Plum Creek Timber Corp. CEO Rick Holley told members of the Arkansas Forestry Association that a housing recovery and new markets bode well for the industry as he expects bullish opportunities in the coming months and years.
Touting a healthy rebound in new housing starts, Holley said demographic trends support continued construction activity in the U.S. for the next several years.
“[T]he housing start recovery is underway,” Holley said in a Little Rock interview on Wednesday (Oct. 2). “Demographically, we’ll get back to about 1.5 million, 1.6 million in housing starts and stay there for a long period of time.”
This year, U.S. housing starts are on pace to reach 950,000, and Holley said by next year 1.2 million starts are possible, before reaching a level of 1.5 million starts in subsequent years.
However, he warned that Washington, D.C. policies have the potential to stall what he describes as a “sputtering” economic recovery. The federal budget and looming debt ceiling debate have the ability to slow business prospects, but Holley said he feels the momentum is here to stay.
He also said that finding a better balance in regulating the mortgage markets was critical to continuing or improving the housing rebound.
“The other thing we’re going to have to do in housing is make sure we keep housing affordable through the way people get loans,” said Holley. “We can’t make it too difficult. You know, we made it too easy before. Now, we’re making it too difficult. We need to come back to the middle and make it more affordable for a young family that has two incomes to be able to qualify for a mortgage which they clearly can afford.”
Seattle, Washington-based Plum Creek is one of the largest real estate investment trusts (REITs) in North America. In Arkansas, Plum Creek has 720,000 acres of woodlands under management across south Arkansas. It has three facilities in Crossett, Fordyce and Monticello, employs 46 people, and works with 43 contractors and 43 customers in the state.
Holley said that devastation from a pine beetle infestation in Canada and emerging markets in China and Europe also are creating opportunities for the timber industry by increasing demand in Arkansas and the South.
The pine beetle infestation, which has been affecting Canadian foresters for more than a decade, is expected to reduce that country’s harvests and production by as much as 20%, giving American lumber suppliers a greater world market share.
“So the question is: where does the difference come, who’s going to make that up? It’s going to have to be made up in the U.S. South predominantly, and some in the West,” Holley said.
He predicts production in the South will have to increase by as much as 50% in the coming years to make up for the loss in Canadian lumber and in order to meet growing demand.
Chinese demand for American lumber will also impact the U.S. timber industry, says Holley. As a “new entrant” in the market, China was largely tapping Canadian supplies, and with the pine beetle problem another opportunity for U.S. suppliers is emerging.
“In the last three years, the Chinese have bought an average of 3 billion board feet of lumber a year from North America, predominantly from Canada,” said Holley. “So suddenly you have the Chinese buying lumber – improving lumber demand in the U.S. – and a short supply out of Canada. It’s all good stuff.”
Holley also sees renewable energy as an important, but not dominant, segment of Plum Creek’s portfolio. The European Union has established aggressive renewable energy targets by 2020 and one growing source of fuel is coming from wood pellets made in America.
Wood pellets are made from pulpwood, which come from trees difficult to harvest for other sawlog or timber purposes and some forestry byproducts. The pellets are considered carbon-neutral.
Holley said various companies have recently announced more than $1 billion in capital investment for wood pellet mills, including two facilities on the Louisiana-Arkansas border near Crossett.
“We’ve worked with the Europeans and we’ve also worked with producers here to help them site pellet plants near Plum Creek land,” said Holley. “What we’re trying to do is enhance the value of pulpwood for us and for other landowners.”