The Forest Products Industry: A Key Part of the Northeast Economy

Volume 14, Issue 2
February 2020

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The Forest Products Industry: A Key Part of the Northeast Economy

Written by Eric Kingsley, Vice President Innovative Natural Resource Solutions LLC

Forests, and the industries that rely upon them, are a cornerstone of the Northeast’s rural economy. The region and its people are defined by the forests that grow, the foresters who manage, the loggers that harvest, and the mills that make a full range of products that consumers demand. While the forests are a constant of our region, the way we utilize the forest is ever changing, presenting opportunities and challenges in a shifting landscape.

Sawmills and Lumber

When we think about the forest industry, it’s often sawmills and lumber that first come to mind. Turning logs into boards is our first forest industry, and remains the most important market for most landowners (at least from a revenue basis).

For hardwood mills (think fine furniture, cabinets and floors), it has been a challenging year. A trade war between the U.S. and China and resulting tariffs on hardwood exports hit this market hard, resulting in capacity reduction and lost shifts at sawmills across New England and New York. Of course, this didn’t just impact the mills — it hit the loggers and landowners that supply logs, and the economies of regions that rely upon these manufacturers.

There is a glimmer of hope that the trade war is winding down but, if true, that means things just go back to where they were. Mills will need to reestablish both supply and markets and many in the industry are wondering if being so heavily tied to exporting to a single country is desirable or sustainable.

Softwood

On the softwood side, (think 2x4s), we’ve seen housing starts trend upward for a decade, which has provided an expanding market. While that may or may not continue, a decade is a long — but not unprecedented — run of good news. At the same time, new houses have been getting smaller. Smaller houses use less lumber and panels for framing, so we may have reached a peak in demand.

Most mills have made significant investment in technology to reduce costs and optimize production, but that means the easy ways to control costs have been implemented. If the market for lumber softens, expect log prices to drop — that’s really the last spot for mills to look to control their costs.

Pulp and Paper

On the pulp and paper side, the tide has truly turned. After a few years of bad news and mill closures, the Northeast is now in an era of mill reinvestment and product diversification. We’ve seen mills add packaging, tissue and specialty grades, providing new markets beyond traditional printing and writing.

Most mills have made investments — some of them major — that provide real optimism for continued operation. And in Old Town, Maine, we’ve seen the restart of an idle pulp mill with a switch to softwood that should provide a critical market for loggers and landowners.

Biomass

Biomass for energy continues to face strong headwinds, both on the market fundamentals and in public policy. Electricity prices in New England and New York are heavily influenced by the price of natural gas, which remains low. On the public policy side, regulators across the region are clearly favoring renewable energy from solar and wind, despite the significant and ongoing economic benefits associated with fueling a biomass plant.

On the positive side, biomass heating remains extremely competitive with oil — the dominant heating fuel in many parts of the Northeast. New public policy in Maine and Massachusetts (mirroring existing policy in New Hampshire) has campuses, hospitals, schools and others evaluating the opportunities to move away from oil to biomass heating with wood chips or pellets.

New Uses of Wood

In addition to the traditional markets, the region is seeing very real movement toward new uses of wood. In Madison, Maine, a company is converting the former paper mill to make insulation out of softwood chips using a technology that’s been in use in Europe for years. Across the region, we’ve seen serious evaluation of wood-based bio-fuel and bio-chemical opportunities. Eventually, one of these technologies is going to be ready for commercial development, and the Northeast has both the resource and the market.

Mass timber technologies like cross-laminated timber also presents an enormous opportunity; using wood to build enormous panels used in low to mid-rise construction. Across the region, there’s lots of excitement around “tall wood buildings,” with projects in Massachusetts, New York and New Hampshire. There have been multiple announcements of manufacturing mass timber panels in Maine, but so far, the announcements haven’t led to any further action.

Looking Ahead

 The dark cloud on the horizon for the forest industry remains workforce. In both the woods and at the mills, many sectors have an aging workforce which will see large waves of retirements in the coming years. There are some programs to address this, but a simple look at the demographics suggests that we need more loggers, foresters, truckers, mill workers and others entering the industry to sustain and grow the current level of economic activity.

The forest industry across the Northeast is ever evolving, with new challenges and opportunities constantly presenting themselves. We’ve reached a time where the resource and markets are both healthy, with opportunities to expand in many areas. Investments now and in the coming years will help position the forest industry — and the rural economies that it supports — for sustainable success.

Editor: Chris Laughton 
Contributors: Tom Cosgrove, Eric Kingsley, Chris Laughton, and Nathan Rudgers

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