International Markets Impact on the Southeast

January 29, 2018Rocky Goodnow

Vice President, FEA

Presentation Topics

• Review of the megatrends that have shaped international forest product markets over the past ten years

• Discuss how developments in international markets have impacted the South’s industry

• Provide some thoughts on expectations on the South’s role in international markets going forward

U.S. Housing Starts Fell to Near Depression Levels

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Per ‘000 in PopulationMillions

China Used More Cement in Three Years Than the U.S. did in the 20th Century

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United States (1901-2000) China (2011-2013)

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6.6

Gigatons

Source: Vaclav Smil, USGS, Cement Statistics 1900-2012,

Mineral Industry of China, 1990-2013

Global Softwood Lumber Consumption: Dramatic Shift in Major Markets

Source: Apparent Consumption, FAO

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2000 2005 2010 2016

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China’s Demand for Softwood Log and Lumber Imports Remains Strong

Softwood Logs-Million m3 Softwood Lumber-Million m3

Source: China Bulletin

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Russia Canada USA New Zealand Chile Others

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2010 2011 2012 2013 2014 2015 2016 2017

Russia New Zealand USA

Canada Australia Others

In Addition to Changes in Demand, Shifts in International Timber Supply

• Russia enacts severe log export tariff

• China’s restrictions on domestic harvests

• North American timber supply constraints outside the US South

BC’s Largest Sawmills are Located in Regions Hardest Hit by the Mountain Pine Beetle Epidemic

Source: BC Ministry of Forest, FEA estimates

The Decline in British Columbia’s AAC Has Begun

Source: BC Ministry of Forests, Lands, and Natural Resource Operations; FEA estimates

TSA YearPrevious AAC, CM New AAC Difference

Lumber TallyBBF

Mackenzie 2014 3.02 4.50 1.48 0.430

Morice 2015 2.14 1.90 (0.24) -0.070

Williams Lake 2015 5.73 3.00 (2.73) -0.794

Kamloops 2016 4.00 2.30 (1.70) -0.494

Merritt 2016 2.40 1.50 (0.90) -0.262

Lakes 2016 1.98 1.65 (0.33) -0.096

Quesnel 2017 4.00 2.60 (1.40) -0.407

Prince George 2017 12.50 8.35 (4.15) -1.206

Southern Softwood Inventory Levels Increasing

Private Softwood Growing Stock Inventory

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1987 1997 2007 2017

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Source: Forest Resources of the United States, 2017-Draft, USFS

Timber Supply is Key Advantage for Forest Products Industry in US South

• The US South stands out as the North American region with available timber supply to expand output

• The timber supply in the US South is a healthy, sustainable and well-managed resource that can be harvested at competitive costs

• Output in other major producing regions will be constrained by timber supply limitations

• Expanding output in other international regions require significant time and investment

Western Canadian Companies Now Own 30% of theSouth’s Softwood Lumber Capacity

Source: Sawmill Profiles, Forest Economic Advisors

Southern Lumber Exports To China Have Been On The Rise

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South Other US Southern Share

Million m3

Softwood Log Exports From the US South Increasing Sharply

SYP Log Exports, Million m3

Note: YTD Data Through November

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China’s Source of Offshore Pine Log Imports by Source Country

Million m3

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Australia Uruguay US South New Zealand

US Net Pulp Exports Have Improved

Million Tons

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US Wood Pellet Exports

Million Short Tons

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US South Pulpwood Demand

Million Short Tons

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Bioenergy

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Pulp

Note: Includes both softwood and hardwood pulpwood.

Future Trends in International Markets

• Investment in China’s transportation infrastructure is changing the log/lumber supply chain dynamics in the country, with major implications for international trade.

• After years of weak consumption levels, the recovery of US domestic demand for forest products will lead to increased imports.

Russia’s Role in International Forest Product Markets Rising

Russia Softwood Log and Lumber Exports to China, RWE, Million m3

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Logs Lumber (RWE)

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Other Offshore

China

Chile

Brazil

US, MMSF, 3/8-Inch Basis

US Offshore Softwood Plywood Imports Have Jumped

North American Offshore Softwood Lumber Imports Will Surge

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BBF, Lumber Tally

Key Messages

• Growing demand in regions with limited wood resources increasing international trade in forest products.

• The US South’s forest product industry increasingly operating in international markets.

• The South’s competitiveness in international markets benefits from relatively low wood costs and increased supply from a well-managed timber resource.

• Looking forward, the continued demand recovery in the US will lead to greater international competition in the South’s domestic markets.

Thank you

Rocky Goodnowrgoodnow@getfea.com

978-496-6337