Case Study of the Economic Feasibility of a Red Oak Small-Diameter Timber Sawmill and Pallet-Part Mill
Keywords:Small-diameter timber, economic feasibility, red oak
AbstractThe economic feasibility of producing lumber, cants, pallet parts, and residues from hardwood small-diameter timber (SDT) has not been investigated. To assess the potential for utilization of this resource, an economic feasibility analysis was conducted based on the results of a related SDT yield study. The economic feasibility analyses used in this research included: break-even, net present value (NPV), and internal rate of return (IRR). These analyses were used to determine the economic viability of a sawmill and pallet-part mill that would utilize red oak small-diameter timber. Twelve scenarios were evaluated using these analyses: two processing levels (sawmill-only, and sawmill and pallet-part mill), two yield levels (actual and average), and three log costs ($33, 39, and 44/tonne). The break-even analysis indicated that in this case study the sawmill-only processing level would not be profitable for all log groups under current conditions. The NPV and IRR analyses illustrated that in this case study a new sawmill-only (scragg mill) processing level scenario is not economically feasible under any of the hypothetical conditions tested. The NPV and IRR analyses indicated that the actual-yield sawmill and pallet-part mill scenario was found to be economically feasible at a $74/m3 ($39/tonne) log cost. The NPV was calculated to be over $500,000, and the IRR was approximately 11%.
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