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  • US Timber Growth Constrained by Downturn in US Housing Market

    2010 - 04.12

    According to a report released last week there are signs that while the economy is recovering the forest, paper and packaging industry isn’t safe yet. An international panel of sector leaders told Deloitte Touche Tohmatsu for its Compass 2010 Global forest, paper and packaging sector outlook that while increased construction is good news for lumber producers in the US, growth is constrained by a continuing downturn in the housing market.

    “Until there is a fundamental shift in the strength of the U.S. housing market, there will be no meaningful demand increase [for lumber] in North America,” the panel said.

    The panel also commented that the North American newsprint market ‘has yet to hit the bottom’ and the overcapacity in the Europe segment is weighing on prices. Still, “the [European] paper market has shown positive signs so far in 2010,” the report says. “A better balance and more disciplined approach to demand have resulted from plant closures, enabling the market to rationalize capacity and adjust prices.”

    The entire forest products industry is at risk of future shrinkage through consolidation and bankruptcy and smaller companies are vulnerable in particular. Because of this there are now few newsprint producers left in Europe and North America.

    China’s economic stimulus money has created boom conditions and has for that reason has been identified by the panellists as a source of growing demand. “The demand for lumber and building materials is stronger now than it has ever been,” the report notes.

    Also, “Northern European players are evaluating the investment potential in South America, particularly Brazil, Argentina, and Uruguay, because of the improved local economic conditions and as export markets for building materials and pulp.”

    The report states that by not having green products the industry is at a competitive disadvantage. However development of environmentally friendly products depends heavily on the customer and pressure from society.

    The report notes that the industry is already the world’s largest producer and user of bioenergy. Because of this biofuels will become an increasingly important part of the future growth for the industry.

    “Growing investments in biofuels from wood residues could improve operating margins and create a lower dependence on fossil fuels for producing energy internally,” said John Dixon, paper & packaging leader, Deloitte Consulting LLP in the U.S. “Several European and North American companies are placing bets in biofuels for future revenue growth.”

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here

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