Northwest Hardwoods Insights into China s Hardwood Lumber Demand

Transcription

1 Western Hardwood Association World Forestry Center Portland, Oregon August 10, 2016 Northwest Hardwoods Insights into China s Hardwood Lumber Demand Presented By: T.J. Rosengarth - President & CEO of Northwest Hardwoods 1

2 Northwest Hardwoods Insights into China s Hardwood Demand Topics Brief Overview of Northwest Hardwoods Global Demand / Chinese Market Overview NWH s View of China s Hardwood Lumber Demand Conclusions 2

3 Northwest Hardwoods Company Overview 1969 Pioneered Alder Lumber 2011 Purchased by AIP 1980 Purchased by Weyerhaeuser 2014 Purchased by Littlejohn Pioneered Proprietary Grades 1995 Established Sales Offices in China/ Japan Executed Eleven Acquisitions Company Highlights Headquarters: Tacoma, Washington $800MM in Sales (8% NA market share) 30 locations 1900 Employees Sales: Domestic 55% / Export 45% Sawmills - 670MMbf Kilns - 400MMbf 3

4 Northwest Hardwoods Company Overview Operating Locations Centralia, WA Garibaldi, OR Eugene, OR Coos Bay, OR Quiet Valley, OR Mt. Vernon, WA Tacoma, WA Longview, WA Beaverton, OR Western Region Glacial Region Onalaska, WI Dorchester, WI Elkhart, IN Lewiston, MI Grand Rapids, MI Beachwood, OH Loudonville, OH Hamden, OH Erie, PA Titusville, PA Marienville, PA Ridgway, PA Endeavor, PA Hopwood, PA Los Angeles, CA Appalachian Region Tuscumbia, AL Mill Creek, WV Hacker Valley, WV Marlinton, WV Marion, NC Kinsale, VA Fairfield, VA Buena Vista, VA Dailey, WV Currie, NC Key Sawmill Concentration Yard Remanufacturing Inventory Sales Office Exotic Imports Offices Ft. Worth, TX Houston, TX San Antonio, TX Savannah, GA 4

5 Northwest Hardwoods Company Overview Product Offering 82% North American Hardwood Lumber 20 Species 3% Tropical Hardwood Lumber 50 Species 16% Imported Hardwood Panels / Components One-Stop Shop for all Your Hardwoods Needs Alder Hickory African Mahogany Chinese Plywood Ash Basswood Bubinga Cherry White Oak Ipe Meranti Hard Maple Soft Maple Jatoba Russian Birch Red Oak Walnut Poplar Pacific Maple Makore Sapele OSB & Comp. Parts From Alder to Zebrawood There s Power in Choice 5

6 Northwest Hardwoods Company Overview NWH SALES & PROCUREMENT OFFICES IN ASIA (21 employees) Indonesia 2% Italy 1% Malaysia 0% Vietnam 3% Korea Thailand 3% 2% Taiwan 5% NWH 2015 KD Export Sales Japan 8% Other 6% 2015 KD Lumber Sales by Channel ($) China 70% China 69% = NWH Sales Offices = Hardwood Plywood Export Points = Distribution Warehouses Netherlands 1% 6

7 Global Demand / Chinese Market Overview 7

8 Global Demand for Wood Products Forecast Global Demand for Wood Products Global Outlook for Timber Production 1,600 Million Cubic Meters 1,400 1,200 1, Hardwood Softwood Note: Forecast assumes UN outlook on population growth and per capita timber consumption remains stable at 2014 levels US would have to double production of timber over the next 30 years to meet anticipated global demand. 8

9 Global Sources of Hardwood Timber North America is uniquely positioned as global source for rising worldwide use of hardwood lumber Canada Too far North for significant volumes and diversity of hardwood species Tight grain / small diameter China Lacking internal production Log export restrictions from Russia Logs from China s plantations are largely softwood / poor hardwood Russia Legality uncertain Limited certification Infrastructure prohibits meaningful exports Primary hardwood species is Birch 20% Central Africa Legality still quite uncertain Limited certification Corrupt governments and hugely deficient infrastructure 20% Indonesia Government policy constrains resource availability Forest area has declined from by about 20% United States Wide range of species Affordable Highly preferred worldwide FSC/PEFC Certified 99% legal Brazil Poor infrastructure for certainty of supply Legality still quite mixed Limited certification Wide range of species 40% Malaysia Legality uncertain Limited certification & species Sustainability issues - forests conversion to agriculture Rising domestic demand for housing Australia Australian production & export of hardwood lumber has declined Recent reduction in forest area Source: UNECE Forest Products Market Review , FAO 2010 Country Reports, International Tropical Timber Organization 2012 Annual Review and Assessment, industry commentary 9 9

10 Global Demand for Wood Products China Wood Supply Deficit (Equal to Canada s total wood production in 2014) 200, , ,000 Domestic Supply Deficit of ~70,000 MMBF China s forest coverage ratio is 22% *(global average is 31%) 125, ,000 75,000 Domestic Supply Deficit of ~40,000 MMBF Domestic Supply Deficit of ~65,000 MMBF Productivity of Chinese Forests are poor 50% of China s timber is imported China has initiated logging bans 50,000 Chinese plantations of Eucalyptus don t substitute for North American hardwood or softwood 25, E Domestic Natural Forest Timber Supply Domestic Plantation Timber Production Domestic Timber Production Total Timber Demand 10

11 Chinese Market Overview China Before & After

12 Chinese Market Overview China s economy is stepping down to sustainable levels 16% China: Real GDP Growth Rate 14% 12% 10% 8% 6% 4% 2% 0%

13 Chinese Market Overview During 2010 to 2013 China s housing exceeded demand by 40% 1,600 China: Residential Housing Starts and Sales Million Square Meters 1,400 1,200 1, Starts Sales

14 Chinese Market Overview Urbanization will continue to drop but it is still massive China: Increase in Urban Residents Million New Urban Residents MM people in 9 years!

15 Chinese Market Overview China will remain the big dog in driving export demand 15

16 Chinese Market Overview The Dramatic Rise in China s Standard of Living 16

17 Chinese Market Overview China s Shift to Internal Consumption of Furniture $US in Billions $6 $7 $8 $11 $6 $14 $7 $9 $17 $9 $13 $22 $8 $21 $29 $8 $27 $35 $9 $33 $42 $9 $40 $49 $11 $46 $57 $12 $51 $63 $14 $56 $70 $15 $61 $76 $17 $66 $83 $18 $71 $90 $20 $77 $96 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14E '15E '16E '17E '18E Exports Internal Consumption Internal Consumption vs Export moved from in 2005 to in

18 NWH s View of China s Hardwood Lumber Demand 18

19 NWH s View of China s Hardwood Lumber Demand NWH s Recent Efforts to Better Understand China Objective: Meet with Builders/Designers to understand current markets - Economy and building activity - Hardwood demand Met with 5 of our major customers Visited 3 housing developments Interviewed 6 major developers and interior design firms Visited retail furniture outlets Note: Simply NWH views based on our discussions and experience in China 19

20 NWH s View of China s Hardwood Lumber Demand Market Dynamics - Everyone still quite positive despite the Housing Bust. - Average laborer wages still rising. Now at $ /month - Tier 1 (large) cities still growing at frantic pace. - Tier II cities: 50% rapid growth / 50% over built. - Tier III cities and below generally over built. - Major developers moving towards in-house designers / architects. - General contractor specifies and sources materials (not the Developer). - Residential Consumers are takers little influence on design / content. - Pre fit of housing is heavily encouraged by government. - Mid to high end development forced to subsidize low end residential. 20

21 NWH s View of China s Hardwood Lumber Demand Typical Residential Development (Shanghai, Beijing, Etc.) 21

22 NWH s View of China s Hardwood Lumber Demand Interior of US Home square feet / $.80MM to $1.5MM 22

23 NWH s View of China s Hardwood Lumber Demand Interior of Chinese Home square feet / $3.0MM to $6.5MM Kitchen China Consumer Preferences Are Not The Same as the US 23

24 NWH s View of China s Hardwood Lumber Demand Interior of Chinese Home square feet / $3.0MM to $6.5MM Bedroom China Consumer Preferences Are Not The Same as the US 24

25 NWH s View of China s Hardwood Lumber Demand Interior of Chinese Home square feet / $3.0MM to $6.5MM Bath Room China Consumer Preferences Are Not The Same as the US 25

26 NWH s View of China s Hardwood Lumber Demand Interior of Chinese Home square feet / $3.0MM to $6.5MM Living Room China Consumer Preferences Are Not The Same as the US 26

27 NWH s View of China s Hardwood Lumber Demand Interior of Chinese Home square feet / $3.0MM to $6.5MM Master Bedroom China Consumer Preferences Are Not The Same as the US 27

28 NWH s View of China s Hardwood Lumber Demand US definition of luxury is different than theirs Very little hardwood on fit-out They pay cash up front for big ticket items. Often use family money not credit On-line purchasing is taking off. Not uncommon to spend up to $300K for furnishings on high end home. Real hardwood is heavily preferred for furniture thus the strong growth. 28

29 Business to Customer (B2C) - Online E-commerce transactions were over 500 billion in 2010 (CNNIC) 3.2% of total retail sales and growing at 30% a year. B2C in furniture and interior decoration was USD$1.2 billion in 2013 Growing 15% a year. OEM s desire to shift towards online sales still has it s challenges Retail is still traditional with many small shops Difficult for smaller companies to establish brand identity and trust online Larger producers however are growing B2C rapidly: A-Zenith, OPPIEN, Kuka Sofa, etc. 29

30 Conclusions Chinese economy is slowing but still a major force for us. Don t have their own wood to support the demand. North America will be the supplier. Standard of living change is THE major driver for hardwood demand, not the houses themselves. Taking place elsewhere as well. Easy to misunderstand the market. Information isn t always reliable. Time on the ground allows you to really understand. On-line purchasing (B2C) will represent a dynamic market change to take advantage of. 30

31 Questions????? 31

32 Appendix 32

33 Chinese Market Overview 10 years of Dynamic Change The Ruble and Real Are Suddenly Much More Competitive 0% Loss in Value Against the US Dollar Since July % -10% -4% -15% -20% -25% -20% -18% -30% -35% -40% -38% -35% -31% -45% -50% -46% Russian Ruble Brazilian Real NZ Dollar Australian Dollar Euro Canadian Dollar Chinese RMB 33

34 Appendix II 34

35 Chinese Market Overview Unlikely the boom will be repeated due to tighter government controls Million Board Feet US Exports of Hardwood Lumber to China US Furniture Manufacturing Shift to US Housing Bust and Worldwide Economic Turmoil China s Housing Boom % 2015 & Beyond China's Growing Middle/Upper Class Consuming US Hardwoods Source: USDA FAS Graph:HMR Executive 35

36 Source: Global Trade Atlas $2.0 $1.5 Billions ($USD)$2.5 $1.0 $0.5 World s Top 10 Hardwood Lumber Exporters $0.0

37 Source: Global Trade Atlas $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 Billions ($USD)$4.5 World's 10 Largest Hardwood Lumber Importers

38 Source: Global Trade Atlas Millions ($USD) $600 $500 $400 $300 $200 World Hardwood Lumber Importers (Without China) $100 $-

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