An Initial Estimate of Harvest Level Impacts of Mill Shutdowns/ Slowdowns DNR Forest Products Utilization Program Staff Date: 12/15/08

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1 An Initial Estimate of Harvest Level Impacts of Mill Shutdowns/ Slowdowns DNR Forest Products Utilization Program Staff Date: 12/15/08 The DNR Forest Products Utilization & Marketing Program has had several requests for information on the status of wood-using mills, and current timber harvest levels. In response, staff has produced the following update on wood industry status, estimated impacts of mill shutdowns, and emerging woody biomass markets. Readers should be aware that the 2008 figures in this document are initial estimates, and that more exact harvest level figures will not be available for at least several months. Key Points Annual forest harvest levels in Minnesota have dropped an estimated 685,000 to 920,000 cords since A drop of over 1 million cords of demand in the engineered wood and sawmill sectors has been partially offset by a drop in net imports, and a rise in roundwood for commercial energy use. Private lands have seen by far the largest drop in harvest and forest management levels due to their sensitivity to lower timber prices. Public agency timber has become more critical than ever to forest industry competitiveness, and to the ability to manage Minnesota s forests through industry markets. Public agency harvest has fallen much less than on private lands, and for some agencies such as DNR, has actually risen. DRAFT Total Estimated Wood Harvested in Minnesota and Utilized by Industry and Fuelwood Users DRAFT (In Thousand Cords From Timberland) Year Pulpwood (Includes Pulp & Paper & Engineered Wood Sectors) Sawlog & Specialty Residential Fuelwood* Commercial Fuelwood* , ** 13 3, Estimated 2,100-2, ,807-3,042 Estimated Difference ( ) (24-44) (8)** ( ) Notes: All figures include volumes harvested in Minnesota and exported, largely to Wisconsin. * Roundwood removed from growing stock on timberland. ** Small decline in residential fuelwood use shown is likely due to procedural differences between 2003 and 2007 surveys. Harvest Levels: While published mill survey figures are not yet available, for the years 2006 through 2008 Minnesota all-ownership harvest figures are considerably below the 2005 level of 3.7 million cords. This is due to mill shutdowns and slowdowns. Draft 2006 figures indicate a harvest level of around 3.2 to 3.3 million cords, with 2007 likely to have been in the 2.9 to 3.2 million cord range. Harvest levels in 2008 are likely to be in the 2.8 to 3.1 million cord range. Background on some of the key factors impacting the decline begins on page 2. Total 1

2 Background Demand/Supply: Demand for wood for primary forest products in Minnesota continued to rise through the 1990s and very early 2000s, but the supply reaching the marketplace from Minnesota timberlands from all ownerships leveled off at approximately 3.7 million cords annually, with additional demand of roughly 600,000 net cords satisfied through imports, largely from Wisconsin and Canada. Due to global competition and a severe housing slump, wood industry health has changed drastically since mid-2006, caused largely by mill shutdowns and curtailments in sectors such as OSB/engineered wood and sawmills that rely on strong housing markets. Minnesota s pulp and paper mills have been a relative bright spot, although recent global economic weakening is a cause for concern for most sectors of the pulp and paper business. Wood demand for energy has risen since 2005, with a portion of the demand filled by roundwood from timberlands as other markets have weakened. Total Primary Wood-Using Capacity: Down over 1 million cords from 2005 to 2008, due largely to mill shutdowns in the engineered wood sector. Wood Imports: Net wood imports have fallen significantly. It is certain that pulpwood imports are down significantly from a high of 700,000 cords in 2005, with exports probably up somewhat from the 2005 figure of 130,00 cords. Actual figures for 2006 will be available in a few weeks, and draft 2007 figures should be available early in Harvest Level by Ownership: Non-industrial private land harvest down significantly: Again, while mill survey figures are not yet available, it is certain that harvest volumes from non-industrial private lands have gone down more than public lands, since private land supply is much more sensitive to falling timber prices estimated non-industrial private land harvest figures were nearly 1.7 million cords. An estimate for timber volume harvested from non-industrial private lands in Minnesota 2008 would be in the 900,000 to 1,100,000-cord range. Wood supply from Government-Administered land becomes more critical to industry health: With private land supply down significantly, the supply from public lands has become critically important for many mills. Harvest volumes have been far more stable on government-administered lands (State, County and Federal). Public agency harvest level in 2005 was nearly 1.7 million cords. Final numbers will depend on what happens over the last few weeks of the year, but an estimate for 2008 public agency harvest levels would be in the range of 1.4 to 1.7 million cords. DNR administered lands had a record harvest level in fiscal year 2008 (July 1, 2007-June 30, 2008) of 824,000 cords. For questions, or for more information on this document: Minnesota DNR Forest Products Utilization & Marketing Staff: Keith Jacobson, U&M Program Supervisor, keith.jacobson@dnr.state.mn.us; Don Deckard, Forest Economist, Donald.Deckard@dnr.state.mn.us; Rick Dahlman, St. Paul U&M Staff (part-time), rick.dahlman@dnr.state.mn.us; Mimi Barzen, Northern MN U&M Staff (R1 & R2), Grand Rapids, mimi.barzen@dnr.state.mn.us; Mohammed Iddrisu, RC&D Forestry Coordinator, Mora, mohammed.iddrisu@dnr.state.mn.us, Lance Sorensen, Central Region U&M Staff, Rochester, lance.sorensen@dnr.state.mn.us, Rebecca Barnard, Certification Coordinator, Rebecca.barnard@dnr.state.mn.us. For general information on forest resources and industry in Minnesota: 2

3 Minnesota s Primary Forest Products Industry Estimated Wood Use by Sector Following is a more detailed update on the status and estimated harvest volume impacts of Minnesota s large wood-using using mills by sector. Background - Minnesota s Four Forest Products Sectors In order to better understand the primary forest products industry in Minnesota, and the changing forest management and harvest level picture, it is important to identify the four product sectors most relevant to Minnesota. Primary industry refers to initial users of wood raw material from the forest. The primary forest products industry has four main sectors, which are often separated according to the products they produce: 1) paper/pulp, 2) engineered wood products such as Oriented Strand Board (OSB), 3) lumber and specialty, and 4) energy. Lumber, engineered wood products, and paper typically produce products that are inputs to other value-added industries. 1) Pulp & Paper Sector Impacts on Harvest Levels 2008 pulp & paper sector wood demand was close to the same as 2005, as detailed in the following chart. Minnesota s pulp and paper mills have been a relative bright spot, although recent global economic weakening is a cause for recent concern for most sectors of the pulp and paper business Minnesota Pulp and Paper Firm Wood Species Used Approximate Annual Wood Volumes Consumed UPM - Blandin Paper Mill, Grand Aspen, Balsam Fir, Spruce 180,000 cords Rapids Boise Cascade, LLC, International Aspen, Balm, Pine, Spruce, Balsam Fir, Birch, Tamarack, 650,000 cords Falls Ash, Maple Verso Paper, Sartell Aspen, Balsam Fir, Spruce 140,000 cords. New Page (formerly Stora Enso) Balsam Fir, Pine, Spruce 150,000 cords Duluth SAPPI North America, Cloquet Aspen, Balm, Maple, Basswood, Birch, Tamarack, Pine 790,000 cords Estimated Total Annual Wood Consumption Capacity Pulp & Paper Sector Approximately 1.91 to 1.96 million cords Not all wood originates from Minnesota harvest - total includes imports 3

4 2) Engineered Wood Sector Impacts on Harvest Levels Total annualized engineered wood sector demand has dropped by over 1 million cords since 2005, as detailed in the following chart. While mill survey figures for 2007 and 2008 are not yet available, it is clear from mill closure announcements that there has been a significant drop in demand. This sector is largely dependent on housing markets, which have been very weak Minnesota Oriented Strand Board and Engineered Wood Products* Firm Wood Used Approximate Annual Wood Volume Consumed International Bildrite - International Falls Aspen, Balm & Recycled Paper Periodic slowdowns. Total annual consumption: Approximately 20,000 cords/year. Some consumption from biomass tops and limbs. Louisiana-Pacific - Two Harbors Aspen, Balm, Birch Consumption: Approximately 100,000 cords/year Northwood Panelboard - Bemidji Aspen, Balm, Birch, Maple Consumption: Approximately 280,000 cords/year Georgia-Pacific Corporation, Superwood Division - Duluth Aspen, Pine, Mixed Hardwoods Consumption: Approximately 80,000 cords/year. *Some consumption from biomass tops and limbs. Firm Wood Used Mill Status/ Approximate Annualized Consumption Loss Ainsworth Bemidji Aspen, Balm, Birch, Tamarack, Basswood, Pine, Maple Line 1 permanent shutdown since 9/06 / Annualized consumption loss: Approximately 160,000 cords Ainsworth Bemidji Aspen, Balm, Birch, Tamarack, Basswood, Pine, Maple Line 2 temporary shutdown since 9/08 / Annualized consumption loss: Approximately 250,000 cords Ainsworth Cook Aspen, Balm, Birch, Pine, Maple, Tamarack, Ash Periodic temporary shutdowns since 9/06 / Currently on indefinite shutdown. Annualized consumption loss: Approximately 290,000 cords Ainsworth Grand Rapids Aspen, Balm, Birch, Pine, Maple, Tamarack, Ash Permanent shutdown since 9/06) / Annualized consumption loss: Approximately 250,000 cords Trus Joist - a Weyerhaeuser Business Deerwood Aspen, Balm, Birch Indefinite shutdown since 9/07 / Annualized consumption loss: Approximately 160,000 cords Approximate Annualized Engineered Wood Sector Wood Consumption Loss Estimated Total 2005 Annualized Wood Consumption Capacity Engineered Wood Sector Approximately 1,550,000 cords (Total includes some imported wood, not all from Minnesota harvest) Estimated Total 2008 Annualized Wood Consumption Capacity Engineered Wood Sector Approximately 440, ,000 cords (Total includes some imported wood, not all from Minnesota harvest) Estimated Annualized Wood Capacity Loss * Approximately 1,005,000 cords* (Total includes some imported wood, not all from Minnesota harvest) *Note: Readers should note that several of the mills listed above ran for part of 2008, but at less than full capacity. 4

5 3) Sawmill and Specialty Mill Sector Impacts on Harvest Levels While updated sawmill survey figures will not be available until early 2009, it is likely that sawmill sector wood use levels have fallen since 2004, when the last survey was completed. Roundwood harvest for sawmill and specialty mill use was approximately 540,000 cords in An educated guess is that it will be around 500,000 to 520,000 cords in ) Woody Biomass Energy Sector Impacts on Harvest Levels In 2008, an estimate for roundwood that went to industrial biomass energy facilities would be in the 65,000 to 80,000 cord range, with residential fuelwood use estimated at 142,000 cords. Industrial Fuelwood Impacts on Harvest Levels Several industrial facilities in Minnesota produce energy from wood. This has been the case for decades, with the vast majority of wood used for energy derived from mill residue such as bark. With new biomass energy facilities coming online, a growing volume is derived from logging residue tops and limbs from harvested areas. A small portion of the supply for these facilities also comes from chipped roundwood wood greater than 4 inches in diameter, with 100 inch minimum length. As other markets for roundwood have diminished, some roundwood has gone to biomass energy facilities Minnesota Large Woody Biomass Energy Facilities Purchasing Forest-Derived Chips Firm Fuel Used Product Remarks SAPPI - Cloquet Mill residue & open market biomass. Energy MN Power Grand Rapids & Duluth Mill residue & open market biomass. Energy Laurentian Energy Authority Mill residue & open market biomass. Energy Ramp up to full production in Virginia & Hibbing Valley Forest Products -Marcell Open market chips & mill residue Pellets, Animal bedding Largely debarked roundwood, some biomass Boise International Falls Mill residue & open market biomass. Energy Forest-derived biomass use temporary U.S. Steel - Minn Tac Mt. Iron Mill residue Energy Wood co-fired with natural gas in taconite kilns. St. Paul District Energy Urban wood & open market biomass Energy Modest amount of forest-derived biomass Fibromin - Benson Turkey manure, wood chips Energy In startup phase. Central Minnesota Ethanol Mill and logging residue Gasification Problems with their system have delayed startup. Ainsworth Cogen. Facility - Bemidji Mill residue Energy Currently closed. Total Estimated Roundwood from Timberland Used for Biomass Energy Production ,000 80,000 cords (Volume estimates from forest harvest residue and mill residue not included here. Most of these facilities get the large majority of their raw material needs from forest harvest residue and mill residue) In addition to the list above, there are many small, medium and large wood-processing companies that burn some or all of their wood waste for heat and/or process steam. 5

6 Residential Fuelwood Impacts on Harvest Levels Updated residential fuelwood survey figures will not be available until early Draft 2007 figures indicate that approximately 142,000 cords was harvested from growing stock on timberland for residential fuelwood in It is likely that the small decline in estimated residential fuelwood harvest volumes from timberland from 2003 to present is due to procedural differences between the current and previous surveys. Potential Woody Biomass Facilities in and Near Minnesota While the facilities listed below are not online at present, the outlook is for continuing expansion in energy produced from woody biomass. As a point of information, a table of several new and proposed facilities is included below. Firm Wood Used Product Status/ Comments Minnesota Power Laskin Energy Hoyt Lakes Open market biomass chips Energy. (25 megawatt facility) Project on indefinite hold. Projected wood needs if built would be around 275,000 green tons. Valley Forest Products Mt Iron Open market debarked chips Pellets 100,000 tons Permit processing and biomass Abitibi Fort Frances Ontario Open market biomass chips Energy (45 megawatt facility) Plant scheduled to opens fall 2008 U.S. Steel - KeeTac Mt. Iron Open market biomass chips Energy. Wood co-fired with natural gas in taconite kilns Permit processing. Projected wood needs around 200,000 green tons. Renewafuel - Orr Open market biomass chips, mill residue Pellets Announced. Projected wood needs around 200,000 green tons. Central MN Ethanol - SunOpta Open market biomass chips Cellulosic Ethanol Exploratory Several additional groups Open market biomass chips Pellets, energy, and potentially liquid fuels Exploratory Conclusions Annual forest harvest levels in Minnesota have dropped an estimated 685,000 to 920,000 cords since A drop of over 1 million cords of demand in the engineered wood and sawmill sectors has been partially offset by a drop in net imports, and a rise in roundwood for commercial energy use. Private lands have seen by far the largest drop in harvest and forest management levels due to their sensitivity to lower timber prices. Public agency timber has become more critical than ever to forest industry competitiveness and health, and to the ability to manage Minnesota s forests through use of industry markets. Public agency harvest has fallen much less than on private lands, and for some agencies such as DNR, has actually risen. For more information: Keith Jacobson keith.jacobson@dnr.state.mn.us 6