PNW Wood Markets: A Closer Look at our Domestic and Export Timber Economies

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2 PNW Wood Markets: A Closer Look at our Domestic and Export Timber Economies Timber Measurements Society Central Meeting April 7, 2016 Coeur d Alene, Idaho 2015 Forest2Market, Inc. 2

3 Today s Topics US housing and the forest industry The future for building with wood Softwood Lumber Agreement US regional production trends The Log Export business Canadian lumber production Conclusion and some predictions 2015 Forest2Market, Inc. 3

4 About Forest2Market Forest2Market serves industries that consume wood raw materials. Wood products, pulp and paper products and lumber manufacturers Bioenergy, biofuels and biochemical producers These industries rely on Forest2Market s market price reports, performance benchmarks, resource studies and supply chain expertise to make high value decisions and measure the results. 4

5 Forest2Market Worldwide Helsinki office Eugene, OR and Coeur d Alene, ID Charlotte, NC Corporate 2017 Curitiba, Brazil office 5

6 Building with wood in the US 2015 Forest2Market, Inc. 6

7 US housing drives NA production 2,500 2,000 1,500 A shallow recession looms due to global economy Real wage growth is stagnant part time jobs Home prices and rents increasing Home equity loans from subprime era linger Conservative outlook 1, Source: US Census & Forest2Market 2015 Forest2Market, Inc. 7

8 Changing demographics of housing 2, % single 2,000 1,500 1, % single Total starts Single family Linear (Total starts) Poly. (Single family) Source: US Census 2015 Forest2Market, Inc. 8

9 New horizons building with wood Framework, a twelve story retail, office and housing project using crosslaminated timber (CLT) and other engineered wood products to be constructed in Portland, Oregon 2015 Forest2Market, Inc. 9

10 BC Forest Industry 2015 Forest2Market, Inc. 10

11 B.C. softwood lumber imports to US SLA enacted MMBF lumber shipments C$toUS$ Source: WWPA & Bank of Canada 2015 Forest2Market, Inc. 11

12 Canadian lumber production has peaked Billion board feet BC prod falling Eastern Canada US imports BC prod BC imports East Canada prod East Canada imports Source: WWPA 2015 Forest2Market, Inc. 12

13 Slow Chinese demand = increased US domestic supply China lumber imports by selected country Volume cubic meters Source: China Customs Russia USA Canada 2015 Forest2Market, Inc. 13

14 Softwood lumber agreement Adopted in 2006; resulting from a disagreement over whether Canadian stumpage pricing process constituted an unfair subsidy that disadvantaged the US lumber industry SLA expired in October 2015 What has changed? Mountain pine beetle infestation in BC, Canadian producers supply China s demand for wood products, Canadian industry now owns a large stake in US lumber production Strong US $ makes Canadian lumber imports attractive As demand from China falls, US producers have been concerned about a wall of wood from across the border Canadian producers see new trade restrictions as an unnecessary intrusion on free trade, an effort to prop up values of US private forests and fear further duties could be retro active Negotiations began with PM Trudeau s White House visit last month 2015 Forest2Market, Inc. 14

15 US industry outlook 2015 Forest2Market, Inc. 15

16 Source of US Softwood Lumber 20,000 Billion board feet 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 West South Other Imports Source: WWPA 2013 Forest2Market, Inc. 16

17 Key Economic Indicators Table 4. Performance Overview of Selected Industries in February 2016 (Source: ISM) Manufacturing Services Categories Index Wood Products Paper Products Index Real Estate Construction Ag. & Forestry New Orders Production Employment Slow Supplier Deliveries Inventories Customers' Inventories Prices Backlog of Orders Exports Imports Growing at a faster rate Increase Growing at a slower rate No change No change Decrease Contracting/Slowing at a slower rate Contracting/Slowing at a faster rate ISM: Institute of Supply Management 2013 Forest2Market, Inc. 17

18 US Pacific Northwest 2015 Forest2Market, Inc. 18

19 US log exports to Asia drop 25% in 2015 Northwest Log Exports to Asia - Breakbulk Volume Volume MBF scribner Source: US Dept of Commerce, courtesy of Jones Stevedoring Japan Korea China 2013 Forest2Market, Inc. 19

20 Hemlock logs to China Chinas economy continues to decelerate while seeking stability GDP is slowing, credit risk is stabilizing US Logs outpriced due to USD, devalued Yuan, softened building effort due to structural oversupply Property is still viewed as a favorable investment $800 $700 $600 $500 $400 $300 $200 $100 $0 Hemlock C sort logs $/MBF Delivered cost Source: Forest2Market 2013 Forest2Market, Inc. 20

21 Douglas Fir Exports to Japan DF retains its market share due to its value as a coveted building material Strong Yen spurs spending before upcoming tax increase Japanese housing starts just under 1MM Tenuous times amidst market turbulence 2013 Forest2Market, Inc. 21

22 Domestic Production 2013 Forest2Market, Inc. 22

23 Pacific Northwest industry margin $ The northwest is timber supply constrained and volatile $ $ $ $ $ $ $ Source: Forest2Market and WWPA D Fir GRN/SRF STD & BTR Doug fir log cost Linear ( Doug fir log cost) 2015 Forest2Market, Inc. 23

24 Oregon Washington harvest and log value Billion board feet and $ / MBF OR/WA harvest Log exports Douglas fir average $/MBF 0 Sources: Jones Stevedoring, Forest2Market, State Stats 2013 Forest2Market, Inc. 24

25 US Southern Pine 2015 Forest2Market, Inc. 25

26 Southern Pine industry margin Log supply is abundant, growing and accessible $ $ $ $ $ $ $ $ Southern Pine lumber composite Southern pine log cost Linear (Southern pine log cost) Source: Forest2Market 2015 Forest2Market, Inc. 26

27 Southern Forestry and Agriculture 2013 Forest2Market, Inc. 27

28 Canadian investment in Southern pine sawmills $800 $700 DF to SYP Log Pricing $600 $500 $400 $300 $200 $100 $0 Jan 08 Apr 08 Jul 08 Oct 08 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 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 DF Westside Domestic SYP MBF Linear (DF Westside Domestic) Source: Forest2Market 2013 Forest2Market, Inc. 28

29 Canadian forest industry moves south The Southern US pine region has abundant, low cost timber from productive, well managed private forests Canfor, West Fraser and Interfor; leading Canadian forest products companies hedge their bets, moving out of Beetle kill, into more lucrative business environment 35 SYP sawmills in Texas, Arkansas, Louisiana, Mississippi, Alabama, Georgia, South Carolina, North Carolina and Florida are now owned by these three companies 4.5 billion board feet of production capacity. Mostly framing lumber. Studs remain a NW and Northern product due to strength characteristics. Roughly half of 2015 s housing starts were in the South Forest2Market, Inc. 29

30 Concluding thoughts Slow but steady recovery for the US housing market Low interest rates, cheap fuel and sluggish economy watch pallets Potential for multi level building with wood Watch for mill closures and consolidation to continue as PNW log supply is constrained British Columbia production and imports are declining Major growth for Southern US pine industry underway Strong US $ influence on wood imports & exports Less demand for NA wood products for China = less competition for domestic wood supply Squaring off with competitive Southern hemisphere industry: productive plantations, modern pulp and panel mills; China demand and strong US $? PNW harvest levels will be flat in near term. Housing and exports 2015 Forest2Market, Inc. 30

31 Forest2Market: The highest quality wood raw material analysis available Greg Frohn Manager, PNW Market Sales (360) Forest2Market Brixham Hill Avenue, Suite 550 Charlotte, NC Forest2Market, Inc. 31

32 Thank You! 2015 Forest2Market, Inc. 32