Powerful New Insights: Forest2Market s Dynamic Fiber Supply and Capital Allocation Decision Making Model

Powerful New Insights: Forest2Market s Dynamic Fiber Supply and Capital Allocation Decision Making Model

Two Key Unknowns Will Change How You Manage Your Assets Trends affecting mill costs will unevenly and dramatically change relative cost positions Major wood cost changes caused by European pellet demand, resurging OSB demand, strong packaging, performance fiber and fluff demand and uneven reforestation Unknown but growing impact of wood-derived liquid fuels and bio-chemicals often backed by US government loan guarantees Similar trends in Brazil where untenable OCC prices, migration away from pine plantations (in favor of Eucalyptus) coupled with growing Latin American demand causes softwood fiber supply squeeze Every mill s marginal cost either favors or discourages investment Forest2Market has developed data and analysis that will drive your understanding of competitive behavior, how and where you should invest capital, where to focus M&A activity, and other important operating decisions 2014, Forest2Market, Inc. Slide 3

New Pellet Demand - A Significant Driver to Increase Cost Forest2Market Pellet Production Allocation Model Million Metric Demand/Production (Year 2020) Tons Global Demand 48.9 Less 80% of Asian Demand (Supplied by Asia and Western North America) (4.5) Less 50% of North American Heating Demand (Supplied by Northern US/Canada) (2.6) Net Global Demand 41.8 Less South Production (Operating + Construction, Year 2015) (8.8) Less Other Global Production (Operating, Current) (17.9) Remaining Production Capacity Needed to Meet Global Demand 15.1 Less Assumed Incremental US South Production Capacity (30% of Announced Projects) (3.1) Less Assumed Other Incremental Global Production Capacity (30% of Current Other Global Capacity) (6.0) = 9.1 remaining for US South = 20 million tons of fiber Potential Incremental Production Capacity from US South 6.0 Slide 4

Strong Pulp Demand, Plus OSB Rebound and Age Class Squeeze, Drives Fiber Prices Higher Expect pellet demand to add another 10-15 million tons of pine pulpwood demand by 2019. Young pine acres are diminishing, driving down effective supply. Slide 5

Forest2Market Knows Where and How Wood Costs Will Change and They Will Change Dramatically Loses position Gains competitiveness Early results indicate that this mill s costs will move from 1 st to 4 th quartile as structural demand and supply changes take hold Overall cost structure increases, but this mill gains in relative competitiveness Slide 6

With Forest2Market Wood Cost Curves, Forest Modeling Techniques and Mill Cost Data, We Model Current and Future Marginal Cost Curves Slide 7

Marginal Costs Relative Future and Marginal Costs Inform Where to Invest Capital Higher Investment decreases competitiveness, but average cost falls Investment decreases competitiveness and average cost rises Investment increases competitiveness and average cost falls Investment increases competitiveness but average cost rises Lower Down Direction of Future Relative Average Costs Up Slide 8

Marginal Costs Relative Future and Marginal Costs Inform Where to Invest Capital Higher Milk for cash Sell, close, or shrink Invest Time to decide Lower Down Direction of Future Relative Average Costs Up Slide 9

In Five Years, In Ten Years Slide 10

Yes, The Decision Is Critical Now 1. The impact of structural demand changes and subsequent price impacts will be borne unevenly; acute changes in mill cost positions are inevitable. 2. The culmination of structural timber ownership and management changes have depleted the available softwood fiber supply the results of which are just being felt. 3. Will your mill(s) become more or less competitive in 5 or 10 years? And if you knew the answer today, how would your investment decisions change? 2014, Forest2Market, Inc. Slide 11

What Happens in 5 Years in 10 Years? Mill + + = + cost = forecast* Future cost curve Forest2Market proprietary forest supply models Current & future demand Forest2Market benchmark Pricing Forest2Market stumpage and delivered data *For pulp and paper companies only Slide 12

Mill Map with Competition This slide will be customized for one of your mill locations. It will identify your facility as well as all fiber consuming facilities in the surrounding area. Slide 13

Current View Target Mill Each heat map is evaluated as positive, neutral or negative to identify potential supply issues. Private Pine Plantation Acreage 0-9 Years Old Private Pine Plantation Pulpwood Growth to Drain Pine Pulpwood Stumpage $/Ton A heat map showing the number of acres of pine plantation in the 0-9 age class provides insight into future supply. A heat map showing the growth to drain ratios in the surrounding area provides insight into sustainability of supply. A heat map showing price changes in the surrounding area provides insight into price trends. POSITIVE Abundant Young Plantations NEUTRAL Growth v. Harvest NEGATIVE High Stumpage Prices Slide 14

Forest2Market, Inc. 15720 Brixham Hill Ave, Suite 550 Charlotte, NC 28277 www.forest2market.com Pete Stewart 704.540.1440 pete.stewart@forest2market.com