A review of the European particleboard market

October 8th, 2003

UNECE , Geneva.

John Guerin, Ph.D.John Guerin, Ph.D.General ManagerGeneral Manager

Weyerhaeuser Darbo SASWeyerhaeuser Darbo SASFranceFrance

Format of today’s presentation

Who is Weyerhaeuser ?

Wood based Panels (General)

ParticleboardOverviewDemand / Capacity Analysis for PanelsEvolution of CapacityCountry ReviewDemand Side Costs and Prices and Exchange Rates?

The Future ?

Weyerhaeuser Company

6 Particleboard facilities = 1,623,090 m3

5 MDF facilities = 1,180,090 m3

10 OSB facilities = 3,583,865 m3

16 Plywood facilities = 2,538,953 m3

Total production = 8.9 million m3

Weyerhaeuser European operations comprise of:

Medite MDF a 400,000 m3 MDF plant in Ireland.

Mediland MDF, a 170,000 m3 MDF plant, south west France.

Darbo particleboard, a 500,000 m3 plant, south west France

HEAD OFFICE

PRODUCTION FACILITY MEDITE

,MDF

Clonmel, Ireland MARKETING & SALES OFFICEUnited Kingdom

MARKETING & SALES OFFICEThe Netherlands

PRODUCTION FACILITY

DARBO

France

PRODUCTION FACILITY

MEDILAND

France

Weyerhaeuser European panel business

OUR PRODUCTS IN EUROPEThe 3 core elements of our business are

Medite MDF

Darbo Particleboard

Mediland MDF

WoodWood--based Panels in Europe 2002based Panels in Europe 2002

total 54.2 million m³ (+2%)total 54.2 million m³ (+2%)

Particle-board67%

Plywood6%

OSB4%

MDF19%

Hard/Soft-board

4%

Source: E.P.F.

Evolution WoodEvolution Wood--Based Panels Consumption EuropeBased Panels Consumption Europe

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002 2004*

Plywood

OSB

MDF

Particleb.

Source: E.P.F.

Evolution WoodEvolution Wood--Based Panels Consumption EuropeBased Panels Consumption Europe

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 1992 1994 1996 1998 2000 2002 2004*

Plywood

OSB

MDF

Particleb.

Source: E.P.F.

Demand/Capacity MDF in EuropeDemand/Capacity MDF in Europe

(million m³)(million m³)

0

2

4

6

8

10

12

1997 1998 1999 2000 2001 2002 2003*

demand

production

capacity

Source: E.P.F.

Demand/Capacity OSB in EuropeDemand/Capacity OSB in Europe

(million m³)(million m³)

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

1997 1998 1999 2000 2001 2002 2003*

demand

production

capacity

Source: E.P.F.

Demand/Capacity PB in EuropeDemand/Capacity PB in Europe

25272931333537394143

1997 1998 1999 2000 2001 2002 2003*

demand

production

capacity

(million m³)(million m³)

Source: E.P.F.

Particleboard Production in EuropeParticleboard Production in Europe

0

5

10

15

20

25

30

35

40

'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02

(million m³)(million m³)

Source: E.P.F.

Production Breakdown 2002Production Breakdown 2002

3,3%1,1%1,1%

1,4%1,4%

1,8%2,3%

2,8%5,3%

6,2%6,7%

7,3%

9,4%10,4%

11,1%

28,4%

0% 5% 10% 15% 20% 25% 30%

Others

Switzerland

Norway

Finland

Greece

Sweden

Portugal

Czech Republic

Turkey

Austria

UK

Belgium

Spain

Italy

France

Germany

Source: E.P.F.

Top 7 countries = 80%

Production Breakdown per CountryProduction Breakdown per Country

0

2

4

6

8

10

Germany France Italy Spain Belgium UK Austria

1999 2000 2001 2002

(million m³)(million m³)

Source: E.P.F.

Particleboard Production CapacityParticleboard Production Capacity

0

2

4

6

8

10

Germany France Italy Spain Belgium UK Austria

1999 2000 2001 2002 2003

(million m³)(million m³)

Source: E.P.F.

-1090

-100

-170 -120

-10

-85

-180

-50

-200

-140

++228800

-80

+100

-75

+200

+540

Evolution of Particleboard Production CapacityEvolution of Particleboard Production Capacity

(2002 (2002 -- 2004)2004)

Source: E.P.F.

Germany 2002Germany 2002

Source: E.P.F.

Main Points

• Poor economic performance

• Construction sector decline

• Production decline

• Significant export increases• (+9% at 25% of sales)

• Some plant closures + 1 new investment

• 2004 looking marginally better ?

France 2002France 2002

Source: E.P.F.

Main Points

• Low GDP growth

• Large decline in consumption

• Exports increase by 44%

• Housing industry crises and decline in furniture demand

• Some restructuring / closures

• 2004 looking better ?

Italy 2002Italy 2002

Source: E.P.F.

Main Points

• Poor economic performance – well below EU average.

• 2004 recovery anticipated.

• Production record in 2002

• Domestic demand –3%

• Significant export increases• (+33%)

• 1 plant closure

• Production to increase in 2003/04.

Spain 2002Spain 2002

Source: E.P.F.

Main Points

• Economic performance declining but 2004 will be better.

• 9% particleboard growth in 2002

• Consumption fall by 4%

• Significant export increases(+69% at 13% of sales)

• Some plant closures + 1 new investment

• US exchange rate is not helping exports of furniture.

United Kingdom 2002United Kingdom 2002

Source: E.P.F.

Main Points

• Improved economic conditions

• Particleboard capacity / consumptionincreases, production decline.

• GBP / Euro rate….

• Significant import increases• (+44%)

• 1 plant closure

• Production to decline in 2004

Belgium 2002Belgium 2002

Source: E.P.F.

Main Points

• Modest economic performance

• Modest domestic demand increase,despite furniture and construction market challenges.

• Exports at 63% of sales.

• Significant export increases(+9% at 25% of sales)

• 1 mill closure (environmental reasons)

Austria 2002Austria 2002

Source: E.P.F.

Main Points

• Poor economic performance

• Fall in domestic consumption by 14%

• Production increasing.

• Significant exports • (+10% at 87% of sales)

• Some plant closures + 1 new investment

• 2004 looking better ?

Demand Side Demand Side -- FurnitureFurniture

•• Negative result in production growth: Negative result in production growth: --3% during 20023% during 2002

•• Furniture and construction crisis in GermanyFurniture and construction crisis in Germany

•• Improvements only expected after 2003 following construction gImprovements only expected after 2003 following construction growthrowth

•• Increasing competition nonIncreasing competition non--European countriesEuropean countries

-4

-2

0

2

4

6

1994 1995 1996 1997 1998 1999 2000 2001 2002Source: E.P.F.

Demand Side Demand Side -- ConstructionConstruction

••Western EuropeWestern Europe Stagnation phase will continue during 2003, Stagnation phase will continue during 2003, only moderate recovery expected for 2004 and only moderate recovery expected for 2004 and 20052005

••Eastern EuropeEastern Europe Recession (Recession (--3%) in 2002, but recovery in 2003 3%) in 2002, but recovery in 2003 (+3%) accelerating in 2004 (+5%) & 2005 (+7%)(+3%) accelerating in 2004 (+5%) & 2005 (+7%)

-4

-20

2

46

8

10

1999 2000 2001 2002 2003* 2004* 2005*

Western Europe Eastern Europe

Cost Evolution ParticleboardCost Evolution Particleboard

wood

-6-4

-20

24

68

4Q99 4Q00 4Q01 4Q02

wood

-4

-2

0

2

4

6

4Q99 4Q00 4Q01 4Q02

resins

-2

-1

0

1

2

3

4

4Q99 4Q00 4Q01 4Q02

wages

-4-202468

1012

4Q99 4Q00 4Q01 4Q02

energie

-6-4-202468

4Q99 4Q00 4Q01 4Q02

paper

-6

-4

-2

0

2

4

6

4Q99 4Q00 4Q01 4Q02

transport

Source: E.P.F.

Source: UN/FAO, TRADA, Other

Historical Price Index Historical Price Index -- ParticleboardParticleboard

0

10

20

30

40

50

60

70

80

90

100

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

PRIC

E IN

DEX

(196

9=10

0)

Exchange Rate Exchange Rate -- expectations ?expectations ?

0.6

0.8

1.0

1.2

1.4

79 82 85 88 91 94 97 2000 03

Exchange Rate Exchange Rate –– 120 Days120 Days

50

100

150

200

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03

Euro-STOXX

S&P

Nikkei

Stock Markets Stock Markets –– Wealth effect ?Wealth effect ?

Prospects for the FutureProspects for the Future

Particleboard will continue to remain the major panel type iParticleboard will continue to remain the major panel type in Europe at n Europe at almost 70%. almost 70%.

Mature commodity industry with current over capacity (shortMature commodity industry with current over capacity (short--term?). term?).

Particleboard consumption declining since 2000 (Particleboard consumption declining since 2000 (--5%).5%).

Economic recovery deferred until at least 2004 ?Economic recovery deferred until at least 2004 ?

European recovery dependant on global recovery ?European recovery dependant on global recovery ?

Exchange rate USD versus EUR Exchange rate USD versus EUR –– implications for industry ?implications for industry ?

Restructuring of particleboard industry inevitable ?Restructuring of particleboard industry inevitable ?

External effects of increasing wood and transport costs.External effects of increasing wood and transport costs.

Surviving the current crises. Surviving the current crises.