Key Global Drivers & Impacts on the US Markets: Basis of a Super-Cycle

Transcription

1 Key Global Drivers & Impacts on the US Markets: Basis of a Super-Cycle COFI Annual Meeting, Prince George BC April 4, 2013 By: Russell Taylor, President 2a Introduction to: International WOOD MARKETS Group We are wood products industry consultants and we assist companies around the world to develop operational, marketing & business strategies. We are known as global market & industry experts/analysts on timber, lumber, panels & many millwork products sold in the U.S. & global markets. We have had an office in China since We produce Multi-Client Reports: Europe & Russia; Clearwood Pine; Global Lumber Benchmarking; China 5-Year Outlook; WOOD Markets North America 5-Year Outlook; WOOD Markets Monthly Report, China Bulletin 1

2 Russ Taylor, RPF, MBA forester, sawmill sales manager, sawmill custom cutting, North America/ global industry/marketing/strategy consultant. Gerry Van Leeuwen, BCom former 25-year GM of Interfor for 3 sawmills and now global marketing & industry consultant: Russian expert. Peter Butzelaar, BScF, MBA remanufacturing and sawmill experience and now market research consultant: moulding/millwork/us market expert. Alice Palmer, BScF, MBA US supply chain expert. Jane Guo, BScF China specialist in Beijing. = about 125 years of combined industry experience. 3 Key Consulting Team WOOD Markets Multi-Client Reports 4 2

3 Presentation Outline 1. Global Perspective: Trends & Drivers 2. China: Demand Trends & Issues 3. Russia: Log Exports to China 4. China: Softwood Log Suppliers to China 5. China: Softwood Lumber Imports 6. US Market: Impact of Global Dynamics & Outlook 7. US Market: Key Outcomes 5 Two Questions that WOOD MARKETS hasn t been able to Answer for 5 Years: Where will China gets its wood after 2013? Where will the USA gets its wood after 2014? = Tightening supply-side dynamics. = Over next few years: Recovering demand in US, Europe and other markets + the new role of China. = IMBALANCE is looming, but only solved/ balanced by higher prices! = Leads to the super-cycle thesis. Realistic or Not? 6 3

4 1. Global Perspective: Trends & Drivers Are we running of wood? Never! But sort of Most other market cycles have had too much supply chasing demand, & when demand falls, prices plunge from over-supply & excess capacity. This cycle, some major differences: China is now in play, while Russia is not! Timber supply shortages in Canada will result in ~10 billion bf less in lumber production and US exports, as compared to the cycle. Higher prices will be required to attract new timber/lumber supply as well as imports from Europe (the highest cost supplier to the US market) China Wood Products: Demand View Housing/Apartment construction million starts per year = huge demand for wood products. However, excess housing stock is critical issue. #1 or #2 producer, consumer, importer in the world of logs and most wood products! Huge & growing fibre deficit to 2020 China must import massive volumes of logs, lumber, pulp, etc. & will continue to need increasing imports. Will need to pay global market prices for imported logs, lumber and other raw materials is already paying the highest prices in the world for logs. China has, and will continue to, change global log & lumber markets as well as global trade! 8 4

5 I WOOD MARKETS China BOOK Released on Nov Featuring: Outlook to 2017 for Log & Lumber Imports & Prices 9 3 rd Ed. CHINA BOOK: Outlook to 2017: now available! Global Housing Starts: China is the Gorilla! 10 50% of China s concrete towers = Government Housing! 5

6 China: Softwood Log Imports 11 Russia still dominates, but NZ, US & Canada exports rising Russia Forest Industry Competitiveness and Export Outlook April, 2004 Scheduled Release ~ July

7 3. Russia Exports Now Stabilizing after Global Economic Crisis & Log Tax 13 Russian log exports crashed! Impact of new tariffs/quotas? Russia: log harvesting and exports expected to be growing only marginally in the next 3-5 years, so where else can China get it logs: New Zealand: getting closer to the upper limits of harvesting, but can divert logs from India & Korea BC Coast: Log exports are close to peaking (if a change in government occurs in May, then less log exports from pubic lands are expected). US West Coast: The only region that could increase log exports to China if prices created enough incentives (as what has happened in NZ): This would impact log supplies & prices in the US PNW region & all of North America Softwood Log Suppliers to China 7

8 China has the Lowest Cost Sawmills With a growing fibre deficit, China must import more and more logs to feed its growing domestic demand. China has the world s lowest cost sawmills, so it is able to import some very expensive logs ex- China ports China s Softwood Lumber Imports 16 Canadian softwood lumber imports ~3.5 billion Bf in

9 Chinese Prices Tied to US Prices Now US$485/ Mbf 17 BC (& US West) mills export lumber prices to China are now more similar to those selling to the U.S. and Japan Prices Tied to US Prices US$580/ Mbf US$485/ Mbf 18 Export prices to Japan near record highs 9

10 6. US Market Impact of Global Dynamics & Market Outlook Key Global Drivers: Impacting USA SUPPLY DRIVERS: Russian log exports collapsed in 2007 where China was its largest market; now a new (lower) log export tax + quotas, but China needs logs! Canada s timber harvest and lumber production to plateau about 2015 & will yield no net growth! BC mountain pine beetle = 20% impact. Quebec timber harvest = 30+% impact. Ontario timber harvest = constrained. Timber in U.S., New Zealand, Australia & other regions now owned by TIMOs & not corporates. U.S. (log + wood products ) Supply Chain = Fractured for how long? 10

11 21 Key Global Drivers: Impacting USA DEMAND DRIVERS: China wood products demand: soaring since 2007, stalled in 2012 & to rebound in 2013-H2. China has a huge fibre deficit = needs imports! Rebuilding - Japan earthquake & tsunami: 2011 US housing market: finally growing with the outlook for 20+% increase per year to 2017 = huge demand requires huge incremental supply. Possibility of a super-cycle emerging RISKS: European sovereign debt crisis: 2013+? U.S. economy, unemployment, banks, housing. And China, global demand, etc. WOOD MARKETS: 5-Year Forecast Report on Lumber & Panels Released early Dec

12 US Lumber Consumption: Rebounding 23 US housing market to soar; R&R is still key in short term Canada Lumber Output: Sags by BC lumber output slows by & not offset by other regions 12

13 Canada Lumber Exports Rise to USA 25 BC lumber exports to China start to slowdown; highest prices = US US Lumber: Strong Rebound 26 All US regions show substantial gains from strong demand 13

14 US & Canada Sawmill Operating Rates 27 Similar operating rates in both countries US Lumber Imports: Rebound to The U.S. will need increasing imports from Europe! 14

15 US Lumber Outlook to After 2017, Demand exceeds Supply = more substitutes, imports, marginal timber = higher prices: IF Demand is stable! Annual Lumber Prices to Soar $600? $1,000 = Pat Bell $500? 30 Canadian lumber export duties should stay at 0% from Jan 13! 15

16 7. Key Outcomes: US Market If U.S. housing starts continue as forecast, then demand will strain the entire supply chain. Still some risks to the forecast, as sustained demand is the key ingredient to the thesis. Elements of the super-cycle are already in play and it is possible to keep going even stronger if demand continues to improve over the next 2-5 years while supply becomes more constrained. Incremental supply options: limited to Europe! Bottom line: Heading to imbalance between supply/demand; Fractured supply chain; 31 Higher and more volatile lumber prices! Key Outcomes: BC Interior Industry How can the BC Interior industry integrate with: Transformation Thru Innovation = Success! Any emerging opportunities need to be evaluated relative to the potential downside risks = be able to weather any downturn in prices or markets. There are many areas to look at innovation throughout the forest industry many razzledazzle topics, products, segments, etc. The bottom-line to a successful wood products industry always ties back to a healthy logging and sawmill sector that reinvests in the business. Low-cost producer = without this core principal, any spin-offs/innovations will suffer /shrink

17 WOOD MARKETS Next Conference: Global Softwood Log & Lumber Conference VANCOUVER BC May : (in conjunction with the week-long Global Forest Products Leadership Summit 2013 in Vancouver & PwC Conference) 33 Thank You! Russell Taylor International WOOD MARKETS Group Inc. Vancouver, B.C., Canada Suite E. Cordova Street Vancouver, BC V6A 0A5 Tel: (604) / Fax: (604) retaylor@woodmarkets.com 17