Why pure timber plays look much better than lumber or paper.

Implications: The article does an excellent job of explaining why North American pure timber companies ( e.g. Rayonier, Plum Creek, and Potlatch) are  doing so well, while their customers (wood products and paper companies) are doing so poorly. More importantly it spells out why, when paper and woods products companies finally recover, pure timber companies are poised to do even better and are in good position for explosive growth.  Most of the reasons for this phenomena are best gained by reading the article rather than my repeating them here.

Analysis: Although the article makes a good case for why pure timber plays are superior to wood products or paper right now, it misses two very important issues that make the likelihood and magnitude of a breakout for timber values and returns on any recovery for wood products even more impressive:

1. By concentrating their harvest on thinning and removal of low value trees now, the timber companies are increasing both the growth rate on and value of their remaining trees. These increases in both volume and value of higher value trees will continue until the company chooses to harvest them under good market conditions.

2. Although, opportunities to market biomass are currently somewhat limited, this is an extremely fast evolving market. The development of commercially viable processes for making cellulosic ethanol, for instance, are proceeding at a pace that should see wide spread deployment of these technologies at about the same time frame as the recovery of the wood products market.  This and other growing and/or evolving technologies for converting wood to energy, will both create a market for what was previously waste (limbs, bark, tops, defective logs, etc.) -  and thus a disposal cost or fire liability item, it will also create an additional market/demand for clean wood chips which are needed by the paper mills - thus keeping the price up and further squeezing paper margins.