propel us to the acquisition of the mills in the U.S. We’ve invested more capital in the U.S. because of the trade dispute,” he said.

“My personal view is that it is quite possible the U.S. is adversely impacted by some Chinese trade policies, but Canada and the U.S. have decades of a wonderful trade relationship, so it disheartens me to have this current dispute,” he added. “And I’m sure, over the next few years, it will come to some resolution.”