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

Transcription

1 Key Global Drivers & Impacts on the US Market: Basis of a Super-Cycle Maritime Lumber Bureau Charlottetown, PEI June 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 Perspectives: Timber Trends & Drivers 2. 4 Stages of the Super-Cycle : /18 3. Role of Russia & China 4. US Market: Impact of Global Dynamics & Super-Cycle 5. Summary 5 Two Questions that WOOD MARKETS hasn t been able to Answer since 2007: 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 + European lumber imports. Where will the trees come from in 5 years? 7 Super-Cycle Stages: The Super-Cycle thesis is built on 4 Stages: Timber Supply Crunch: /13 3 Stages of the Super-Cycle with demand growth (but with tighter timber and lumber supplies): Stage 1: /15 Stage 2: 2015/ Stage 3: = Supply gap emerges = record prices predicted! 8 4

5 Global Timber Supply Dynamics 9 Temperate softwoods = getting more scarce; Softwood plantations = room for growth; Tropical timber and hardwood plantations: room for growth Global Industrial Roundwood Demand 10 Where will the world get 30 million m3 of timber per year? 5

6 Super-Cycle Stages: Timber Supply Crunch: /13 Starting with the BC mountain pine beetle, then Eastern Canada, and then Russia = major/permanent supply cuts! 11 Super-Cycle Development Timber Supply Crunch Key Supply Areas Decline; 6

7 Super-Cycle Development BC: MPB Quebec Ontario Russia TIMOs Europe NA Mills 13 Key Supply Areas Decline; Mill Capacity in NA Crumbles US & Canada Sawmill Operating Rates 14 Similar operating rates in both countries 7

8 Super-Cycle Stages: Supply Crunch: /13 Starting with the BC mountain pine beetle, then Eastern Canada, and then Russia = major/permanent supply cuts! Super-Cycle Stage 1: /15 Growth in China + rebound in the US market and tightening of the supply chain. 15 Super-Cycle Development BC: MPB Quebec Ontario Russia TIMOs Europe NA Mills China 16 Key Supply Areas Decline; Demand Starts to Grow! 8

9 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! 17 China Wood Products: Demand View Global Housing Starts: China is the Gorilla! 18 50% of China s concrete towers = Government Housing! 9

10 Russia Exports Now Stabilizing after Log Export Tax / Global Financial Crisis 19 Russian log exports crash! Now Impact of new tariffs/quotas? Russia Forest Industry Competitiveness and Export Outlook April, 2004 Scheduled Release ~ July/ August

11 China: Softwood Log Imports 21 Russia still dominates, but NZ, US & Canada exports rising China s Softwood Lumber Imports Russian Log Export Tax moves to 25% in April Canadian softwood lumber imports 3.25 billion Bf in

12 Chinese Prices Tied to US Prices Now US$485/ Mbf 23 BC (& US West) mills export lumber prices to China are now more similar to those selling to the U.S. I WOOD MARKETS China Bulletin Monthly Since 2007 Featuring: Industry Trends & Analysis, Statistics + Import/Domestic Log, Lumber & Panel Prices 24 3 rd Ed. CHINA BOOK: Outlook to 2017: released Sept

13 Super-Cycle Development BC: MPB Quebec Ontario Russia TIMOs Europe NA Mills China USA 25 Key Supply Areas Decline; Demand Starts to Soar 26 Key Global Drivers: Impacting USA SUPPLY DRIVERS: Russian log exports collapse starting in 2007, China needs logs, so west coast log prices rise! Canada s timber harvest & lumber production is plateauing & will yield no net growth after 2015! BC mountain pine beetle = 20% impact. Quebec timber harvest = 35% impact. Ontario timber harvest = constrained. Timber in U.S. (& other countries) now owned by TIMOs & not corporates = new business case U.S. (log + wood products ) Supply Chain = Currently fractured for how long? 13

14 WOOD MARKETS: 5-Year Forecast Report on Lumber & Panels Released early Dec 2012 EXTRACTS 27 US Housing Starts to Soar 28 Outlook is for accelerating housing starts: from 550,000 units in 2009 to the long term rate of million units in

15 US Lumber Consumption: Rebounding 29 US housing starts 1.5 million in 2017; R&R is still important! Canada Lumber Output: Sags by BC lumber output slows by & not offset by other regions 15

16 US Lumber: Strong Rebound 31 All US regions show substantial gains from strong demand Super-Cycle Stages: Supply Crunch: /13 Starting with the BC mountain pine beetle, then Eastern Canada, and then Russia = major/permanent supply cuts! Super-Cycle Stage 1: /15 Growth in China + rebound in the US market and tightening of the supply chain. Super-Cycle Stage 2: 2015/ Further growth in US demand = first major signs of a potential supply shortage as easy capacity is all in place

17 Super-Cycle Development BC: MPB Quebec Ontario Russia TIMOs Europe NA Mills China Europe ME-NA, India Japan USA 33 Key Supply Areas Decline; Demand Should Soar Supply Crunch: /13 Starting with the BC mountain pine beetle, then Eastern Canada, and then Russia = major/permanent supply cuts! Super-Cycle Stage 1: /15 Growth in China + rebound in the US market and tightening of the supply chain. Super-Cycle Stage 2: 2015/ Further growth in US demand = first signs of a potential supply shortage as easy capacity is all in place. Super-Cycle Stage 3: US Housing starts now reach >1.5 million starts = high cost capacity or imports/substitutes the main incremental supply = prices ration supply = IMPORTS! 34 Super-Cycle Stages:

18 E-SPF R/L Lumber Prices & Outlook 35 Prices have risen, but currently there is a lot of uncertainty! Annual Lumber Prices to Soar to 17? $600? $500? 36 E-SPF = US$503 on April ; = down to US$409 on May 31; 18

19 37 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 US housing market: to grow at about 20+% per year to 2017 = huge demand requires huge incremental supply every year. Possibility of a super-cycle emerging in ~2016 DEMAND RISKS: European sovereign debt crisis: 2013+? U.S. economy, unemployment, banks, housing. And China, global demand, etc. 7. Key Outcomes: US / Global Markets 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 US supply options: limited to Europe! Bottom line: Heading to imbalance between supply/demand; Fractured supply chain; 38 Higher and more volatile lumber prices! 19

20 WOOD MARKETS: 2 Conferences: CHINA Sept : China Timber/ Wood Trade Conference Guangzhou, China September Plus: Optional 4-Day Tour of Log Ports, Saw & Veneer Mills, Furniture Plants & Plantations Southern China Sept VANCOUVER BC May : May 7, 2014 May 7, 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) [email protected] 20