Unprecedented changes in supply and demand are transforming the forest products industry, leading companies to consolidate, diversify and expand the frontier.
Boyden's perspectives on the news and trends that are transforming industries
More builders are opting for wood rather than steel and concrete for new structures and additions to existing structures. Between 2019 and 2000, global exports of forest products, including sawn wood as well as pulp and paper, grew by 68%, to $244 billion. Boosted by the DIY trend during the pandemic, demand for wood continues to rise – although pandemic-related production stoppages have led to a historic lumber shortage, dramatically impacting construction and real estate.
As a result of these and other developments, lumber prices have been skyrocketing, and the share prices of wood producers have risen accordingly. Many have nearly doubled in value, including American giant Weyerhaeuser, which owns millions of acres of timberland in the U.S. and Canada. It is now worth $30 billion.
The boom in forestry could lead to more sawmills coming online, says Mark Wilde of the Bank of Montréal. They will likely be a new breed, as the forest products industry has been transforming over the past few years. This was set in motion, at least in part, by dwindling demand for commercial printing, which has led to consolidation in the paper industry. Many paper mills have shifted output, taking the opportunity to supplant plastic with greener paper packaging. In Europe some big firms have ceased paper production altogether, but still make cardboard and tissues.
Of course technology has played a major role, not only by drastically lessening the need for paper and the popularity of print. It is also helping the forestry sector diversify. Mills typically manufacture wood products in addition to lumber. “In modern ones, saws slice three-quarters of a tree into planks, and chop the rest into chips that can be turned into wood-based composites,” according to The Economist. The “chip-n-saw” technique is old, but newer tools have led to much wider adoption. Smaller, younger trees are better suited to this purpose, allowing forest owners to sell them or, if they are vertically integrated, use them decades earlier.
The combination of greater efficiency, more flexible techniques, and sheer innovation is expanding the range of wood products. Finland’s Metsä Group is using lignin, an organic polymer derived from trees, to make textiles for clothing and furniture. Finnish firm UPM is making biofuels and industrial chemicals from black liquor, another by-product. In January 2020 it announced plans to open a bio-refinery in Germany, marking its expansion into biochemicals. UPM is also in life sciences, making wound dressings and an animal-free cell culture solution. More plans, potentially higher up the value chain, are in the works.