Timber industry unscorched by recent fires
Date: 28-Jun-02
Country: USA
Author: Patrick Fitzgibbons
According to industry analysts, the massive wildfires - while tragic to the thousands of homeowners and business owners in the effected areas - should not spell doom to paper companies.
A combination of environmental realities, business insurance, and the vast amount of land owned by paper companies provide analysts with some degree of comfort that the companies' earnings will come through this fiery quarter in fairly good shape.
"For most of the companies that own big tracks of land, they own a couple million acres," said Paul Latta, paper analyst at McAdams Wright Ragen.
For example, Weyerhaeuser Co. owns over 38 million acres of forest in the United States and Canada and International Paper Co. owns 10 million acres in the United States alone.
The National Interagency Fire Center said extreme fire conditions exist in California, Kansas, Nevada, New Mexico, Oklahoma, Texas, Utah, Arizona and Colorado. There are 2.6 million acres burning across the United States, more than triple the 10-year average of 846,309 acres, but still a relatively small percentage of all the available forest land.
The problems in managing land and managing fires is not specific to the United States, though.
"In Northern Ontario, this happens a lot," said Stephen Atkinson, paper analyst at BMO Nesbitt Burns. "These fires can have a material effect on companies."
However, most of North America's largest owned and maintained forests are carefully watched and pruned by large companies.
"In many cases, these big companies have a lot of land and depend on it for their livelihood," Atkinson said. "I think that land is better cared for" than unowned forests.
FIRES HAPPEN
While the images from the burning forests have been shocking, analysts and industry types alike said that, in many cases, fires are not completely undesirable. Contrary to popular thought, fires also don't necessarily destroy all the trees that they burn.
"Fires don't always decrease the value of the timber in an area," Latta said. "Often, once the fire is out, a large percentage of the affected timber can be cut and salvaged right away."
Most of the large companies in the industry have some sort of self-insurance or what's known as business interruption insurance.
Latta said, though, that the business interruption insurance is only useful when the fires are being fought and "you can't get in there and cut down the trees because they're on fire."
In the past few years, serious forest fires have raged, but it's the unexpected occurrences that have the potential to do the most financial damage.
For example, the eruption of the Mount St. Helen's volcano in May 1980 was much more disastrous, said Frank Mendizabal, a spokesman for Weyerhaeuser.
"That eruption basically leveled 63,000 acres of very valuable timber," he said. "The salvage efforts helped some, but this was very old growth, in some cases 130 years."
He also said that a serious ice storm a few winters ago in the Pacific northwest caused many trees to snap in two and become unusable.
Many types of the most desirable species of trees, especially the Douglas Fir, actually benefit from fires.
"Douglas Firs grow quickly, straight, large, and have a large fiber," Latta said. "And they are a shade-intolerant species that would never grow at all if it weren't for fires."
EN FUEGO
The management of U.S. land has been a hot issue for years as timber industry and environmental groups continually spar on the best course to take regarding logging.
In a recent letter to President George W. Bush, the Sierra Club, one of the most vociferous advocates for the environment, said: "The timber industry has turned America's publicly owned National Forests into a patchwork of clearcuts and logging roads. Commercial logging, subsidized by American taxpayers, drains nutrients from the soil, washes topsoil into streams, destroys wildlife habitat and intensifies the severity of forest fires."
