The Forest Industry: harvest, demand and foreign trade

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2 The Forest Industry: harvest, demand and foreign trade Timber Measurements Society Central Meeting April 10, 2014 Coeur d Alene, Idaho 2013 Forest2Market, Inc. 2

3 Forest2Market Data Experience Expertise Neutral third party (independent in ownership and structure) Capture of transaction level data is the only way to achieve a true measure of market price. Transaction data is the foundation of all our products and services Client relationships Timberland owners and log marketers, forest products manufacturing companies, pulp and paper, bio energy industries Market Intelligence Resource studies / Market research Timber price forecasts and economic analysis Proprietary transaction level sales and cost data Publications Headquartered in Charlotte, NC; offices in Eugene, OR, Appleton, WI and Curitiba, Brazil 2013 Forest2Market, Inc. 3

4 Agenda US housing and the forest industry Timber harvest & lumber production trends Competitive position of the PNW Asian demand for wood products The outlook for our industry 2013 Forest2Market, Inc. 4

5 How does the recovery stack up? 2013 Forest2Market, Inc. 5 2,500 2,000 1,500 1, GDP percent change % unused industrial capy % average annual unemployment Total housing starts

6 Renewed Demand for Building Products 2013 Forest2Market, Inc. 6

7 History: housing starts and mortgage rates 2, , Total Housing Starts 1000's 1,500 1, year Mortgage Rates Percent Source: US Census, Freddie Mac, F2M 4CAST Note: Projected Values in Green 2013 total Forest2Market, starts 30 yr rates Inc. 7

8 Changing demographics of housing 2,500 2,000 1,500 1, Single family=66 % in Total starts Single family Poly. (Single family) 2013 Forest2Market, Inc. 8

9 Housing demand on US lumber supply , %=46BBF in ,000 1, , Housing starts Total US lbr supply Sources: US Census and WWPA 2013 Forest2Market, Inc. 9

10 Housing supports better times for the Industry Housing starts will exceed 1 million in 2014 Mortgage interest rates are still very low Housing backlog of foreclosures clearing in most areas Renewed demand from new buyers Smaller homes, more multi family and fewer residents per unit Problems for the next generation of homebuyers; debt burden and underemployment Improved housing demand will require more lumber 2014 and 2015 will be good years for lumber and panel prices 2013 Forest2Market, Inc. 10

11 Competition for the wood supply 2013 Forest2Market, Inc. 11

12 Harvest, lumber production & chip consumption West Coast statistics 14,000 12,000 12,000 10,000 10,000 8,000 MBF Volume 8,000 6,000 4,000 6,000 4,000 BDT wood chips 2,000 2, Total Softwood Lumber OR harvest WA Harvest Fiber Consumption 2013 Forest2Market, Inc. 12

13 US softwood lumber imports from Canada Recession tough on Canadian mills BC develops export strategy for Chinese lumber Lumber shipments to US rising Softwood lumber agreement up for renegotiation soon Mountain pine beetle infestation will reduce interior harvests Eastern Canada ASQ reductions Some production increase from Coastal BC and Prairie provinces Stronger US dollar is favorable for Canadian mills Canadian statistics MMBF lumber shipments C$toUS$ Sources: WWPA and Bank of Canada 2013 Forest2Market, Inc. 13

14 Western lumber and panel production Product prices have improved 2013 western softwood lumber production is up 7.5% through November Western share of national lumber production is flat Southern pine share of lumber production will grow due to abundant low cost logs Western share of panel production has grown to 40% from 31% in 2006 West Coast timber supply constrained Source: WWPA and APA 2013 Forest2Market, Inc. 14

15 Southern sawmills benefit by lower log cost $ West Coast Douglas fir region Southern pine region $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Forest2Market, Inc. 15 Prices per thousand board feet 10/2009 1/2010 4/2010 7/ /2010 1/2011 4/2011 7/ /2011 1/2012 4/2012 7/ /2012 1/2013 4/2013 7/ / /2009 1/2010 4/2010 7/ /2010 1/2011 4/2011 7/ /2011 1/2012 4/2012 7/ /2012 1/2013 4/2013 7/ /2013 Southern Pine lumber composite D Fir GRN/SRF STD & BTR Doug fir log cost Southern pine log cost Linear ( Doug fir log cost) Linear (Southern pine log cost)

16 Asian Demand for Pacific Coast Forest Products 2013 Forest2Market, Inc. 16

17 China s global forestry investment China lumber imports by selected country Volume cubic meters Russia USA Canada Source: China Customs 2013 Forest2Market, Inc. 17

18 New Zealand; leading Chinese log supplier China log imports by selected country volume cubic meters Source: China Customs Russia New Zealand USA Canada 2013 Forest2Market, Inc. 18

19 US log exports to Asia up sharply in 2013 Northwest Log Exports to Asia - Breakbulk Volume Volume MBF Scribner Source: US Dept of Commerce Japan Korea China 2013 Forest2Market, Inc. 19

20 Hem fir log exports to China Signs that China s economy is slowing China s log & lumber inventory rising New Zealand is now the leading supplier of softwood logs US logs are very expensive watch for a correction! Risks to China s continued growth; credit as % of GDP is very high $ $ $ $ $ $ Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Hem Fir China Export Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Hem Fir China Export 2013 Forest2Market, Inc. 20

21 Japanese residential housing starts 1,900,000 1,700,000 1,500,000 1,300,000 1,100, , , , Forest2Market, Inc. 21

22 Douglas fir log exports to Japan Abenomics reform, debt and new taxes Japan s economy is growing slowly Tsunami rebuilding $ $ Doug Fir Export 12"+ J sort Near 1MM Japanese housing starts for 2013 $ $ Douglas fir accepted as local species $ Competition from US cutting market drive log prices higher $ Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Doug Fir Export 12"+ J sort Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct Forest2Market, Inc. 22

23 The view for Asian wood exports China demand for wood products will continue, but Western US log volume and prices are maxed out Chinese global investment in forest products Chinese economic growth slowdown, 2014 won t meet government projections Factors such as less use of electricity signal slowdown in China Concerns about future Chinese credit, inflation and growth Market for US wood in Japan is better for now 2013 Forest2Market, Inc. 23

24 What is the industry outlook? US housing demand will improve this year and next peaking at less than 1.2 million starts Our domestic lumber and plywood demand will be good Mountain pine beetle in B.C. and reduced ASQ in Quebec, Canadian lumber production will decline The U.S. west coast is near maximum for private timber harvest Federal forests will contribute little to the supply The Southern pine region will be major beneficiary of increased lumber demand and production China will invest in new resources to acquire more reasonably priced wood Asia will continue to be a market for forest product exports.be wary of potential Asian economic weakness 2015 will be the peak for this northwest forest industry cycle 2013 Forest2Market, Inc. 24