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Sawmill Distress Rising in Q1

By Jesse Marzouk, Paul Grzebien, Steve Katz (Host)
Home / Perspectives / Sawmill Distress Rising in Q1
Forestry Pod

This podcast is intended as an “alert” to lenders and those across the market in regard to a notable, increased level of distress that the Hilco Forestry team is observing in the sawmill market. Detailed observations are action steps are discussed.



Steve Katz  00:17

Hi everybody, and thanks for listening in on our Hilco Global Smarter Perspective podcasts. I’m your host, Steve Katz, and we’re glad to get tuned in today. We’re going to be talking about an important trend that has been identified by the Hilco forestry team and what it means for those who are operating across the market, as well as lenders with businesses in the forestry industry within their portfolios. Joining us for today’s discussion from Hilco Valuation Services are Jesse Marzouk, Senior VP, Director of Operations, and Paul Grzebien, Senior Manager of M&E. Guys, thanks for joining us.


Paul Grzebien  00:51

Thanks, Steve. Glad to be here.


Jesse Marzouk  00:52

Good to be here.


Steve Katz  00:54

All right. Glad to have you on. And I know you’re busy, so thanks for breaking away to speak to us for just a few minutes about some of the things you’ve been observing in the market since you provided that last industry update for us back in Q4 of ’23. It sounds like distress is on the rise. Jesse, can you just give us a quick top line of the situation and then we can kind of dive into more detail from you and Paul.


Jesse Marzouk  01:16

Absolutely, Steve. Since we issued our last update, within the last few months, we’ve seen even more stress amongst sawmills within the system. The pain has not been spread equally across regions however. Lumber production in the Pacific Northwest and Western Canada has been impacted the most due to a reduction by the provincial government in the annual allowable cut in British Columbia, higher lawn costs as well as higher labor costs. Unforeseen wildfires have also impacted production and a number of sawmills in British Columbia. The annual allowable cut in British Columbia fell approximately 20% from 2001 to 2003 as a result of the provincial government imposing limitations on the cutting of old growth forests. This has led to a significant number of closures among the provinces sawmills. Case in point, West Fraser, one of the largest producers in the region, just closed its Fraser Lake sawmill, citing an inability to access economically viable fiber in the region. Numerous other closures have occurred across the province over the last few years in Western Canada. Production of lumber overall, has dropped from 6.25 billion board feet in 2022 to 5.176 billion board feet in 2023. Similar policies are also impacting mills in the pacific northwest of the U.S. Hampton lumber recently shut down an Oregon sawmill that had been in operation since 1961. Due to a proposed habitat conservation policy that would cut harvests in the state by up to 34%. Western U.S. lumber production overall dropped from 14.021 billion board feet in 2022 to 13.712 billion board feet in 2023. Sawmills in the southern part of the U.S. have taken market share from sawmills in the Pacific Northwest and British Columbia. They enjoy cheaper access to fiber as well as cheaper labor costs.


Steve Katz  03:14

Okay, Jesse, thanks a lot. That’s a great 35,000 foot view gives us a nice set up for the rest of the discussion. Paul, what did these developments mean in terms of realizable liquidation value of sawmill assets moving ahead?


Paul Grzebien  03:29

Yeah, well, that’s the big question, right? I’ll take you through a few key considerations. And then Jesse, maybe you can discuss others we’ve been working through with clients on current engagements. So, first of all, although we’re seeing more hardwood production facilities and sawmills pausing operations, particularly in the Pacific Northwest. Very few have gone to liquidation in the last year. Our perspective is that, you know, most are temporarily shutting down operations with hopes that prices will come down. That’ll enable restarting of production. However, if these shutdowns result in piecemeal liquidation, we would expect to see an over flooding of equipment in the used market, which would be difficult to absorb and that would lead to discounted prices on the used market. Yeah. With that said, let’s get into some specific considerations. I think a big portion of value in sawmills is in their material handling. This requires very costly equipment than include log loaders, front loaders, material handlers, skid steers and large capacity diesel forklift trucks like that 20 to 75,000 + pound capacity. Each of these are utilized in various industries, right, and they’d have a large buying audience in the event of liquidation. Importantly, however, these are pretty harsh environments, the machineries running in. So end users would most certainly factor that condition into their bids, but our historic data indicates although this equipment older than 10 years experiences a significant drop in value as compared with new cost, it still has a distinct and active buying audience of liquidation. It’s also important to note that newer computerized optimized sawmill equipment, such as integrated 3D logs scanning and automatic grading systems is more sought after. And I’ll have more of an audience a liquidation as the industry’s tight margin environment requires the latest optimization practices to reduce waste and increase production rates. With the current rate of technology improvement older software, I’m thinking anything older than 15 years at this point, is considered obsolete. Then you get into older manual sawmill machinery. This stuff is selling at or near scrap right? Buyers tend to obtain these machines very inexpensively. They tend to rebuild them and either to sell on the used market or running their own facilities. Jesse?


Jesse Marzouk  06:03

Thanks, Paul. Appreciate it. Just wanted to add a few more things to what Paul mentioned. There are certain assets that are proving particularly difficult to liquidate currently, and they include wood fired boilers, dust collection systems, lumber sorting systems and dry kilns. These assets have a high cost of removal, which depending on aging condition, may outweigh the value of the systems themselves. Dry kilns with masonry walls, for example, have essentially no value although their dryer controls and fans may be salvageable components. Late model, seven years and newer, items such as brand debarkers, band saws, canters, gang rip saws edgers and planers would see good demand in a liquidation. On the other hand, support equipment such as log deck conveyors, chain conveyors, roll case conveyors, and transfer belts are not selling for much at all. Buyers most frequently obtain these types of assets to salvage their component chain belts and drives as frames are typically fabricated in house. Vibratory conveyors, however, hold more value as they are sold in sections, are easier to integrate into existing systems and are very expensive to buy new. And lastly, in terms of what we’re seeing right now, we can confidently say that because assets such as chippers, chips screeners and wood waste grinders are utilized in various wood related industries other than sawmills, they have a much larger audience at liquidation. They are also easy to remove and fit on a flatbed trailer which adds to their appeal as a buyer.


Steve Katz  07:39

Okay, very concise, a lot of information there. I know we’re really just calling out what’s happening right now. But any final thoughts or watch outs for lenders with exposure here, Paul?


Paul Grzebien  07:51

Sure, so lenders with borrowers in the forestry and lumber market, and particularly those with sawmills within their portfolios, they should ensure they have a firm grasp of those businesses and any distinct operational challenges they may now be facing. Beyond business performance, these may include competitive threats or data driven forecasting accuracy that could contribute to potential distress in 2024. Jesse, anything else?


Jesse Marzouk  08:19

No, I think that about covers it, Paul, except that I want to add that we’re definitely now advising more frequent appraisals moving forward during this period of heightened volatility. And of course, we’re assisting in many of those efforts and welcome the opportunity to do so, or to answer any questions that those who are listening might have pertained to exposure within the forestry industries.


Steve Katz  08:42

Okay, perfect. And for those who are listening, who do want to reach out to you guys for a little more detail, can you give us your contact info? Jesse can go first.


Jesse Marzouk  08:53

Absolutely. Thanks, Steve. My email is J Marzouk, J M A R Z O U K at And my phone number is 847-849-2959.


Paul Grzebien  09:12

And my email is Paul G. That’s P A U L G at Phone number 847-313-4734.


Steve Katz  09:25

All right, great. Thanks again, guys for joining us to call out these important developments for lenders and others who are involved across the forestry industry. And listeners, we hope, as always, at this smarter perspective podcast provided you with at least one key takeaway that you can put to good use in your business or share with a colleague or client to help make them that much more successful moving forward. And remember that you can always check out more great podcasts and articles featuring timely insights from Hilco experts like Jesse and Paul at forward slash Smarter dash Perspectives. Until next time for Hilco Global. I’m Steve Katz.

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Jesse Marzouk

Senior Vice President
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Paul Grzebien

Senior Manager
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