The State of B.C. s Wood Products Industry: 2015 Update

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1 The State of B.C. s Wood Products Industry: 2015 Update Association of Professional Economists of BC Vancouver, BC May By: Russell Taylor

2 2a Introduction to: International WOOD MARKETS Group We are wood products industry consultants and we assist companies around the world to develop operational, marketing & business strategies. We are known as global market & industry experts/analysts on timber, lumber, panels & many millwork products sold in the U.S. & global markets. We have had an office in China since We produce Multi-Client Reports: Europe & Russia; Clearwood Pine; Global Lumber Benchmarking; China 5-Year Outlook; WOOD Markets North America 5-Year Outlook; WOOD Markets Monthly Report, China Bulletin

3 3 WOOD Markets Multi-Client Reports

4 Presentation Outline BC Harvest & Lumber Production Trends: B.C. timber harvest & lumber production trends recovering since 2009 B.C. Coast still a hollowed out industry B.C. Interior Mountain Pine Beetle Infestation impact on the future BC Log & Lumber Markets: China s soaring demand for lumber and logs. U.S. lumber market shortages by 2017? Setting up the potential for a super-cycle 4

5 5 Forest Industry in BC Contributes $12 billion/year to the provincial GDP. 146,000 jobs in BC depend on the forest industry. 1 in 16 jobs in BC is tied to the forest industry. 40% of regional economies = dependent on forestry Canada s largest producer of softwood lumber 52% Largest producer of bio-energy in North America. 23% of all rail traffic in BC is forest products. 8.5% of all cargo shipments through Port Metro Vancouver are forest products. = 60% of all BC Hydro s industrial revenues. The forest industry sends $2.5 billion annually in revenues to the three levels of government.

6 1A. BC Timber Harvest Trends 6 BC timber harvests peak in 2005 lower in the future!

7 BC Coast Timber Harvest Trends 7 BC coast harvest peaked in 1988 now 50% lower

8 BC Log Export Trends 8 Exports to Japan, China & Korea increasing, but not USA!

9 BC Log Exports to China Huge volumes!

10 1B. BC Lumber Production Trends 10 BC Coast & Interior: both flat since 2011

11 BC Coast Lumber Production Trends 11 BC Coast = from 4.7 billion bf in 1987 to 1.1 billion in 2009

12 BC Interior Lumber Production Trends 12 Peaks at 15 billion bf in 2005 & to 11 billion bf since 2011

13 1C. MPB Outlook Reports

14 International Media National Geographic April Edition The Bug That s Eating the Woods The Scale of the Current Epidemic is Unprecedented Last 50 years 60 million acres in North America Now Mexico to northern British Columbia In BC about 60% of pine dead is dead 1 Billion cubic metres (1 billion telephone poles)

15 Western Canadian Map of Outbreak

16 BC Interior: Timber Harvest & MPB 16 AAC & Sawlog availability to drop steadily to

17 BC Interior: Lumber & MPB 17 Declining lumber production forecast after

18 2. BC: Global Log & Lumber Markets 18 Key Global Markets: Europe Korea Taiwan India Middle East North Africa Southern Hemisphere Japan China USA Canada Key Markets for B.C. = Japan, China, USA and Canada

19 BC Softwood Lumber Export Trends 19 Exports to US = most important market; China now huge

20 Canada (BC) Offshore Lumber Exports 20 BC is now the largest lumber exporter to China

21 2A. China: Trends & Issues Economic Growth & Wood Products Demand: China s domestic wood products demand grew at about 15% per year from , and going forward, the growth trend is forecast to slow down to about 5-8% (Source: WOOD MARKETS The China Book). China consumes about % of its domestic production, so the GDP growth and wood products growth are tied closely. Imports of logs from Russia have been a key ingredient in China s raw materials supply, but the Russian supply has crashed. 21

22 China: Softwood Log Imports 22 Russian log exports declining steadily to China; NZ now the largest supplier to China

23 China: Softwood Lumber Imports 23 Canada (BC) exports = flat: Russia/Europe/Radiata Pine = up

24 24 China: Softwood Lumber Imports Canadian lumber & SPF exports to China in 2014 were lower vs (-4%) but same levels as 2011 Exports from other countries were way up! Changes in key suppliers (2011 to 2014) that are competing with SPF (especially #2) in China Russia + 1,851,000 m3 +35% Sweden +316,000 m3 +251% Finland + 261,000 m3 +202% Subtotal + 2,428,000 m % Other competing European suppliers not shown in the table include Germany (295,000 m3) and the Baltic States.

25 Profile of the Chinese Industry Sawmills lowest cost; most efficient recovery of lumber from logs Plywood Mills huge scale Use of Capital and Labour 25

26 I WOOD MARKETS China Bulletin Monthly Since 2007 Featuring: Industry Trends & Analysis, Statistics + Import/Domestic Log, Lumber & Panel Prices 26 The 5-year outlook; or monthly log/lumber prices/updates

27 3A. US Lumber Market in Q2/2015: What is going on? its currently BAD! Drawing much of the blame for weak pricing was: Harsh weather in the eastern half of the continent, Low level of U.S. housing starts, A slowdown in exports to China (inventories high) Labor troubles clogged up US West Coast ports, A strong U.S. dollar that encouraged imports from Canada and overseas while discouraging exports. First European lumber vessels in a few years. So, usual situation of too much supply chasing too little demand, where China & USA demand were particularly weak, creating low prices. 27

28 2x4 W-SPF Prices: Lower since late FX devaluation = smaller drop in Cdn$ returns for BC mills

29 3B. US Housing Market Outlook U.S. housing: from 2 million units in 2004 to 550,000 in 2009; 2013 = 930,000 units; 2014 = 1.03 million units. NORMAL = ~1.5+ million units. Unsold houses, prices & foreclosures improving. Still some headwinds to deal with (but getting better): economy; government debt issues; housing inventories; mortgage defaults; etc. Economic growth & jobs needs a healthy housing market (and vice-versa) to support growth. Housing starts have been impossible to forecast! 29

30 US Housing Starts Forecasts: Bullish! 30 We think so! Our outlook is for a slow recovery where getting back to 1.5 million housing starts = is going to take more time!

31 3C. Highlights of WOOD MARKETS 2015 Report: Outlook to 2019 Highlights of Canadian lumber trends & US outlook 31

32 Canada: Flat Lumber Prod n 32 Production decreases in West offset by increases in the East

33 Market Shares: Canada Down; Europe Up 33 Canada s share drops due to flat output: Europe based on prices

34 B.C. Wood Pellet Exports 34 B.C. has lion s share of Canadian production and exports Growth will slow due to limited raw materials

35 4. Canada & US Lumber: Key Supply Drivers: BC/Canada lumber supply to peak in BC/Canada lumber exports to peak in U.S. lumber production how much can be produced by the industry? Not enough (capacity) to meet U.S. demand? Offshore imports (Europe) are expected to fill the gap (but need higher prices). But need U.S. demand (housing starts) and improvements in export markets first! And need China demand for improved results! 35

36 Thank You! Russell Taylor RPF, MBA President International WOOD MARKETS Group Inc. Vancouver, B.C., Canada Suite E. Cordova Street Vancouver, BC V6A 0A5 Tel: (604) / Fax: (604) retaylor@woodmarkets.com