Forestry report: B.C. forestry's U.S. growth puts production closer to markets

Interfor gets serious about expanding into Deep South
One of Interfor's newest acquisitions is a sawmill located in Braxley, Georgia

Interfor (TSX:IFP.A) has become the latest B.C. forestry company to look south in its quest for timber and markets.

In June, the company announced it had hired its first vice-president of U.S. operations following the acquisition of three mills in Georgia this March and a fourth acquired in May.

"We're very strategic about our acquisitions," said Karen Brandt, director of public affairs for Interfor. "It's about building on our assets in a way that complements our existing assets."

Interfor follows Canfor (TSX: CFP) and West Fraser Timber (TSX:WFT) in picking up sawmills in the Deep South. The trend started in 2006, when West Fraser bought 13 sawmills ranging from Texas to Alabama from forest products giant International Paper. That same year, Canfor also acquired New South, a South Carolina company. And this May, Canfor bought three more sawmills in Alabama.

The motivation for the acquisitions is simple, said Russ Taylor, president of International Wood Markets Group.

"The real driver for all of this is the mountain pine beetle," he said.

The environmental disaster's effect on the B.C. Interior's wood supply meant that, to grow their businesses, lumber producers had to look elsewhere. With little new supply elsewhere in Canada, the Southern U.S. presents a solid "fibre basket" of southern yellow pine.

Being close to U.S. home building markets is also a benefit, and comes with lower transportation costs, said Brandt.

It also adds another type of wood – southern yellow pine – for firms to offer to their customers.

"We're able to better serve our markets and offer more diversity," said Brandt.

Interfor once operated solely on the B.C. coast. The company's expansion to the U.S. south follows acquisitions of mills in the Interior, Washington state and Oregon from 2007 to 2011.

Brandt said the recession and the high Canadian dollar previously prevented the company from making more acquisitions.

"Now we see the beginning of the recovery in U.S., we continue to see the huge potential in Asia," she said. "It makes sense from our perspective to take a look at what those opportunities are."

The two earliest adopters of the American strategy, Canfor and West Fraser, may not have had the best timing for their deals. But having weathered the recession, said Taylor, the companies are "extremely well-positioned" to take advantage of the rising U.S. housing market.

"Now they've got a track record of operating in the U.S. south, they've got six, seven, eight years of operating [there]," said Taylor.

"They have their cost structures down, their marketing in place, they're putting capital into their mills that need it." •

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