1/29/2019. How World Views Trump and the United States

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2 3 How World Views Trump and the United States In just eight of the 37 nations in the study, roughly half or more say they have confidence in Trump to do the right thing in world affairs. Best results: Philippines, sub Saharan Africa, Russia, Israel and Vietnam. Countries with a favorable view of the United States: UK, Poland, Hungary, Italy, Israel, Brazil, Australia, Nigeria, Kenya, South Africa, Japan, South Korea, and Philippines. U.S. still viewed as largest economy, but China is coming on strong and playing a much larger role than in the past. Most prefer U.S. as world leader over China. (63% compared to 19% for China) (Source: Pew Research 2017 and 2018 reports) 4 2

3 Forisk Consulting President Trump and the Timber Market Forest supplies grow regardless of election outcomes. Timber supply is growing in U.S. South. Investment money flows to healthy timber baskets. Elections don t really impact timber investment larger macroeconomic factors do, such as housing, consumer demand, etc. What Trump can impact overall economic sentiment, foreign policy, housing market, economic uncertainty, etc. Trade and tariffs Has most direct impact on wood markets in the short term, especially trade concerns with China. (Source: Brooks Mendell of Forisk) 5 6 3

4 In terms of the softwood lumber dispute, we would have gotten here regardless of who was in the White House. The wheels were set in motion back in 2015, actually probably prior to that. We knew in 2013 that we likely would not get a renewed Softwood Lumber Agreement. Both Hillary Clinton and Donald Trump were anti trade, so we were going to get that slant from whoever won the presidential race in STEVEN RUSTJA I Vice President Trading Weston Forest Products 7 Forest2Market Predictions for Look for European investment in U.S. forest products assets to increase due to uncertainty in Europe, exchange rate dynamics, etc. More softwood production in U.S. South, pine prices remain flat. U.S. dollar will slightly depreciate against both the CAD and EUR in This will make U.S. exports a bit more attractive than they have been. (Source: Forest2Market) 8 4

5 U.S. South Becomes America s Timber Basket The Beck Group Big changes are taking place in the South consolidation, capacity expansion and modernization. From 2012 through 2018, approximately 40 southern pine sawmills changed ownership, transitioning from family owned operations to larger corporation, many Canadian owned companies. Expansion in the South, 16 new mills going online between 2017 and Most of those are new, greenfield operations. Expected capacity of new operations is nearly 3.5 billion board feet. Over next five years, southern pine capacity will increase 30% over 2016 capacity. Modernization will drive unit manufacturing costs down, latest technology will improve log to lumber recovery = less low grade material. (Source: Bryan Beck of The Beck Group) 9 10 B.C. will curtail production due to impact of tariffs, lower costs and restricted log supply. BC will reduce capacity by 1BBF of lumber as the U.S. South ramps up more production. U.S. housing starts will retract some, and the overall housing market will flatten. The hot housing market is starting to cool as home prices rise becoming less affordable for first time homebuyers. Single family construction will struggle as multi family will inch up and remodeling will remain strong. (Source: Forest2Market) 5

6 Forest Economic Advisors USA Looking Like an Attractive Market for Growth After Great Recession in 2008, the international markets grew because domestic demand was so low. China's demand took off at the same time. The pendulum has swung back the other way now where domestic demand is growing as exports has slowed. Other regions, particularly European softwood producers, are looking at the USA as a desired market. When markets were the weakest, we saw a big jump up in West Coast log exports, those have since come off and are flat to down. These was a lot of excitement about increasing log exports from the U.S. South, and the tariffs have really taken the wind out of that sail pretty quickly. (Source: Rocky Goodnow, Vice President at FEA) 11 Russia Rising Becoming Larger Exporter of Lumber "Russia has taken a lot of the softwood lumber market in China. That is going to continue." Sanction have devalued the Ruble, making Russian lumber less expensive on the global market. Russia mostly supplying lumber now and not logs due to log tariffs imposed by the Russian government. Foreign interests have built their own mills in Russia (especially Asian countries). (Source: Rocky Goodnow of FEA) 12 6

7 13 Wood Resources Intl Russia Rising Becoming a Larger Exporter of Lumber Russia will continue to increase production of softwood lumber in the Eastern provinces, especially Siberia. Oil & gas is major driver of Russian economy, predicted to go up in Russia will take market share in China from other countries. Even if demand in China flattens for a period, prediction that Russian exports will probably continue to grow. Predicts top softwood lumber exporters to remain: Canada, Russia, Sweden, Finland and Germany. (Source: Håkan Ekström, principal of Wood Resources Intl) 14 7

8 Not Another China on the Horizon "The North American producers are much more interested and aware of the international markets than they were in the past. There is nothing coming down the road that can compare with the impact that China had on the wood products sector say ten plus years ago." (Source: Rocky Goodnow of FEA) 15 We saw big drops in U.S. hardwood exports to China in August and September 2018 compared to the previous year, almost half of the volume. October there was actually a little bit of a bounce back, but I think that's because there was a rush to get as many containers in before the tariff went up to 25%. (Source: Michael Snow, executive director of the American Hardwood Export Council) 16 8

9 Michael Snow executive director of the American Hardwood Export Council Predicts even bigger drops in U.S. hardwood log and lumber exports for November and December to China. Chinese economy is still growing, just not at the clip it once was. Exchanged 12 15% for 6 7% GDP growth. Growth in China focused on interior cities, building infrastructure and housing. Chinese building projects around the world New Silk Road. Chinese New Year, country basically shuts down for a few weeks in February. China no longer low cost producer for some wood products. This business has moved to Vietnam, Malaysia, Indonesia and Thailand. 17 Despite there being talk all through the year about the Chinese economy slowing down, we never actually saw that reflected in the data until September, essentially when the tariffs were implemented. The days of the 15% year on year growth I think are gone, but I'm still very bullish on the Chinese market. I think the further away from the coast you go, there's an awful lot going on. (Source: Michael Snow of AHEC) 18 9

10 I estimate that one in every five grade lumber boards sawn in America end up in China now. So, when things like tariffs or trade disputes happen, you ve got a lot of revenue tied up in one country. Any trade disruption creates a huge shock to the system. (Source: Dan Meyer of Hardwood Review) 19 Dan Meyer of Hardwood Review (hardwoodreview.com) President Trump kicked China trade issue down the road to March 1st, Both governments are in active talks now. Don t know what will happen. Saw big surge in October to beat the rate hike. Now expects boom and bust cycles until there is a trade resolution. One problem is that recent cycles don t last long enough to move grade prices much higher. Uncertainty is another issue hardwood market would prefer to have a resolution, something it can plan for. Suggested that it seems like Chinese buyers of hardwood act in unison. Price concession news gets around quickly

11 What about the SLA? Producers on both sides of the border were making a lot of money in the first half of 2018, any deal could have upset that apple cart. Entering annual review period for the first six months of 2019, Department of Commerce could send a bill or refund. Most analysts expect a refund of some sort. Who wants what is fuzzy because many major Canadian producers now own mills in the United States. Last trade round, about 50% on the bottom line was actually returned after six years because Canada had such a huge movement in exchange rates. 21 U.S. & Canadian Market Dynamics We hit a bottom and have been stumbling along for six or eight weeks. Now, I'm getting a little bit more confidence that we ve actually seen the worst of it. I don't think we're going to implode I don't think you're going to see dramatic up tick in prices in I don't think you'll see anything like you saw last year. (Source: Steven Rustja of Weston Forest Products) 22 11

12 U.S. & Canadian Market Dynamics So, if you ask me, the overall North American economy in '19 will probably consume less lumber than it did in Will it be catastrophic? I don't think so. But, I think we're not going to see as much production or consumption this year as we experienced in (Source: Steven Rustja of Weston Forest Products) 23 USMCA President Trump negotiated a new trade deal with Canada and Mexico. Allowed dispute resolution mechanism that Canada wanted similar to Chapter 19 process in NAFTA. Lobbied for and signed comprehensive tax reforms. Cut government regulations and reined in excessive federal overreach

13 Trump and China Trade War (Tariff Impacts) "By and large for the forest products industry, Trump's trade policies have been a net negative when you look at the trade disputes, especially in China. The industries most positively affected by Trump's China policy are on the tech side. When you are talking about log exports out of the West Coast, it has been a slight negative because those markets had been pretty flat to begin with, and the tariff hasn't been really high. But when you look at what has happened in the South trade, that has been pretty large. When you look at the hardwood side, there have been some major concerns." (Source: Name withheld to protect a friend) 25 Forest Products Industry Specific Moves Signed an executive order and spoke out in support of more logging and prescribed burning as a way to take action on forest health concerns. Signed Farm Bill with funding to support domestic softwood high rise construction efforts and U.S. hardwood exports to Asia

14 Trade War with China Has contributed to uncertainty in economic markets. China has responded with its own tariffs on U.S. agricultural products, including logs and lumber. Chinese tariffs had a major impact on hardwood and softwood exports. Is Trump picking a fight that we have to make sooner or later? 27 So, let's say it s April 15th, and tariffs are in effect for 25%, and there's no deal in sight. What happens? Yeah, we'll be losing hardwood mills in the United States, no question. We've already lost a member company that's gone out and said they had 80% of their production they were shipping to China. And, it's gone. That's a huge part of the industry to suddenly dry up. And, there's just no other market waiting in the wings to pick up that volume. (Source: Michael Snow of AHEC) 28 14

15 Uncertainty The big thing with Trump is that he creates so much uncertainty. No one really knows what he's going to do next. If you re a sawmill or a seller or buyer of forest products, you aren t sure how agreements are going to change or policy that could affect exchange rates. (Source: Name withheld to protect another friend) 29 If you want more pallet industry and market information, consider subscribing to the Pallet Profile or Recycle Record