Timberland Investment and International Timber Markets RISI North American Conference October 2016 Bob Flynn Director, International Timber
Agenda Overview of timberland investment in 2016 Update on two key log/lumber markets China much better than expected India a bit disappointing, but starting to improve Update on international woodchip markets another new record year! Copyright 2016 RISI, Inc. Proprietary Information 2
More than 75% of all institutional investment in forest has been in North America Global Forest Ownership by Financial Investors Oceania North America** Latin America Europe* Asia REIT Africa TIMO 0 2 4 6 8 10 12 Million Hectares * "Other" in Europe includes the portion of Bergvik Skog and Tornator Oyj owned by pension funds. ** "Other" in North America includes REITs plus Deltic Timber. Copyright 2016 RISI, Inc. Proprietary Information 3
Most of the larger TIMOs have tried to acquire some forest assets in Latin America Top 10 TIMOs and Region of Investment, 2016 TIMO N. America L. America Oceania Africa Asia Europe Hancock Timber Resource Group X X X Campbell Global X X Forest Investment Associates (FIA) X X Resource Management Services (RMS) X X X X Global Forest Partners X X X BTG Pactual X X X X GMO Renewable Resources X X X The Forestland Group X X New Forests X X Brookfield Timberlands Management X X Molpus Timberlands X Note: TIMOs ranked according to the value of assets under management in 2016. Brookfield and Molpus tied for 10 th place, so table above includes 11 companies. Copyright 2016 RISI, Inc. Proprietary Information 4
Today 43% of the Top 30 TIMOs are headquartered outside of the USA Top 30 TIMOs by Headquarters Location Europe 30% USA 57% Brazil 7% Canada 3% Australia 3% Copyright 2016 RISI, Inc. Proprietary Information 5
What s new this year? A lot happening in Europe Four new TIMOs in the Top 30 (ranked in terms of assets under management) all based in Europe In addition, several other European TIMOs are hovering just outside the Top 30 Some are African focused but European based, like Quantum Global (Angola plantations) or Green Resources Others are Northern Europe focused, like Dasos or UB Nordic UPM continues to sell down forest assets in Finland Rumors of potential bids by financial firms for SCA forest company Copyright 2016 RISI, Inc. Proprietary Information 6
Fourth RISI/DANA Forest Investment Conference London, May 3 5, 2017 RISI and DANA have combined forces to bring together the most compelling conference for the financial community and those engaged in tracking companies and assets or who own and manage timberlands. The two day conference will take an in depth look at timberland investments around the globe and how these opportunities will unfold in the near future. Copyright 2016 RISI, Inc. Proprietary Information 7
After the USA and Canada, there is more forest owned in Australia by institutional investors than in any other country Million Hectares 1,800 1,500 1,200 900 600 300 0 Ownership of Forest by Financial Institutions by Country *Includes only the pension fund ownership shares in Tornator Oyj and Bergvik Skog. **Does not include Brookfields ownership of 205,000 ha of land under Fibria's trees. Copyright 2016 RISI, Inc. Proprietary Information 8
Brazil, Uruguay and Chile account for 77% of financial investors forest ownership in Latin America Forest Ownership by Financial Investors in Latin America, 2016 Nicaragua 1% Panama 1% Uruguay 20% Paraguay 1% Mexico 1% Ecuador 1% Guatemala 2% Costa Rica 1% Argentina 4% Belize 8% Chile 8% Brazil 49% Colombia 3% Copyright 2016 RISI, Inc. Proprietary Information 9
Institutional investors play a much more important role in some countries than in others 60% 50% 40% 30% 20% 10% 0% Share of Planted Forest Owned by Financial Institutions 8.0% 4.2% 28.3% 43.0% Brazil Chile Uruguay New Zealand 54.7% 12.7% 8.4% Australia USA South Africa Note: USA is share of all private forest, including both planted and natural forest
China s timber deficit continues to grow, despite a slowing of economic growth 200 China's Growing Timber Deficit, 1997-2016 Million Cubic Meters, RWE 160 120 80 40 Woodchips Pulp Wood Panels Lumber Logs 0 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1-8, 1-8, 15 16 Copyright 2016 RISI, Inc. Proprietary Information 11
New Zealand has been the only country to see a decline in softwood log shipments to China thus far in 2016, but will likely catch up soon 9,000 Chinese Imports of Softwood Logs, January August Thousand Cubic Meters 8,000 7,000 6,000 5,000 4,000 3,000 2,000 2014 2015 2016 1,000 0 Russia New Zealand USA Canada Australia Other Copyright 2016 RISI, Inc. Proprietary Information 12
US softwood log exports to China were up 10.5% in January July, but not much from PNW Increase in US Softwood Log Shipments to China, January July 2016 Other 4% Alaska 34% US South 51% PNW 11% Copyright 2016 RISI, Inc. Proprietary Information 13
Almost all SYP log exports to China are from South Atlantic ports (but still only account for 12% of US shipments to China) 150 SYP Log Exports to China, Jan July Thousand Cubic Meters 120 90 60 2014 2015 2016 30 0 Charleston Wilmington Norfolk Savannah Gulf Ports Copyright 2016 RISI, Inc. Proprietary Information 14
Chinese imports of softwood lumber are up nearly 20% in 2016, with the big story being Russia and other European suppliers 8,000 Chinese Imports of Softwood Lumber, January August 7,000 Thousand Cubic Meters 6,000 5,000 4,000 3,000 2,000 2014 2015 2016 1,000 0 Canada Russia USA Chile New Zealand Total European Others Copyright 2016 RISI, Inc. Proprietary Information 15
Despite much doom and gloom in the market, total imports of softwood logs & lumber (RWE) are higher in 2016 than record year of 2014 50 45 China: Total Softwood Log and Lumber Imports, January August Canada Russia USA Australia New Zealand Other 40 Million Cubic Meters 35 30 25 20 15 10 5 0 2014 2015 2016 Copyright 2016 RISI, Inc. Proprietary Information 16
In 2016, Chinese imports of Russian softwood (logs and lumber RWE) will be at an all time record level 30 China: Imports of Russian Softwood Logs and Lumber (RWE) 25 Lumber (RWE) Logs RWE = Roundwood Equivalent Million Cubic Meters 20 15 10 5 0 Copyright 2016 RISI, Inc. Proprietary Information 17
Part of the surge in Russian softwood lumber exports to China has been a redirection of wood from other traditional markets 60% 50% 40% Russian Softwood Lumber Exports by Region North Asia CIS Middle East Europe 30% 20% 10% 0% 2010 2011 2012 2013 2014 2015 2016 Copyright 2016 RISI, Inc. Proprietary Information 18
China s imports of eucalyptus sawlogs have tripled since 2012; good news for plantation owners seeking new alternative markets 600 China: Imports of Eucalyptus Sawlogs Thousand Cubic Meters 500 400 300 200 Australia Chile USA Uruguay Brazil 100 0 2012 2013 2014 2015 2016E Copyright 2016 RISI, Inc. Proprietary Information 19
India should be a great market for softwood imports. Rapid economic growth RISI projects 7.5% GDP growth in 2016 2020 vs. 6.0% in China Working age population still rising Has been falling in China since 2012 Urbanization rate 33% (vs. 57% in China) Domestic softwood timber harvest very low (less than onequarter the level in China), and no softwood plantations in India Gigantic need for new housing in India Compared with China, housing programs just getting started in India Plans in India for massive new investment in infrastructure Copyright 2016 RISI, Inc. Proprietary Information 20
Softwood has increased to more than 40% of log imports, but volumes are lower than predicted Thousand Cubic Meters 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Hardwood Softwood India Log Imports Copyright 2016 RISI, Inc. Proprietary Information 21
Softwood lumber imports are only about 35% of the volume of softwood log imports Thousand Cubic Meters 500 450 400 350 300 250 200 150 100 50 0 Softwood Lumber Exports to India Other Russia New Zealand USA Germany Canada 2009 2010 2011 2012 2013 2014 2015 2016E Copyright 2016 RISI, Inc. Proprietary Information 22
Asian woodchip imports will set another all time record for volume in 2016 for the seventh year in a row!! 25.0 Asian Woodchip Imports 20.0 Japan Hardwood Other Hardwood China Hardwood Softwood Million BDMT 15.0 10.0 5.0 0.0 Copyright 2016 RISI, Inc. Proprietary Information 23
Asian hardwood chip imports will be used to produce more than 11 million tonnes of hardwood pulp in 2016 5,400 Hardwood Chip Suppliers to Asia, January August 4,800 4,200 2013 2014 2015 2016 Thousand BDMT 3,600 3,000 2,400 1,800 1,200 600 0 Vietnam Australia Chile Thailand South Africa Brazil Indonesia Copyright 2016 RISI, Inc. Proprietary Information 24
Australian volumes of both hardwood and softwood chips have seen the biggest increases by far in 2016 540 Softwood Chip Suppliers to Asia, January August 480 420 2013 2014 2015 2016 Thousand BDMT 360 300 240 180 120 60 Australia United States New Zealand Canada Fiji Russia Copyright 2016 RISI, Inc. Proprietary Information 25
9th International Woodfiber Resources and Trade Conference Da Nang, Vietnam, February 13 15, 2017 The only conference focused on international trade in woodchips and biomass, and the first one to be held in Vietnam. For details, contact Bob Flynn at rflynn@risi.com 1 360 471 6578 Previous conferences have proved to be valuable business networking events for those involved in the trade, attracting buyers, sellers and traders from more than 30 countries. Copyright 2015 RISI, Inc. Proprietary Information 26