North American Timber Outlook - PDF Free Download

North American Timber Outlook Conditions Required for a Widespread Revival North American Conference October 2017 Peter Barynin Principal Economist, Timber Copyright 2017 RISI, Inc. Proprietary Information

How Low Can Southern Prices Go? $800 $700 Regional Sawtimber Prices QTR2 West Coast, Douglas fir Dollars per MBF $600 $500 $400 $300 West Coast, Whitewood Southern Pine (Delivered) $200 $100 Southern Pine (Stumpage) $0 2010 2011 2012 2013 2014 2015 2016 2017 Note: Southern prices estimated using 7.5 per MBF, Scribner. Copyright 2017 RISI, Inc. Proprietary Information 4

Relationship Between Log and Lumber Prices Has Changed US Dollars per MBF, Quarterly Data corrected from print version $1,000 West Coast Douglas fir $500 $800 $400 $600 $300 $400 $200 $200 Delivered Log (L) Lumber* (R) $0 1990 1995 2000 2005 2010 2015 * Douglas fir 2x4, green, lagged two quarters ** SYP Westside 2x4, kiln dried, lagged two quarters $100 $0 Copyright 2017 RISI, Inc. Proprietary Information 5

Relationship Between Log and Lumber Prices Has Changed US Dollars per MBF, Quarterly Data corrected from print version $1,000 West Coast Douglas fir $500 $500 South SYP $600 $800 $400 $400 $500 $600 $300 $300 $400 $400 $200 $200 $300 $200 Delivered Log (L) Lumber* (R) $0 1990 1995 2000 2005 2010 2015 $100 $0 $100 Delivered Log (L) Lumber** (R) $0 1990 1995 2000 2005 2010 2015 $200 $100 * Douglas fir 2x4, green, lagged two quarters ** SYP Westside 2x4, kiln dried, lagged two quarters Copyright 2017 RISI, Inc. Proprietary Information 6

Age Class Dynamics is Changing the Supply Potential 8.0 SYP Managed Forests, Five Year Age Classes Million Acres, 2016 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 00 05 06 10 11 15 16 20 21 25 26 30 31 35 36 40 41 45 46 50 Copyright 2017 RISI, Inc. Proprietary Information 7

Age Class Dynamics is Changing the Supply Potential 8.0 SYP Managed Forests, Five Year Age Classes Million Acres, 2016 7.0 6.0 5.0 Matures in next five years! 4.0 3.0 2.0 Becoming overmature 1.0 0.0 00 05 06 10 11 15 16 20 21 25 26 30 31 35 36 40 41 45 46 50 Copyright 2017 RISI, Inc. Proprietary Information 8

Softwood Sawlog Prices Expected to Move Up Sustained US and global economic growth Forward momentum for housing starts Higher prices for lumber and plywood Mountain pine beetle in Canada Chinese wood fiber deficit Copyright 2017 RISI, Inc. Proprietary Information 9

US Softwood Sawtimber Demand: A Slow Recovery Billion Board Feet 25 US South 14 US West (Inland and Coast) 20 12 10 15 8 10 6 4 5 2 0 2001 2004 2007 2010 2013 2016 2019 0 2001 2004 2007 2010 2013 2016 2019 Copyright 2017 RISI, Inc. Proprietary Information 10

Sawlogs Will See Some Revival $70 $60 Southern Pine Stumpage US Dollars per Ton Nominal Inflation Adjusted (2016$) $900 $800 Douglas fir Delivered Logs US Dollars per MBF $700 $50 $600 $40 $500 $30 $400 $20 2001 2004 2007 2010 2013 2016 2019 $300 2001 2004 2007 2010 2013 2016 2019 Copyright 2017 RISI, Inc. Proprietary Information 11

Harvest Ready Timber Keeps Ahead of Demand US SOUTH PINE SUPPLY (Cumulative for 2016 2020) Roundwood from Pine Plantations* Acreage Stand Age 26 30 Years 3.0 Acreage Maturing within Five Years 6.1 9.10 Million Acres Roundwood Yield at Final Harvest 97 Tons per Acre Total 880 Million Tons Roundwood from Other Sources Thinnings 225 Natural Stands 325 550 Million Tons Roundwood from All Sources 1430 Million Tons Roundwood from All Sources per Year 286 Million Tons Note: Data includes all wood fiber sourced from forests * RISI estimate of area available for commercial production 350 300 250 200 150 100 50 2016 2020 Averages 73% utilization 0 Annual Supply Annual Demand Copyright 2017 RISI, Inc. Proprietary Information 12

SYP Stumpage Moves Out of Bounds US South Unadjusted Sawlog Supply Curve $65 Real Stumpage Price (2016/Ton) $60 $55 $50 $45 $40 $35 $30 2008 to 2016 2000 to 2007 $25 $20 100 110 120 130 140 150 160 170 Stumpage Removals (Million GST) Copyright 2017 RISI, Inc. Proprietary Information 14

SYP Stumpage Moves Out of Bounds US South Unadjusted Sawlog Supply Curve $65 Real Stumpage Price (2016/Ton) $60 $55 $50 $45 $40 $35 $30 2008 to 2016 Resistance 2000 to 2007 Support $25 $20 100 110 120 130 140 150 160 170 Stumpage Removals (Million GST) Copyright 2017 RISI, Inc. Proprietary Information 16

Adjusted Sawlog Supply Curve US South, Quarterly, 1995 to 2016 with 2017 to 2019 Forecast $75 $70 Real Stumpage Price (2017 $/Ton) $65 $60 $55 $50 $45 $40 $35 $30 $25 $20 $15 70% 80% 90% 100% 110% 120% Harvest/Supply Potential Copyright 2017 RISI, Inc. Proprietary Information 18

Adjusted Sawlog Supply Curve US South, Quarterly, 1995 to 2016 with 2017 to 2019 Forecast $75 $70 Real Stumpage Price (2017 $/Ton) $65 $60 $55 $50 $45 $40 $35 $30 $25 $20 2017 to 2019 annual $15 70% 80% 90% 100% 110% 120% Harvest/Supply Potential Copyright 2017 RISI, Inc. Proprietary Information 19

West Coast Log and Lumber Exports Will Not Fully Recover Maintaining economic growth plus a revival of US housing markets is critical to the outlook Wood fiber diverted back to US mills British Columbia will gain market share in China Alternative offshore fiber sources Potential for US South to export logs to Asia if price spreads widen beyond expectations Copyright 2017 RISI, Inc. Proprietary Information 20

PNW Sawlog Price Forecast: Long term Real Prices Trend Lower Lower lumber profit margins in PNW than South South captures market share from PNW Global timber supply potential still underutilized No major supply or demand shocks anticipated Fairly flat North America lumber supply curve Copyright 2017 RISI, Inc. Proprietary Information 21

Global Solid Wood Product Demand* Million m³ per Year 1,100 1,000 900 800 700 600 500 400 300 200 100 0 By Type 2001 2005 Non structural Panels Structured Panels Hardwood Lumber Softwood Lumber 2006 2010 2011 2015 2016 2020 2021 2025 * Solid Wood Product = Lumber, Plywood, OSB and Non structured Panels Source: RISI World Sawlog Study Copyright 2017 RISI, Inc. Proprietary Information 22

1,100 1,000 900 800 700 600 500 400 300 200 100 Global Solid Wood Product Demand* Million m³ per Year 0 By Type 2001 2005 Non structural Panels Structured Panels Hardwood Lumber Softwood Lumber 2006 2010 2011 2015 2016 2020 2021 2025 1,100 1,000 900 800 700 600 500 400 300 200 100 0 By Region 2001 2005 Asia & Middle East Russia and E. Europe Western Europe North America Southern Hemisphere 2006 2010 2011 2015 * Solid Wood Product = Lumber, Plywood, OSB and Non structured Panels Source: RISI World Sawlog Study Copyright 2017 RISI, Inc. Proprietary Information 2016 2020 2021 2025 23

Global Softwood Sawlog Prices Are at Lowest Levels in 30 Years US Dollars per Cubic Meter $110 $100 $90 $80 $70 $60 Nominal Real (2016$) QTR2 $50 1997 2002 2007 2012 2017 Note: Global average price calculated as weighted average of all softwood sawlog production and delivered prices. Real prices calculated using the US producer price deflator. Copyright 2017 RISI, Inc. Proprietary Information 24

US South Pulpwood Price Increases Stall $12 $11 Softwood Stumpage Three Year Average Dollars per Ton $10 $9 $8 $7 $6 2000 2002 2004 2006 2008 2010 2012 2014 2016 Note: 2017 estimate is the average of first and second quarter. Copyright 2017 RISI, Inc. Proprietary Information 26

Pulpwood Prices Feel the Pressure of Escalating Demand Harvests will surpass record levels Factors in expanding chip production OSB output recovers within next two years Wood pellet capacity start ups Supplies expand, but at a slow rate Boost from come along wood Declining areas available for thinning Contracting hardwood resource Copyright 2017 RISI, Inc. Proprietary Information 27

US South Pulpwood Prices Dollars per Ton Stumpage Harvest and Delivery Costs $12 $22 $11 Hardwood Softwood $21 Softwood $10 $20 $9 $19 $8 $18 $7 $17 $6 2007 2009 2011 2013 2015 2017 2019 $16 2007 2009 2011 2013 2015 2017 2019 Copyright 2017 RISI, Inc. Proprietary Information 28

A 27% Decline in Hardwood Demand Was Not Enough to Stabilize Hardwood Inventories 6.0 US Operable Hardwood Growing Stock Inventory Billion Short Tons 5.5 5.0 4.5 1995 2000 2005 2010 2015 Copyright 2017 RISI, Inc. Proprietary Information 30

Age Class Area Dynamics Subtract from Thinnings 7.0 6.0 5.0 SYP Managed Forests Five-Year Age Classes Million Acres, 2016 Now nearly thinned out? 4.0 3.0 2.0 1.0 0.0 0-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 41-45 46-50 Copyright 2017 RISI, Inc. Proprietary Information 31

SYP Pulpwood Thinning Supplies Are Unlikely to Be Sustained 60 US South Plantation Pulpwood Thinning Volumes 50 Million m³ per Year 40 30 20 10 0 1991 1995 1996 2000 2001 2005 2006 2010 2011 2015 2016 2020 Copyright 2017 RISI, Inc. Proprietary Information 32

US South Regional Softwood Stumpage Relative to Southern Average 1.8 1.6 Pulpwood Log Price Ratios Atlantic North Atlantic South Coastal Gulf Inland Gulf Appalachia 1.3 1.2 Sawlog Price Ratios 1.4 1.1 1.2 1.0 1.0 0.8 0.9 0.6 0.8 0.4 1990 1995 2000 2005 2010 2015 0.7 1990 1995 2000 2005 2010 2015 Note: Ratios are calculated as the regional price relative to the southern average. Copyright 2017 RISI, Inc. Proprietary Information 35

US Delivered Pulpwood by Region $55 $50 Softwood Softwood North Central Northeast $55 $50 Hardwood $45 $45 Dollars per Ton $40 $35 Dollars per Ton $40 $35 $30 $30 $25 $25 $20 2004 2007 2010 2013 2016 2019 $20 2004 2007 2010 2013 2016 2019 Copyright 2017 RISI, Inc. Proprietary Information 37

We Never Expected the West Coast Chip Rally to Be Maintained US Dollars per Bone Dry Ton $160 $140 $120 $100 $80 US West Coast Chip Export Prices Current Forecast Last Year's Forecast $60 2000 2003 2006 2009 2012 2015 2018 Copyright 2017 RISI, Inc. Proprietary Information 38

Timber Take Home Points Wood costs are expected to be rising Outlook is conditional on positive GDP growth and higher demand for new housing Pulpwood prices maintaining gains achieved since 2011 Price and demand forecast risk: Downside Economic risk Slower growth in single family housing demand SLA is a wild card Wild fires and hurricanes are just noise Copyright 2017 RISI, Inc. Proprietary Information 39

Recently Released Timber Products Southern Pulpwood Study www.risi.com/uspulpwood January 2017 World Pulpwood Study: Adapting to Emerging Competition and Slowing Growth in Paper Demand www.risi.com/worldpulpwood June 2017 Copyright 2017 RISI, Inc. Proprietary Information 40