The forestry and lumber industry plays a crucial role in the global economy, supplying materials essential for consumer products, construction, furniture, and numerous other applications. But unlike some sectors, such as automotive that fit neatly into one North American Industry Classification System (NAICS) code, the forestry and lumber industry spreads across numerous NAICS codes. At first glance, it would seem like the industry would fall within NAICS 113 which is Forestry and Logging, but there are other codes that also fall into the overall forestry and lumber industry. These include Wood Product Manufacturing (321), Paper Manufacturing (322), and Furniture and Related Product Manufacturing (337). Digging even deeper, there is Sawmill, Woodworking, and Paper Machinery Manufacturing (333243) and even Construction of Buildings (236). Not to mention the sales side of the industry with Lumber and Other Construction Materials Merchant Wholesalers (4233) and Building Material and Supplies Dealers (4441). As you can see, the forestry and lumber industry does not fit cleanly into just one classification code, but instead impacts numerous different sectors. Therefore, when trends are discussed in relation to this industry, there is a lot of different factors at play which have impacted and continue to impact this industry.
When you look at the overall industry, there are a lot of major changes currently occurring that will have a long-term impact. First, there are market trends and impacts – some of which are unknown based on the outcome of global events such as the upcoming election in November. Second, technology is having a substantial impact on the industry and will likely determine who are winners and losers in the decades to come. And finally, there are environmental impacts both inside and outside the industry that are having an impact. This sector faces significant pressure to adopt sustainable practices, especially as awareness around environmental issues continues to increase. All of these various factors and how they come to fruition over the coming years will determine how this industry looks in the future.
Market Trends
When market trends are discussed, one of the first things to consider are growth rates. As you can see from the chart below, the industry has seen a mix of positive and negative growth over the last five years depending on the specific segment evaluated and even the specific companies within a sector. When looking at the next five years, the growth is expected to be relatively flat with some sectors seeing a slight uptick of growth while other sectors projected to decline slightly.
But growth rates don’t always tell the whole story. For example, Sofidel is an Italian paper company that is growing within the United States even though the overall paper manufacturing industry is showing a continued decline in the growth rate data. In January 2024, Sofidel announced they were acquiring a paper mill in Duluth, Minnesota from ST Paper. As Sofidel CEO, Luigi Lazzareschi, indicated at the time of the acquisition, “This is an important acquisition, allowing us to immediately meet the growing demand, which saw a significant upturn in 2023. What we are acquiring is a technologically advanced plant that further improves our geographic coverage and creates the conditions to strengthen and sustain growth in what is our main market.” Then in August 2024, Sofidel announced a $180+ million project to expand the newly acquired Duluth plant by nearly 600,000 square feet. This acquisition and expansion followed an announcement a few months earlier that they would be investing $185 million in their Circleville, Ohio plant. Earlier this year, the American Loggers Council published a statement indicating that more than 50 forest product mills had shut down in the previous 15 months. While some paper manufacturing plants are closing, other firms within the sector are challenging this notion by growing and expanding.
In additional to growth rates, another factor that gives an overview of the market is the raw material which in this case is timber. The National Council of Real Estate Investment Fiduciaries, or NCREIF, tracks timber returns through a Timberland Index which is comprised of 443 investment-grade timber properties across the United States. As of the first quarter of 2024, the index returned 2.12% of the quarter which was down from the previous quarter return of 4.34%. While the overall return for timber is still positive, there are signs that the industry is contracting. In April 2024, Interfor announced plans to reduce its lumber production by approximately 10% over the following months due to persistently weak market conditions. This production reduction followed an announcement earlier in the year that they would be indefinitely curtailing their operations at the Philomath, Oregon facility. Interfor is not the only company curtailing operations as West Fraser, Canfor, and Sierra Pacific have also announced curtailments at select facilities this year. When the Timberland Index is released for future quarters, it is likely that the returns will be lower than the past few quarters based on the amount of companies currently curtailing operations.
While the data shows differences in sectors as well as demand and return fluctuations in the timber, there are also other trends impacting the industry. For example, natural disasters, like we just saw with Hurricane Helene, impact the industry as demand increases for materials to rebuild homes and communities that are impacted by these disasters.
Another area that greatly impacts this sector are trade and tariff issues. The contraction of United States based production will further be challenged by increased softwood lumber duties. In 2023, the United States important 33.95 million cubic meters of softwood lumber with over 80% of the volume coming from Canada. But in August 2024, the U.S. Department of Commerce nearly doubled duties on softwood lumber, which is being challenged under the Canada-United States-Mexico Agreement. The increased duties along the reduced US-based supply is anticipated to create additional pressures within this sector. International trade policies have an impact on lumber prices and depending on the outcome of the election in November, there may be additional tariffs on other products within the forestry and lumber industry as this issue has been a key item for both political parties. Additional trade issues such as the strikes on the East Coast ports may also have an impact on the industry in the months to come. Both trade issues such as port strikes and natural disasters like hurricanes are difficult to account for in future planning which make the growth rates projects somewhat difficult to rely on – especially for this industry.
One industry that is greatly impacted by trade and tariffs are wood pellets. The wood pellet market is a sector that is projected to have substantial growth – albeit with some challenges along the way. The wood pellet market is anticipated to grow by more than $5 billion dollars over the next five years due to increasing reliance on renewable energy as the use of fossil fuels decreases. The majority of wood pellets produced in the United States are shipped across the Atlantic to Europe. Interestingly, Enviva, the world’s largest producer of wood pellets, filed for bankruptcy in March 2024. It has been a bumpy few years for the company due to some strategic decisions that went awry. The company was valued at $3.5 billion in April 2022 at its peak, but right after its bankruptcy filing had dropped to just $34 million. The company is still working through their issues and anticipate completing their restructuring plan in the fourth quarter of this year, so it is still unknown the impact the bankruptcy will have on the industry as many power producers around the world are counting on pellets from Enviva to power their operations and meet renewable energy mandates. Enviva’s issues as well as overall trade policies and tariffs have the potential to greatly impact this sector in the upcoming years.
Another trend that will be discussed in more detail in the next section is technology advances. Historically, the forestry and lumber industry did not utilize a lot of technology, but that is beginning to change as companies are making substantial investments to modernize their operations through the use of technology.
Technology
Technology has impacted and transformed the industry from top to bottom. At the beginning of the process, the forestry industry is leveraging tools like drones and GIS to optimize timber management, allowing for more accurate monitoring and data-driven decision-making. These advancements not only enhance productivity but also contribute to sustainable resource management, which is an area that is discussed in more detail in the following section. Once the timber is ready to be harvested, automation and robotics are being used to streamline operations in logging and processing.
Once the raw material is harvested, technology is impacting the manufacturing side of the industry as well through advancements in processes and equipment. Pretty much across the industry and all sectors, companies are investing in technology investments to remain competitive. For example, in May 2024, RoyOMartin announced a plan to invest more than $30 million to install technologically advanced production equipment at its Allen Parish plant that produces oriented strand board for the housing industry. In July 2024, Stimson Lumber Company announced $50 million into a new, highspeed sawmill line at its Forest Grove, Oregon, facility.
Beyond the production of lumber, there are a growing number of forest-based bioeconomy opportunities that are trying to bolster the lost legacy markets of the timber sector. There is substantial research and advancement in how biomass feedstock is manipulated to produce renewable building products, furniture, chemicals and energy. While there are challenges with commercializing new technology, it will still be interesting to see how the research is scaled in the marketplace. Using timber in these applications is another example of how widespread the industry really is.
But not all existing locations are getting investments for technology upgrades. In some cases, companies are shutting some locations down to focus on other locations that have more opportunity for technology improvements. In April 2024, Canfor announced that its closing its Jackson, Alabama mill and adding a second shift at the nearby Fulton mill. Canfor is also set to open a new $210 state-of-the-art sawmill in Axis, Alabama which is only about 45 miles south of the Jackson mill that is closing. These type of restructuring initiatives are happening across the industry due to the need to have technologically advanced facilities.
With so many technology advancements occurring in this industry, the companies in this sector that will be thriving in the years to come will be the ones that were able to implement technology advancements and rapidly adjust to future technology changes.
Environmental Impacts
The environmental impacts on the forestry and lumber industry are wide ranging and have impacted all sectors within the industry. From how timber is grown to how products are manufactured, sustainability and environmental practices are rising to the forefront of company operations.
More so than in previous decades, how timber is grown and harvested has become a point of focus for many – both inside and outside the industry. While timber is an essential raw material, there can be significant environmental impacts if timber growth and harvesting are not managed responsibly which is one reason why there is so much focus on the industry. From deforestation to soil degradation and water pollution, timber growth has a wide-ranging impact outside of just the specific location where the trees are grown.
Climate change has had a substantial impact as well with increasing wildfire risks as just one example. Efforts are being made to mitigate these impacts through sustainable forestry practices such as selective logging and reforestation, which aim to balance the demand for timber with the need to protect and preserve forest ecosystems. Additionally, alternative building materials and recycled materials are increasingly common which helps relieve some of the stress on the timber industry.
When you look at manufacturers in this industry, they are also being impacted by the environment and sustainability. Many of the manufacturers in this sector require significant amounts of raw materials, energy, and water for their processes which depletes natural resources. They also generate a large amount of waste, and in some cases, large volumes of pollutants. Therefore, there is pressure for these companies to adopt sustainable practices by investing in cleaner technologies, minimizing waste, and reducing their environmental impact.
One company in this industry who is leading the charge in this area is Weyerhaeuser, one of the largest private timber companies in the world. They are seen as a global leader in sustainability and are focusing on reducing their environmental impact and fighting climate change. Through their sustainability strategy and their ambitions around climate solutions, they are continuing to make noticeable impacts on the environment through projects and partnerships. In December 2023, Weyerhaeuser announced a $96 million modernization project to reduce carbon emissions at their lumber mill in Dodson, Lousiana. The upgraded technology will reduce greenhouse gas emissions while also improving mill efficiencies and increasing drying capacity. In September 2024, Weyerhaeuser announced a collaboration with The Nature Conservancy to further scientific understanding of how forests and forest products contribute to climate mitigation. The goal of this joint effort is to increase the positive impact of forests in mitigating climate change. These types of advancements offer so much promise for the sector’s resiliency under mounting sustainability expectations.
As this industry continues to evolve, we will see more companies addressing sustainability and the environmental impacts of their operations.
Future Projections
As you can tell by now, there’s a lot of activity currently happening in the forestry and lumber industry that will have far reaching impacts. While the growth rate projections show a relatively flat industry over the next five years, the companies that are modernizing their operations and addressing the environmental impacts through increased sustainability measures will be the ones that see the growth over the coming years.
