Emerging Markets for Forest Products: What s Hot and What s Not in Lumber and Solid Wood Products

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1 Emerging Markets for Forest Products: What s Hot and What s Not in Lumber and Solid Wood Products H M Lupold, Lupold Consulting, Inc. Appalachian SAF, Greenville, NC January 28, 2010

2 Decline: #, -74% $/mbf, -40% $/msf, -37% Demand, -50% Volume, -34%

3 Emergence: When the Current Submerged Housing Market, That Uses Nearly 85% of Solid Wood Products In Construction and Home Furnishings, Rebounds!

4 N Am Lumber consumption increasing by 2.7% annually US Production increasing.8% annually US Production increasing.8% annually 1990 to 2005

5 Lumber Prices Started to Fall 3 rd week May 2006

6 A Single Market Collapses - Products Suffer (% drop ) Softwood Lumber Production - 42% Southern Pine -47% Western US -43% All US -78% BC -46% All Canada - 50% US Softwood Lumber Demand Panel Production -38% Plywood -32% OSB Engineered Wood Products -57% Glulam - 72% I-Beams -69% LVL

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8 Private new residential (90+% wood frame) (-52%) Private non-residential Public R&R

9 Spotted Owl Impact on Stumpage & Lumber Prices with 400M+ Starts, 8 bil bf Less USFS Timber

10 Forest & Landowner Consumers, Green Movement Managers, Services New Products R&D Designers, Builders, Fabricators Distribution Company Marketing & Sales Trade Association Promotion Secondary Mills: Solid Wood Paper Imports / Exports Primary: Solid Wood Pulp & Paper Energy Forest Users, Hunters Buyers & Loggers Hardwoods & Softwoods

11 8 6 Excess Annual Growth, Softwood Sawtimber Four Different Web Results Jul-06 Mar-08 Mar-09 Jan-10 Million Green Tons Annually GA SC NC VA

12 Million Green Tons Annually Excess Annual Growth, Pine Pulpwood Four Different SRS-FIA Web Years Jul-06 Mar-08 Mar-09 Jan-10 New Op Plts GA SC NC VA GA & SC volumes for New Operating Plants not in FIA (OSB, energy & paper users)

13 Excess Annual Growth, Hardwood Sawtimber Million Green Tons Annually Jul-06 Mar-08 Mar-09 Jan-10 GA SC NC VA

14 Excess Annual Growth By Tree Products, All ownerships VA-GA Thousand Green Tons, SRS FIA Web Site 1/21/2010 G/R AvgYr Pine Saw >10 dbh G/R Saw Ratio Pine Pulp 6-8 dbh Hdwd Saw >12 dbh Hdwd Pulp 8-10 dbh VA , ,300-1,314 NC , ,275 7, SC , , GA , ,390 0 Total ,009-2,603 26,267-1,348 # Mills THE FOREST IN 2003(On Average)

15 Forest Products Shipped by Weight, % Softwoods Hardwoods Pulp & Paper 16% 33% r 2004 Million Short Tons

16 Softwood Products: 317 Million Green Tons; 66% Total US Timber Harvest; South 70%, West 25% & Maine 2.4%; Sawtimber 66%, Pulpwood 33%, Fuel 1% Forest Landowner Income: 75% Saw, 24% Pulp, >1% Fuel 24% 3% 5% 68% USFS TPO 2005 Lupold Consulting, Inc.

17 Softwood/Construction Products, Lumber Plywood OSB LVL Other Panels 29% Year Million Short Tons USFS FPL Lumber 61%

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19 Southern Pine Lumber: 85% Secondary 42% Treated 26% Trusses/EWP 15% Industrial 12% Framing 5% 1 boards Over 83% Residential 60-80% Ship Out-of-state (In VA-NC-SC)

20 Top 50 Housing Permit Locations in the US in 2008 #6 #2 #5 #3 #1 #4

21 Southern Pine Lumber Movement On East Coast for Housing State Northeast (10 states) Southern Pine Lumber Capacity (million bf) Housing Starts 2008 (thousand) Population (million) Comments Lbr from South, West & Canada Maryland Lbr from South Virginia Lbr from GA-NC North Carolina South Carolina 2, Lbr from GA-SC 1, Lbr from GA, FL, AL Georgia 2, Lbr to SC, NC, AL, FL Florida 1, Lbr from GA, SC, AL Treated Decks & Truss Market

22 Product Flow Involves Major Remanufacturing By Secondary PRIMARY PRODUCTS Swd Lumber Swd Plywood OSB MDF PBD HDB Hwd Lumber Hwd Veneers Hwd Plywood TREATED 42% 5% TRUSSES EWP 26% 10% 10% MILLWORK MOULDINGS CAB/FURN 4% 4% 87% 80% 85% 45% 95% 80% INDUSTRIAL 15% 20% 15% 10% 15% 10% 50% 5% 10% RETAIL BIG BOXES 13% 61% 75% 3% 5% 5% 5% 10% Only primary products consumer sees

23 Product Flow Involves Lots of Steps and Decision Makers PRODUCTS Swd Lumber Swd Plywood OSB MDF PBD HDB Hwd Lumber Hwd Veneers Hwd Plywood SECONDARY Treated Trusses, ceiling Trusses, floors Wall Sections Reman, cut-up Prefab Bldgs Mobile Homes EWP Fence Panels Furniture Cabinets Windows Doors Millwork Flooring Pallets Containers Fixtures DISTRIBUTION Big Boxes Lowe s Home Depot Local Bldg Sup Pro Bldr Supply Wholesalers Distributors Buying Groups Furniture Stores Floor Covering BUILDER Local Med Size Large Size R&R Contractor Fabricator Installer CONSUMER Homeowner DIY Architect Designer Specifier Do forest landowners, managers, consultants, wood buyers and mill personnel have responsibility to also sell use of wood? Might help your stumpage rates!

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25 Engineered Wood Products (EWP) in N America, Glulam I-beam LVL -57% -72% -69% Non Residential 53% Residential 42% Residential 95% % Floor Area % % % Residential 95% EWP in BBF lumber equivalent (6.6%) verses US lumber use at 63.5BBF

26 Engineered Wood Products/Panels in 2010 Product increase over 2009: + 4% Plywood + 14% OSB + 8% Glulam + 35% I-joist + 25% LVL End-Use Applications increase over 2009: + 24% Residential construction + 7% Remodeling + 5% Industrial APA Engineered Wood Association

27 Hardwood Products: 181 Million Green Tons; 36% US Timber Harvest; MS-AL-GA 17%, MN-WI-MI 15%, ME 4.4%; Sawtimber 40%, Pulpwood 44%, Fuel 16% 31% 2% 22% 45% Lupold Consulting, Inc. USFS TPO 2005

28 Hardwood/Industrial Products, Lumber Veneer/Plywood Particleboard Hardboard MDF Lumber 63% Million Short Tons

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30 16 US Hardwood Lumber Uses, Billion Bd Ft Misc Exports Lumber Pallets Flooring Millwork Cabinets Furniture

31 R&D in new wood products very limited in US! Not so in NZ, north Europe! Wood Modification Learn from lost uses Add chemicals, gain high strength back Stop moisture moving, super high temp curing New heartwood, less rot

32 Wood Product Imports to US, Europe & Asia 45 Lat? 45 Lat Imports to US Today: Lumber, OSB for 30 years (Canada) By all fence panels, SYP (Brazil) Fast growth By 19981x4,6 boards, SYP (Brazil) Low strength Radiata mouldings, doors (Chile, Brazil) SYP pallet stock past 4 years (Chile) Past 8 years, 1 #2, S-P-F boards (N Europe) Appearance Workability $200+/mbf over SYP 2% US Lumber Use Non-CA Imports, 2009 Builds 1/3 US houses

33 Wood Product Exports from US and Canada 2% US Lumber Produced Non-CA Export 2009 Exports from US Today: Treated into Caribbean Islands Limited 2 & treated timbers into China Lumber/panels into Mexico OSB to Europe, slowed down Hardwood lumber to Asia & Europe

34 Softwood Plantation Area, Chile, New Zealand, South Africa, Focus today around world away S Africa Chile N Zealand from softwood plantations H ectares T h o u san d yr old Eucalyptus in Chile RISI, Bob Flynn, SCFA Meeting

35 Lumber and Panel US Production, Exports and Imports US Output LUMBER (mmbf) Export Import Canada Import Other US PANELS (mmsf) Plywood OSB Export , ,252 1,864 14,706 13, , ,835 2,425 14,665 14, , ,358 2,940 14,330 14, , ,032 2,629 13,428 14, , ,581 1,636 12,243 14, , ,000 1,600 10,521 13,400 1, E %decline from 05 23,043-43% 775 8,200-62% % 8,827-38% 10,200-32% High non-canada lumber imports in 2005 due to weak European market, strong US lumber demand, excellent conversion rates that paid ocean freight. 480

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37 BC Alberta Could loose 8-12 sawmills in (no wood)

38 BC Mills US Mills (ID & MT) Estimated Loss by % Lodgepole pine killed Loss equals 15 million homes Maybe, 50% salvage Area Affected 31.8 million acres Volume Damaged 750 million tons Damaged Compared, South/VA-SC BC Area to SYP types, 48%/66% BC Vol to Swd GS, 29%/113% Interior Lumber Production , 12 billion bf 2009, 7 billion bf , Off 6 billion from 2005 US housing peak

39 BC lumber part of China s $586 billion stimulus package China lumber sales approach 20 per cent of BC production Canada $141 billion (24%) of $586 Wood building code in place in China 6 million new affordable housing units by 2012 Three demo projects initially: wood-framed commerical building walk-up apartments with wood trusses wood frame partition walls in apartments

40 The Spotted Owl Years + 135% + 150% TimberMart South

41 65% housing starts in South built on concrete slab, adding 31% more global warming than a raised wood floor system.

42 Haiti

43 What about Southern pine lumber and panels for pre-designed structures to treat and fabricate in Africa using local workforce

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47 Most Areas Facing Strengths Top 5 Need turnaround in the labor market Charleston s got Boeing Backlog foreclosures: 3.2mm in 2009, increase to 4.0mm in 2010 Big wave of ARM s to reset in 2010 Home prices to drop 7.9% nationally in 2010 Starting with limited supply of housing stock Most decade, prices stayed in sync with household income Most decade, economic stability in general Add Columbia, Greenville, Charlotte, Raleigh-Durham, Wilmington, Virginia Beach, Richmond, Washington DC Area

48 The South will shine again as it did in the 1990 s!

49 Forest & Landowner Trade Association Promotion Consumers, Green Movement Managers, Services Designers, Builders, Fabricators Forest Users, Hunters New Products R&D Distribution Company Marketing & Sales Secondary Mills: Solid Wood Paper Imports / Exports Primary: Solid Wood Pulp & Paper Energy Buyers & Loggers Hardwoods & Softwoods