Last week, our industry received some discouraging news – the ND Paper mill in Old Town will shutter until conditions on the ground improve. The company made this decision in order to shift focus on strengthening their Rumford operation at a time when, frankly, conditions are tough. The three reasons cited by the company were: increased fiber costs, increased energy costs and challenging market conditions.
Before breaking down each of these issues, it is important to take a step back and look at the bigger picture because, while this is certainly a setback, there are just as many opportunities in this industry as challenges right now. As a whole, our industry is resilient, and gears are already set in motion to modify, adapt and overcome.
To set the stage, many of today’s issues were set in motion by the 2020 digester explosion that occurred at Pixelle in Jay. Prior to that explosion, the facility was taking in about 1.5 million tons of fiber per year. The explosion caused a sudden drop in demand during a time (mud season) when everyone had built up inventories. As a result, a large market for fiber was lost in the blink of an eye.
High fiber costs
That sudden market loss created a roller coaster for our logging and trucking workforce, and understandably a lot of loggers and truckers were faced with the tough decision of whether or not to stay in the business or downsize. Fast forward to today – we have less capacity both in logging and trucking, and we don’t have folks filling second shifts at some mills, even though the demand has been strong. At the same time, COVID created a big disruption in the industry as well, and workforce challenges have since been amplified.
Other driving forces impacting loggers, haulers and the industry as a whole include increased diesel fuel prices, increases in equipment costs, low workforce participation rates and unpredictable weather.
Now, we are faced with a scenario where the capacity is not meeting the demand, putting an upward pressure on the cost of fiber that has resulted in roughly a 40% increase in cost for fiber in a relatively short period of time.
The bottom line is trees are plentiful and forests sustainably managed, but we need to get people back into equipment seats.
High energy costs
Maine continues to have high energy costs compared to other forest industry states. A lot of focus has been placed on the effects of the renewable portfolio policy on energy costs but that doesn’t change the fact that we are heavily dependent on natural gas. Paper mills are unique in that they can be both producers and consumers of energy. Mills have high thermal energy demands for processing as well, and the trend has been to move away from oil to natural gas. The constraints this time of year on that resource greatly impact the ability of our mills to keep costs down so we can remain competitive. Until a viable alternative to natural gas is widely available and cost-effective, we must look at alleviating some of the bottlenecks that are driving costs up for all forms of energy in this state. Maine is close to plentiful, renewable natural gas in the Northeast – we just need pipeline capacity to get it here.
Challenging market conditions
Unfortunately, while our mills are faced with workforce shortages, a 40% increase in the cost of fiber due to high demand and low supply and higher costs for everything from equipment to electricity and diesel fuel, the price our mills are getting for the pulp they produce has decreased by roughly 15% since last fall. Industry analysts are projecting further erosion in selling prices as 2023 unfolds.
This is unsustainable, particularly for mills that are not vertically integrated. But all hope is not lost.
Necessary investments are being made
Since the Pixelle explosion and COVID, some serious investments have been made/announced that will help our industry diversify and become more resilient. As a result, the consumption of wood at Maine mills has steadily increased. These were huge and disruptive events, but prior to the ND announcement, we had replaced the demand that was lost, illustrating the dynamics of market forces in Maine. Wood is finding a new home, and as recently reported in “The Economic Contribution of Logging and Trucking in Maine,” 78% of loggers report that markets for the wood they harvest has either recovered or increased over the last five years. ND Old Town’s loss of about one million tons of wood will be absorbed over time, but the loss of a market for softwood pulp accelerates the need to remain focused on finding alternative markets for these species.
The Council is currently working with a diverse coalition on a bill to expand child care availability so working families can more fully participate in the workforce. More on that later in this newsletter. We are looking at a project to expand CDL licensing opportunities to put more people in trucks to move fiber, and the FOR/Maine project, of which we are a founding member, is seeking funding to continue the important work that has been done to put this industry in the best position to capitalize on opportunities well into the future.
Our industry is resilient with potential for growth, but that doesn’t mean there won’t be disruptions as markets adjust and new challenges present themselves.
Our mills are well capitalized, diversified and resilient. Necessary investments are occurring, and opportunities abound for Mainers looking for a rewarding career in our forests and mills.
To hear more on these thoughts, here is a link to my recent segment on the George Hale and Ric Tyler show.