North American and Global Forest Market Trends2010 s After decades of robust growth, U.S. wood pulp...
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North American and Global Forest Market Trends Peter J. Ince US Forest Products Laboratory Madison, Wisconsin
Transcript of North American and Global Forest Market Trends2010 s After decades of robust growth, U.S. wood pulp...
North American and Global
Forest Market Trends
Peter J. Ince
US Forest Products Laboratory
Madison, Wisconsin
Principal Forest Markets:
• Wood Pulp, Paper & Board
• Lumber & Wood Panels
Wood Pulp, Paper & Paperboard
0
10
20
30
40
50
60
70
19
00
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Millio
ns
of
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After decades of robust growth,
U.S. wood pulp output peaked in
the mid-1990s and then declined,
impacted by paper recycling gains
in the early 90s, shifts in global
demands since the late 90s, and
now an economic recession . . .
Source: AF&PA, API, Forest Service, International Woodfiber Report
Pulpwood is still a big part
of U.S. wood demand (and
especially in Wisconsin), but
U.S. production has dropped
by -1%/yr. since the mid-
1990s, versus 2% to 3%
growth in 1970s and '80s.
U.S. Wood Pulp Production – Now Declining:
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-5
0
5
10
15
20
25
30
35
40
1977-1986 1987-1996 1997-2006
Change in Paper & Board Production
(million metric tons per decade)
N. America
Europe
Asia
North American output of
paper and paperboard
declined in the most
recent decade, while
growth was sustained in
Europe and Asia.
China became the world’s
most rapidly expanding
consumer and producer
of paper and paperboard,
likely to surpass the USA
within the next decade.
Source: FAOSTAT
Outsourcing Production . . .
Global Drivers . . .
Trade liberalization (GATT WTO)
Expanded global commerce
Shift of manufacturing growth to Asia and Europe
Collapse of global financial system (current recession)
80
85
90
95
100
105
110
115
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
U.S
. D
oll
ar
Ind
ex
Real Broad Dollar Index
Globalization
Long-term historical
average (97.5)
Source: U.S. Federal Reserve (H.10 Real Broad Dollar Index)
$
The dollar’s real exchange value
soared above-average for a long
period (1997-2005), placing U.S.
manufacturers at a competitive
disadvantage. From 2005 to '08 the
dollar fell below average, helping
improve the U.S. trade balance . . .
but the dollar gained in the past year
as the world economy sank into the
most recent economic recession . . .
(Not a good sign for U.S. trade)
Real Broad Dollar Index
-15
-10
-5
0
5
10
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Pe
rce
nt
Gro
wth
(y
r. o
ve
r y
r.)
U.S. Industrial Production Year-Over-Year Growth
Source: U.S. Federal Reserve (G.17 Industrial Production, seasonally adjusted)
As the dollar soared, manufacturing growth went abroad and U.S. industrial
output plunged (in the recession of 2000-2001). Output rebounded with a
weaker dollar, but growth barely reached 4% average growth of 1950-2000,
. . . and in the past year, U.S. industrial output has collapsed again!!!
!!!
Growth
No Growth
72
76
80
84
88
92
96
100
104
108
112
116
120
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Ind
ustr
ial
Pro
du
cti
on
In
dex
78
80
82
84
86
88
90
92
94
96
98
100
102
Pap
er
& B
oard
Pu
rch
ases
(millio
n m
etr
ic t
on
s y
ear-
to-d
ate
)
U.S. Industrial Production Index
U.S. Paper & Board Purchases
Sources: U.S. Federal Reserve (G.17 Industrial Production); AF&PA (Paper and Board Purchases)
Paper and paperboard demands follow industrial production because of
usage in packaging and print advertising, but industrial outsourcing and
electronic media have displaced growth. U.S. paper and board purchases
plunged along with industrial output in the current recession . . .
Down 11%
since 2007
Apart from the decadal trend in outsourcing and
downsizing of U.S. manufacturing, what caused
the recent dramatic plunge in U.S. production?
The Credit Crisis: “Governments and central banks
around the world pursued policies that, with the
benefit of hindsight, caused a huge global boom in
credit . . . to levels that defied gravity.”Remarks by Treasury Secretary Timothy Geithner
February 10, 2009
Translation: There was a
global credit boom that
went bust in 2008 . . .
The credit bust: When the credit boom went
bust in 2008, U.S. retail sales went into a sudden
steep decline (unlike recession of 2001-2002) . . .
Total U.S. Retail Sales ($Billions/month)
0
50
100
150
200
250
300
350
400
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
With the sudden
collapse of financial
institutions and end to
easy credit terms,
total U.S. retail sales
dropped by 12.4%
from June to
December of 2008.
The current recession
featured a big drop in
consumer spending
(the largest element of
U.S. GDP), although
spending may have
begun to stabilize in
the past few months.Source: U.S. Census Bureau (http://www.census.gov/marts/www/timeseries.html)
Motor Vehicle & Parts Sales ($Billions/month)
0
20
40
60
80
100
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
In some credit-dependent sectors, such as
motor vehicles & parts, the drop in sales
activity was even more pronounced . . .
Motor vehicle and
parts dealer sales
dropped by 29% from
October 2007 to
March of 2009 (and
sales continue to
decline in 2009).
Source: U.S. Census Bureau (http://www.census.gov/marts/www/timeseries.html)
74
76
78
80
82
84
86
88
90
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Pap
er
& B
oard
Pro
du
cti
on
, m
illio
n t
on
nes
(12 m
on
ths y
ear-
to-d
ate
)
U.S. Paper & Board Production Annualized
Sources: AF&PA
Thus, U.S. paper and paperboard output generally declined over the past
decade, and the latest drop in output was steep and abrupt, but it can be
noted that the drop in annualized production since 2007 (-7%) was less
than the drop in U.S. purchases (-11%). This was due to gains in exports.
Down 7%
since 2007
120
140
160
180
200
220
240
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Mill E
mp
loym
en
t (t
ho
usan
ds)
U.S. Pulp, Paper & Board Mill Employment
Sources: U.S. Bureau of Labor Statistics
The U.S. pulp & paper industry responded to slower
demand growth with consolidation & downsizing . . .
Since 1997, dozens of older less efficient mills were
closed, and over 40% of all U.S. pulp, paper and board
mill jobs were eliminated . . . and another 18 mills
were closed and 8,000 mill jobs eliminated in 2008 . . .
300
350
400
450
500
550
600
650
700
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
An
nu
al (Y
TD
) o
utp
ut/
em
plo
ye
e (
m. to
ns
)
Sources: U.S. Bureau of Labor Statistics (pulp, paper & board mill employment)
AF&PA (paper and paperboard production, in short tons)
Consolidation and downsizing yielded
productivity gains – – Output per worker
at U.S. mills increased by over 40% just
since 2001 . . . Productivity has leveled
out but not declined in this recession . . .
U.S. Paper & Board Output per Mill Employee
14
16
18
20
22
24
26
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Millio
ns
of
Me
tric
To
ns
85
90
95
100
105
110
115
Re
al B
roa
d $
In
de
x
ExportsImports
Data Sources: AF&PA, Commerce Dept. (trade statistics); Federal Reserve (dollar index);
[Data include paper and paperboard products and wood pulp shipments, and exclude recovered paper]
U.S. Pulp, Paper & Board Product Trade
(Tonnage) The U.S. trade gap
in pulp, paper and
board had bulged
to 8 million metric
tons in 2002 . . .
But as a result of
consolidation, a
weaker dollar, and
productivity gains,
the trade gap was
narrowed, and in
2008 the trade gap
was closed !!
(exports actually
exceeded imports
in tonnage).
100
125
150
175
200
225
250
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Pri
ce
In
de
xe
s (
19
82
= 1
00
)
Paperboard
Paper
Pulp
Market Trends – Pulp, Paper & Board Price Indexes
Source: BLS (Bureau of Labor Statistics)
Prices (in U.S. $) increased by ~ 50% over six years, after the
recession of 2001-2002 . . . In the current economic recession
prices are receding and have likely peaked for the near term,
but prices remained high well into 2008, partly due to exports.
70
80
90
100
110
120
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Pri
ce
In
de
xe
s (
19
82
= 1
00
)
Pulpwood
Market Trends – U.S. Pulpwood Price Index
Source: BLS (Bureau of Labor Statistics); not seasonally adjusted
Pulpwood prices also experienced an upturn for about six years
following the 2001-2002 recession . . . In the current economic
recession the pulpwood price index is trending downward.
Another aspect of consolidation and downsizing . . .
Since the early 1990s, divestiture of timberland by
vertically integrated forest product companies resulted in
a huge shift of timberland ownership to TIMOs & REITs:
Source: Cliff Hickman, Forest Service Policy Analysis Staff, Wash. DC
NCREIF Timberland Index--Total Returns (4-qtr. Moving Avg.)
-2
0
2
4
6
8
10
12
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Ra
te (
Pe
rce
nt)
NCREIF Timberland Index
Polynomial Trendline
Timberland total returns (annual timber and land value appreciation)
collapsed in the 2001-2002 recession, amid industry divestment.
Returns rebounded, but are recently slipping again . . .
Source: NCREIF (National Council of Real Estate Investment Fiduciaries) Timberland Index
Period of substantial industry
timberland divestment
Summary of pulp & paper market trends
1. U.S. pulp, paper and board production peaked in the late 1990s, as output was impacted by industry globalization.
2. The U.S. pulp and paper industry responded to the challenge of globalization with consolidation and downsizing; A weaker dollar and productivity gains helped close the pulp and paper trade gap by 2008.
3. Pulp, paper and board prices climbed from 2002 to 2008 but have likely peaked in the near term, with receding industrial production and declining demand.
4. Markets are indicating generally lower pulpwood prices and lower timberland returns for the near term.
Lumber & Wood panels
Historically, more than half of U.S. wood panel & lumber
usage is in housing construction, so lumber & panel
markets are impacted by changes in housing demand . . .
Since 2005, the big change was the end to the housing
boom with now lowest starts in more than 50 years . . .
Sources:
Data - U.S. Census Bureau
2009-Feb = SAAR in February
Single-family
housing unit
construction
starts/year
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009-F
eb
Mil
lio
ns p
er
year
0
200
400
600
800
1000
1200
1400
19
63
- Ja
n
19
65
- Ja
n
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- Ja
n
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69
- Ja
n
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- Ja
n
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- Ja
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- Ja
n
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- Ja
n
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- Ja
n
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- Ja
n
19
83
- Ja
n
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- Ja
n
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- Ja
n
19
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- Ja
n
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- Ja
n
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- Ja
n
19
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- Ja
n
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- Ja
n
19
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- Ja
n
20
01
- Ja
n
20
03
- Ja
n
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05
- Ja
n
20
07
- Ja
n
20
09
- Ja
nT
ho
usan
ds (
an
nu
al
rate
)
Source: NAHB and Census Bureau data
“Baby Boom” era
U.S. New Home Sales - Long History The 90s - 2005 sales boom was the biggest ever!
It was a driven by a global credit boom that kept
pushing home prices up (until 2006)
It was distinct from earlier “baby boom” era
Past notable declines featured rising interest rates
Interest rates today are low, but borrowing has collapsed
The current collapse features declining home prices
Global forces were behind the recent
boom and bust in U.S. housing demand.
“Governments and central banks around the
world pursued policies that, with the benefit of
hindsight, caused a huge global boom in credit,
pushing up housing prices and financial
markets to levels that defied gravity.”
Remarks by Treasury Secretary Timothy Geithner
Introducing the Financial Stability Plan
Tuesday, February 10, 2009
(the rest of Tim Geithner’s quote) . . .
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0
50
100
150
200
250
300
19
80
19
85
19
90
19
95
20
00
20
05
Billio
ns o
f D
ollars
per
Year
Source: U.S. Dept. of the Treasury
As the U.S. trade deficit expanded
since the early 90s, billions of dollars
came back from foreign sources into
U.S. mortgage markets via foreign
purchases of GNMA, FNMA & FHLMC
agency bonds (and CDOs) that fund
mortgages. This global credit boom
helped facilitate the U.S. housing
boom, but loose credit led to inflated
home values and bad debts . . .
By 2008
global
lines of
housing
credit
were
drying
up and
foreign
bond
holders
cashing
out . .
Foreign Purchases of
U.S. Agency Bonds
Median New Home Price
(NAHB; Single-Family)
100
125
150
175
200
225
250
275
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Th
ou
san
ds o
f D
ollars
U.S. Average Wage of
Production Workers (BLS)
10
12.5
15
17.5
20
22.5
25
27.5
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Do
lla
rs p
er
ho
ur
Booming credit facilitated booming home prices, but average wage
gains did not keep up with new home prices, so home affordability
became a big issue . . . Even after recent declines in home prices the
gains in home prices still far exceed gains in average earnings.
Up 72%
Up 55%
-15
-10
-5
0
5
10
15
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009p
Perc
en
t C
han
ge (
Yr.
/Yr.
)
Source: National Association of Realtors (NAR) – U.S. median sales price of existing homes
2009(p) year/year data through January only
Consequences of “defying gravity” . . . The credit boom drove up
home prices but in 2006 the rate of appreciation dropped. With this
abrupt change in home equity appreciation much of the economic
incentive to buy or build new homes suddenly evaporated.
Polynomial
Trendline
Annual Change in Existing Home Sales Price
$
Without the lure of home equity gains new home
sales collapsed since 2006. The record housing
construction boom became the housing bubble,
which is still undergoing its long correction.
A global credit boom drove home prices and
recent housing boom, but wages did not keep
pace and eventually home values declined.
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Ho
us
ing
Sta
rts
(m
illio
ns
, a
nn
ua
l ra
te)
U.S. Single-Family Housing Starts, SAAR
Sources: U.S. Census Bureau, Seasonally Adjusted Annual Rate (SAAR), by month
The credit-driven home building boom
became a bubble that burst since 2006 as
home values declined. The downturn may be
reaching a bottom, simply because there is
not much more room to fall (housing starts
are now down 80% since their 2006 peak) . . .
What experts said last year about housing
downturn and prospects for recovery . . .
. . . (still relevant today)
“The housing boom was unprecedented in
U.S. history, and the correction will be as well.”
Michael Youngblood, FBR Investment Management(CNN Money, June 12, 2008)
“. . . the housing correction, what's going
on in the housing market, this is not over . . .”Hank Paulson, U.S. Treasury Secretary
(YouTube, February 12, 2008)
0
5
10
15
20
25
30
35
40
45
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009p
The housing downturn has severely impacted
U.S. softwood lumber production . . .
U.S. Softwood Lumber Production
Billion Board Feet
Source: WWPA
Down 54%
since 2005
(based on
January 2009
production at
an annualized
rate)
125
150
175
200
225
250
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Pri
ce In
dexes (
1982 =
100)
Hardwood Lumber
Softwood Lumber
Impact on lumber prices . . .
Market
recovery
hinges on
recovery in
housing
Sources: BLS (Bureau of Labor Statistics)
Some additional views on
hardwood lumber markets . . .
by
William Luppold
USDA Forest Service, Princeton, WV
Northeastern
Southeastern
South-Central
North-Central
32 to 36
32 to 36
27 to 29%
28 to 30%
32 to 33%
32 to 36%
Decline in Hardwood Lumber Production From Winter
of 2008 to Winter of 2009 (down ~30% in all regions)
States that are Hurting, Really
Hurting or in Real Pain
Hurting – production down 25 to 30 percent
– PA, NY, LA, VA, IA, OH
Really hurting – production down 35 to 40 percent
– TN, MS, KY, NC, MI, ME, WV
Real pain – production down more than 45 percent
– AL, GA, WI, CT, MA
Production Employment in Wood
Household Furniture Industry
30
40
50
60
70
80
90
100
110
120
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Wood furniture production has
been moving abroad (e.g. mainly to
China) for a decade or more,
resulting in declining U.S. furniture
industry employment.
Production Employment in Kitchen
Cabinet Industry
70
80
90
100
110
120
130
140
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
A more abrupt and
recent drop in the
kitchen cabinet industry
is attributable to the
housing bust.
Indexes of Hardwood Lumber, Cross
Ties and Pallet Cant Prices 2004 to 2009
60
65
70
75
80
85
90
95
100
105
110
2004 2005 2006 2007 2008 2009
2004 =
100
FAS 1C 2C Pallet Tie
Hardwood graded
lumber price indexes
have dropped much
more than pallet or
crosstie prices.
Eastern Hardwood Lumber
Production 1958 to 2009
5000
6000
7000
8000
9000
10000
11000
12000
13000
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
Mil
lio
ns o
f b
oard
feet
The decline in U.S.
hardwood lumber
output since the 1999
peak is around -50% . . .
(back to 1950s levels)
Eastern Hardwood Lumber
Production 1904 to 1932
2000
4000
6000
8000
10000
12000
1904
1906
1908
1910
1912
1914
1916
1918
1920
1922
1924
1926
1928
1930
1932
Mil
lio
ns o
f b
oard
feet
A 50% drop in lumber
production has not
occurred since the
Great Depression.
U.S. Delivered Log Price Trends (2001 – 2007) . . .
Log prices generally followed lumber markets, climbing to recent
peaks in 2004-2005, but collapsing with the housing bust. The
drop in log prices (-30% for softwood and -33% for hardwood from
recent peaks) is now similar to the average drop in lumber prices.
Source: BLS (Bureau of Labor Statistics)
50
75
100
125
150
175
2002 2003 2004 2005 2006 2007 2008
Pri
ce In
dexes (
1982 =
100)
150
175
200
225
250
275
Hardwood Logs
Softwood Logs
0
2
4
6
8
10
12
14
16
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
North American OSB production was also crimped
by the housing downturn, but higher U.S. exports
helped sustain U.S. production into 2008:
Source: APA – The Engineered Wood Assoc.
U.S. OSB Production
Billion Sq Ft 3/8" Basis
0
50
100
150
200
250
300
350
400
450
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Th
ou
sa
nd
cu
bic
me
ters
Source: FAS
U.S. OSB exports surged in 2007-2008, due to low prices and excess
capacity, but a stronger U.S. dollar might dampen export growth . . .
Overall U.S. Trade Deficit has declined since 2005
in Forest Products*
-$8
-$7
-$6
-$5
-$4
-$3
-$2
-$1
$0 1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
U.S. Forest Products Trade Deficit, Billion $
Source: FAS
* Forest products here include roundwood, sawnwood, wood based panels, pulp
2008:
Imports
$4.2 billion
Exports
$1.13 billion
Deficit
$3.03 billion
(smallest in
15 years)
Summary of trends in lumber and
wood panel markets
1. U.S. lumber and wood panel demands follow housing construction for
obvious reasons (homes and furnishings are made of wood).
2. The U.S. housing market experienced a big collapse in demand, following
the recent credit boom and peaking of home prices.
3. Since 2005 the collapse in housing has changed the market situation for
lumber and wood panel products, with lower demand and prices.
4. An upturn in U.S. markets for lumber and wood panels hinges upon an
upturn in the housing market, the timing of which remains uncertain.
5. The weaker U.S. dollar since 2005 helped improve the U.S. wood trade
balance, but a stronger dollar and global economic recession in the past
year raise doubts about export markets.
General Summary:
Global shifts in trade and manufacturing led to
declining U.S. pulp, paper & board production
since the 1990s.
A credit boom from the early 90s to 2005 gave
a big boost to housing, but the boom led to an
unsustainable housing bubble and market bust.
Forest markets were deeply impacted by
the ongoing recession with declining demand
and uncertainty about recovery.
