In the 60 years since Bob Jordan III joined his family's North Carolina sawmill business, he hasn't seen anything quite like the Canadian invasion of the U.S. South's lumber industry.
"You didn't have people coming in from the outside – we never had this before," Mr. Jordan, 82, president of closely held Jordan Lumber & Supply Inc., said about an estimated $2-billion wave of Canadian investment. "Over 50 per cent of the lumber in a certain part of the South is being produced by the Canadian mills."
Western Canadian lumber producers have good reason to be looking to the southeast corner of the continent. Chased from their home forests by rising costs and a plague of tree-killing beetles, West Fraser Timber Co. Ltd., Canfor Corp. and Interfor Corp. have been on a buying spree, doubling the number of mills they own in the South since 2009 to about 34. The Canadians are drawn by the region's 210 million acres of fast-growing forests and expanding housing markets from Texas to Virginia to Florida, according to Brooks Mendell, president of Forisk Consulting, an timberland researcher based in Athens, Ga.
Since the late 1990s, the grain-of-rice-sized mountain pine beetle has attacked and killed more than 700 million cubic meters of pine trees in the inland forests of British Columbia, Canada's top lumber-producing province. That's equivalent to about 700 million standard telephone poles.
Pines Devastated
"The current estimate is that 60 per cent of mature pine in B.C. has been killed or will be killed by the end of the decade," Rodger Hutchinson, a West Fraser vice-president, said June 5 in a Bloomberg Television interview in Vancouver.
Warmer winters, a result of climate change, allowed beetle populations to get out of control in B.C.'s lodgepole pine forests, as well as in neighbouring Alberta and parts of the U.S. west. While B.C. sought to halt the outbreak, it also encouraged lumber makers such as West Fraser and Canfor to accelerate harvesting to get the value out of the dead trees before they rotted.
"For B.C. lumber producers to stay in the lumber business, they really have to purchase mills in areas that have fibre," or raw timber, Paul Jannke, a lumber specialist at Forest Economic Advisors in Westford, Mass., said June 11 by phone.
While West Fraser helped lead the Canadian charge into the U.S. South, Vancouver-based Interfor has been especially active this year.
Stocks Outperform
Billing itself as the world's fastest-growing lumber maker, Interfor last week completed the purchase of a mill in Monticello, Ark. It was the third southern mill the company acquired this year, raising its total to nine.
The Toronto Stock Exchange's forest products index has risen 26 per cent in the past year, compared with a 1.1-per-cent drop in the composite index. West Fraser, with a 38-per-cent increase, has been the top performer in the past year, outpacing Interfor's 33-per-cent rise and Canfor's 15-per-cent gain.
"Fibre supply is why the Canadians are going down South," Paul Quinn, a Vancouver-based analyst at RBC Dominion Securities Inc., said in an interview.
Pine trees in Canada take 60 to 80 years to grow to maturity, while southern yellow pine typically goes from seedling to the lumber mill in about 25 years, according to Mark Kennedy, a Calgary-based analyst at CIBC World Markets.
'Close Proximity'
"Sawmills in this region are in close proximity to end-customer demand for lumber," Mr. Kennedy said in a June 2 note.
Interfor sees further opportunities in the U.S. South, where it now has more than 40 per cent of its total lumber capacity, according to chief executive officer Duncan Davies.
"We continue to believe it's an area where we're going to continue to invest both in organic opportunities at the facilities that we own and, hopefully, in continuing to grow our platform," Mr. Davies said May 1 on an earnings conference call.
Mr. Davies wasn't available to comment on the company's U.S. expansion, Interfor spokeswoman Karen Brandt said. Canfor didn't respond to questions about it's southern strategy.
"We still have a very long way to go in terms of industry consolidation," West Fraser's Mr. Hutchinson said.
So far, the invasion of the South has gone smoothly, with the Canadians relying on local managers and established logging crews to achieve productivity targets.
Northern Invaders
"I'm sure there's been resistance in pockets of the South," said RBC's Mr. Quinn, who estimates the Canadians have poured about $2-billion into their southern operations since the early 2000's through acquisitions and mill modernizations. "The Canadians are smart companies. They're doing the right things."
For the time being, at least, further consolidation won't involve Jordan Lumber, which was started by Bob Jordan's father in 1939.
"I used to get a phone call about every two weeks" from prospective buyers, Mr. Jordan, a former lieutenant-governor of North Carolina, said in the interview. "Then I finally said, call me back in 3015."