Key Global Supply Trends & North America Market Outlook: Impacts on BC Lumber Industry Russell Taylor, President International WOOD MARKETS Group Inc. Vancouver, B.C., Canada
Presentation Outline 1. Global Perspective: Trends & Drivers 2. Global Timber Supply Dynamics 3. Key Global Timber Regions: Supply Constraints Canada Russia 4. China: Supply/Demand 5. US Market Trends & Outlook 6. Key Outcomes: US/China/Pacific Rim Markets 7. New Directions 2
1. Global Softwood Supply Chain Is there enough wood available in the short term? Where will China gets its wood after ~2013/14? Where will USA gets its wood after ~2014/15? = Tightening supply-side dynamics. = Over next few years: Recovering demand in US, Europe and other markets + the new role of China could outpace the economic timber supply. = Potential IMBALANCE is looming, but only solved/ balanced by higher prices in the next few years! 3
Global Perspective: Trends & Drivers Are we running of wood? Never! But sort of Most other market cycles have had too much supply chasing demand, & when demand falls, prices plunge from over-supply & excess capacity. This cycle, some major differences: China now needs imports, but Russia cannot deliver! Timber supply shortages in Canada are coming. Higher prices will be required to attract new timber/lumber supply in China AND the USA. 4
2. Global Timber Supply Dynamics 5
Global Industrial Roundwood Demand 6 Where will the world get 30 million m3 of timber per year?
3. Timber Supply Issues: 2000-2013 Regional Timber Supply Declines: 2000-2012/13 = major/permanent supply cuts! In Canada! In Russia! And in tropical hardwoods, log export bans in Indonesia, Gabon, Myanmar (April 2014). Not to mention the potential impact on uncertified logs and sawnwood from the European Union Timber Regulations 7
3A. BC Interior: Timber Harvest & MPB 8 AAC & Sawlog availability to drop steadily bottoms ~2023
BC Interior: Lumber & MPB 9 Mountain Pine Beetle killed timber = causes declining lumber production forecast after 2015
3B. Quebec/Ontario: Lower Timber Cuts 10 From 2004: Quebec = -35%; Ontario = -15%
3C. RUSSIA: Timber Supply Issues = Big Impact on China Russia is drastically under harvesting its sustainable timber harvest: ~150 million m3 harvest vs. 600 million m3 potential. Increasing costs, export taxes, crumbling logistics, poor labour, high rail costs, etc., etc, have marginalized Russia s logging industry. Log export volumes to China are decreasing. Huge changes are required before any major capital investments will occur 11
Russia Exports Now Stabilizing after Log Export Tax / Global Financial Crisis Russian Log Export Tax Schedule Starts Global Financial Crisis 12 Russian log exports crash! Now Impact of new tariffs/quotas?
China: Softwood Log Imports 13 Russia no longer dominates; NZ is now the largest exporter
World s Lowest Cost Sawmill: China 14
4. China Wood Products: Demand View #1 or #2 producer, consumer, importer in the world of logs and most wood products! Huge & growing fibre deficit to 2020 China must import massive volumes of logs, lumber, pulp, etc. & will continue to need increasing imports. China has, and will continue to, change global log & lumber markets as well as global trade! The question is: where will China get its logs and sawnwood from as the log supply tightens 15
Global Housing Starts: China is the Gorilla! 16 China s concrete towers = ~50% is Government Housing!
China s Softwood Lumber Imports Russian Log Export Tax moves to 25% in April 2008 17 Canadian largest supplier in 2012, but Russia #1 in 2013
I WOOD MARKETS China Bulletin Monthly Since 2007 Industry Trends & Analysis, Statistics + Import/Domestic Log, Lumber & Panel Prices 18 3 rd Ed. CHINA BOOK: Outlook to 2017 + China Bulletin
5. US Housing Market Outlook U.S. housing: from 2 million units in 2004 to 550,000 in 2009; rising in 2013 to ~920,000 units. Note: a long way to normal of ~1.5 million units Still lots of headwinds to deal with: economy is getting better, albeit slowly; government debt issues;. But, bottom line is that housing can t recover without a stronger economy ( i.e., need job growth) and a balanced housing inventory. 19
Key Global Drivers: Impacting USA SUPPLY DRIVERS = Potential Log Shortages: Canada s timber harvest & lumber production is flattening & will yield no net growth after 2015! BC mountain pine beetle = 20% reduction. Quebec timber harvest = 35+% reduction. Ontario timber harvest = 15+% reduction. U.S. will need more of its own timber supply to meets its own demand how much for China? 20
WOOD MARKETS: 5-Year Forecast Report on Lumber & Panels Annual Report: Released every December 21
US Lumber Consumption: Rebounding 22 US housing starts: ~1.5 million in 2017; R&R is still important!
Canada Lumber Output: Sags by 2016-17 23 BC lumber output slows by 2014-15 & not offset by other regions
US Lumber: Strong Rebound 24 All US regions show substantial gains from strong demand
US Imports: Canada = Flat after 2015 25 The U.S. will need increasing lumber imports from Europe!
Potential Scenario >2015 = Lumber Gap 26 Gap will require higher prices for North American logs, incremental lumber, imported European lumber, etc.
USA Lumber Prices= Record in 15-17 27 Random Lengths Composite = Peaks at US$469 in early April 2013 = Bottoms at US$330 in early July; Price Outlook = Record high prices expected in 2015-2017
6. Key Outcomes: US Market If U.S. housing starts continue as forecast, then demand will strain the entire supply chain. Elements of the super-cycle are already in play and it is possible to keep going even stronger if demand continues to improve over the next 2-5 years while supply becomes more constrained. Heading to imbalance between supply/demand; Fewer low cost supply options remaining; Higher and more volatile lumber prices!.need sustained demand 28
Key Outcomes: Impact on BC China: Economy/demand & need for imports Japan, Korea, SE Asia: pace of growth, imports? ME/NA, India: offer growth but not stable politics? USA: Economy & housing demand key! = All of B.C. s export markets to improve = Potential of stronger demand vs. constrained production in B.C. suggests a possible supercycle of higher prices for BC wood products. 29
Tall Timber Buildings up to 42 floors? 30.
May 7, 2014 4 th Annual Global Log & Lumber Conference Vancouver BC May 7 2014 Featuring: Log export trends in the Pacific Rim markets with a focus on China Global lumber trends U.S. Market Outlook Log/lumber Price Trends Special topics Networking VANCOUVER BC May 7 2014: May 7, 2014 31
Thank You! Russell Taylor International WOOD MARKETS Group Inc. Vancouver, B.C., Canada Suite 603 55 E. Cordova Street Vancouver, BC V6A 0A5 Tel: (604) 801-5996 / Fax: (604) 801-5997 Email: retaylor@woodmarkets.com www.woodmarkets.com