Wood-Cement Boards
Commercial Opportunities for Alberta Producers
BUSINESS CASE
April 2010
Prepared for Alberta Finance and Enterprise (AFE)
Drfa
Wood-Cement BoardsCommercial Opportunities for Alberta Producers
BUSINESS CASE
Draft Report November 2009
Prepared for Alberta Finance and Enterprise
Page 2
1. What are Wood Cement Boards? 3
2. How Are They Made? 5
3. Why are They Being Considered as Potential Investment in Alberta? 6
4. European Investors Should be Targeted 10
5. European Investment Already is Being Attracted into Alberta’s Bio-Fuels Industry 11
6. Where are the Major North American Markets for WWCBs? 12
7. Outlook for WWCB Drivers 14
8. Timing of WWCB Investment into Alberta 15
Table of Contents
Page
Drfa
Wood-Cement BoardsCommercial Opportunities for Alberta Producers
BUSINESS CASE
Draft Report November 2009
Prepared for Alberta Finance and Enterprise
Page 3
1. What Are Wood-Cement Boards?
www.eltomation.nl
Wood cement boards, also known as wood wool cement boards („WWCBs‟), are an interior and exterior building material made from wood wool and cement (Charts 1 and 2).
The main characteristics of WWCB‟s are fire resistance, wet and dry rot resistance, freeze-thaw resistance, termite and vermin resistance and thermal insulation. Among the
outstanding attributes of WWCBs are their acoustic performance and sound absorption, notably in non-residential applications such as swimming pools (Chart 3) and
gymnasiums. The material accepts a wide range of finishes. In addition, a major application of WWCBs in developing countries is durable, energy efficient economic housing.
Chart 3
Chart 1
Chart 2
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Wood-Cement BoardsCommercial Opportunities for Alberta Producers
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April 2010
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www.eltomation.nlwww.eltomation.nl
Eltomation, based in Holland, is a global leader in WWCB technology, R&D and manufacturing equipment. Eltomation has provided the following information with regard to
WWCB properties. Fire resistance: WWCB has been tested and classified B1 (fire resistant) according to the German DIN 4102 standard. Wet and dry rot resistance
Because the wood wool has been mineralized by the cement, moisture loses its effect on the board. The boards are used for interior and exterior applications and in moist
conditions such as ceilings in indoor swimming pools. Termite and vermin resistance Tests have proven that WWCB is not vulnerable to attack by termites or vermin, nor is
WWCB subject to any biological decay. Thermal insulation Because of its relatively low density, WWCB has good thermal properties. The maximum thermal conductivity for
boards of 25 mm thickness is 0.090 W/mK. For 2- or 3-layer composite panels, the thermal conductivity will not exceed 0.040 W/mK, when a core of respectively rigid foam
(e.g. polystyrene) or mineral fiber has been applied. Acoustic performance Unfinished (or spray-painted) WWCB has very good acoustic absorption properties since the
open surface structure allows for a high level of sound absorption (Charts 4 and 5). Finishes Wood wool cement board accepts all kinds of conventional rendering,
plastering, decorative materials and mastics. Acoustic ceilings can be spray- or roll-painted to retain the acoustic properties of the board. The following Wood wool cement
boards are common: Standard WWCB; Composite WWCB (sandwich boards with a core sheet of Styrofoam, PU foam, Rockwool, or other insulating material). Reinforced
Roofing WWCB Fine-fibre Acoustic and Decorative WWCB (source: courtesy of Eltomation)
1. What Are Wood-Cement Boards? (continued)
Chart 4 Chart 5
Drfa
Wood-Cement BoardsCommercial Opportunities for Alberta Producers
BUSINESS CASE
April 2010
Prepared for Alberta Finance and Enterprise
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www.eltomation.nl
2. How Are They Made?
Chart 9 Chart 8
Chart 7Chart 6
The manufacturing process, involving shredding of the logs into a “wool”, and subsequent impregnation with cement, forming and drying, is
fully integrated from logs to final product (Charts 6 to 9).
Drfa
Wood-Cement BoardsCommercial Opportunities for Alberta Producers
BUSINESS CASE
April 2010
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3. Why are they Being Considered as a Potential Investment in Alberta?
There are several reasons why WWCBs are being considered by AFE as a potential investment in Alberta. The principal reasons are:
• To date, WWCBs have been mainly a European development – although plants have been built globally (e.g. China, Russia, Latvia)
• Wood fibre is a large part of the total product – and wood costs are a major driver of its costs of production (i.e. a secure, low cost source of consistent
diameter logs is essential)
• European supply of these logs is becoming more constrained (Chart 10) and expensive. Softwood lumber producers compete for the logs (Chart 11).
• Alberta is an excellent – and globally low cost – source of these logs. Alberta is well-positioned to become a large scale producer of WWCB‟s, aimed at
North American markets. WWCBs have several „green‟ product aspects and Alberta has an abundance of certified sustainably managed („SFM‟) forests.
0
20
40
60
80
100
1961 1971 1981 1991 2001
Softwood Lumber: European Production (Excluding Russia and Eastern Europe)
Million m3
2007
Strong Growth in Net New Capacity Since
the Early 1990s
95
58
44
#2990-000-12Data source: FAOSTAT
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
1961 1969 1977 1985 1993 2001
Softwood Lumber Production Eastern Europe
(Including Russian Federation) Million m3
Collapse of USSR
2007
102
27
120
37
Data Source: FAOSTAT#2990-000-10
Chart 10Chart 11
Drfa
Wood-Cement BoardsCommercial Opportunities for Alberta Producers
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April 2010
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0 20 40 60 80 100 120 140 160
Canada
USA
Finland
Sweden
Russia
Australia
Germany
Brazil
Malaysia
France
Chile
Million Hectares
Sustainable Forest Management ('SFM')Independent Third-Party Certification of Forests
138.4
9.1
15.7
18.2
22.5
42.3
7.8
5.6
4.8
4.4
1.9
Source: Canadian Sustainable Forestry Certif ication Coalition December 2007 (FPAC)
Countries vary in the size of their forested land areas. Moreover, some countries (such as Chile) rely almost exclusively on intensively managed plantation forest
land areas.
Canada is outstanding in its certified forest management- almost 97% of its forests are independently audited and
certified as being managed under sustainable forestmanagement practices.
Almost 97% of Canada's Forests are Independently Certified as being Sustainably Managed
3. Why are they Being Considered as a Potential Investment in Alberta? (continued)
Good Quality Spruce Logs
Chart 13
Chart 15
Chart 14Chart 12
Chart 12 provides a global comparison, and shows that Canada far exceeds
the United States in this regard. Moreover, with substantial softwood forests
(Chart13) under long term tenures, producing a significant proportion of
suitable sized logs for WWCB production (Chart 14), Alberta could be attractive
to investors seeking continuity of long term supply and control over wood costs.
It also has a well-developed log supply-chain (Chart 15).
Green Building Product Market Growth
As one of the world‟s largest suppliers of SRM independently certified timber, Canada is well-positioned to expand
as a supplier of WWCBs to green markets. According to the Canadian Sustainable Forestry Coalition, Canada
ranks 1st among timber supply regions globally in its area of sustainable forests.
Drfa
Wood-Cement BoardsCommercial Opportunities for Alberta Producers
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April 2010
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Europe is a Softwood Timber Deficit Region: Russian Log Supply is Being Curtailed
#2998-1-101
3. Why are they Being Considered as a Potential Investment in Alberta?
As a mainly European technology at the present time, WWCB manufacturing in Europe faces several obstacles in secure timber supply and rising costs. In particular, a major
strategic shift in regional timber supply has occurred in recent years with announced sharp reductions in log exports from Russia (Chart 16).
Chart 16
(continued)
Drfa
Wood-Cement BoardsCommercial Opportunities for Alberta Producers
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April 2010
Prepared for Alberta Finance and Enterprise
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Mostly, North America is a Timber Surplus Region …Attractive to Investors
Alberta has a Central Location within this Fibre Surplus Region
#2998-1-100
Alberta
3. Why are they Being Considered as a Potential Investment in Alberta?
Chart 17
With rising constraints over timber supply in North America, including the pine-beetle epidemic in British Columbia and harvest volume challenges in Quebec, Alberta is one of
the few remaining timber supply jurisdictions with a secure long term volume of Crown (i.e. public) timber harvest. In this respect, Alberta is an ideal location in relation to low cost
and abundant supplies of suitable logs for WWCB production – and well placed for shipping final product to North American markets (Chart 17).
(continued)
Drfa
Wood-Cement BoardsCommercial Opportunities for Alberta Producers
BUSINESS CASE
April 2010
Prepared for Alberta Finance and Enterprise
Page 10
Numerous Oversized Logs are Produced in Alberta
As Sawlogs Increase in Cost and Potential Value – as they will Within in
the Next Recovery Cycle – Mills will be Faced with Numerous
Opportunities to Increase Profits, or Fritter Away Value!
Group A: Accelerated Mortality• BC pine beetle epidemic• Spruce budworm, other attacks • Increased incidence of wildfires, globally
Group B: Policy Changes: Reductions in Public Timber Allowable Harvests• Quebec harvest reductions (public forests)
Group C: Policy Changes: Allocation & Trade• Russia log export tax• Reductions in illegal logging (Russia, tropical regions)• Widespread pressures to limit raw log exports – and process locally
Group D: Land Use: Withdrawals of Forestland from Commercial Development• Ongoing environmental protection pressures, forestland set-asides • Land use conflicts between food, fuel and fiber• United Nations REDD program: Reduce Emissions from Deforestation and Forest
Degradation:”- Tropical rainforest & developing countries- Private owners (First Nations/aboriginal peoples; and ‘ethical funds’)
Fibre Supply ‘Shock’ with Global Impacts
=
GLOBAL TIMBER SUPPLY REDUCTIONS
#3004-900-93
Chart 18
Chart 19
Chart 20
4. European Investors Should be Targeted for WWCB Investments in Alberta
As they already are familiar with WWCB technology, manufacturing and end-use markets, one of the
presumptions of this business case is that European investors should be targeted for investment in
Alberta.
In most cases, they already are familiar with the many timber supply constraints (Chart 18) emerging
globally , and the focus of Alberta‟s promotional „pitch‟ should use this as a foundation. In addition, it
should be noted that numerous „oversized‟ logs are produced in Alberta (Chart 19) which do not
readily fit into the streamlined supply chain serving the sawmilling and plywood industries. Many local
sawmills are seeking an alternative and better use for these oversized logs (Chart 20).
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Wood-Cement BoardsCommercial Opportunities for Alberta Producers
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April 2010
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0
20
40
60
80
100
Global Softwood Log Costs (2006 Rankings): Delivered to Sawmill
Index =100 (Highest Cost)
'Emerging 3' Regions 'Traditional 2'
& Developed Market Regions
= Best in Class
Data sources: PwC/Taylor/Beck and BC Competition Council
100
32
48
95
63
50
2010 to 2015: Where will Log Costs Rise the Most?
Chart 21
Chart 22
Bio-Fuels and Green Energy Sector
European investors already are aware of many of the related investment opportunities in the province. Alberta has been
quick to act upon emerging opportunities in the production of bio-fuels. Importantly, there is still substantial scope for more
of these activities – using wood biomass materials as well as, potentially, cellulosic materials from the regions‟ agricultural
sector. WWCB production easily could be combined with related activities.
For example, wood pellet production (Chart 21) as well as fire-logs (Chart 22) using sawmill and other residuals help utilize
the fibre available in the region and add additional elements of stability to the local forest economy. From a policy aspect in
Alberta, this type of product and economic diversification is vital in a wide region, where exposure to primary wood
products and pulp and paper demand cycles can cause wide fluctuations in forest products output and employment.
Because of the limited size of the western Canadian market, the best sales prospects are in the USA. More importantly,
from the potential investors‟ viewpoint, Alberta is highly cost competitive in softwood log costs (Chart 23)
Chart 23
Photos: Woodbridge Associates Inc.
5. European Investment Already is being Attracted into Alberta’s Bio-Fuel Industry
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Wood-Cement BoardsCommercial Opportunities for Alberta Producers
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April 2010
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Year Total U.S. Starts
000 Units
2009 515
2010 785
2011 922
2012 1130
2013 1500
2014 1500
2015 1500
2016 1800
2017 1800
2018 1800
2019 1800
2020 1800
0
200
400
600
800
1000
1200
1400
1993 1995 1997 1999 2001 2003 2005 2007 2009
U.S
. $ B
illi
on
s
U.S. Construction Spending
Private Res Private Non-Res Public
Residential Housing(New and Remodeling)
Private Non-Residential
Public
'Peak' $1.17 TN in 2006
$0.95 TN in 2009
Housing Market Spending Has Plunged Nearly 60% Since Its 2006 Peak. Increased Private Non-Residential and 'Stimulus' Enhanced
Public Spending Have Cushioned the Decline
#3004-900-16 Data source: Dept of Commerce
U.S. Residential Construction
Spending Recovery: Forecast
Woodbridge Associates Inc.
6. Where are the Major North American Markets for WWCBs?
As noted earlier, most of the already established end uses for WWCBs currently are found in the non-residential sector. There is a potential, but most likely smaller, market in
new residential housing and in home improvement. Importantly, from a residential „green‟ building product perspective, WWCBs are easy to handle – lending themselves to
installation either by professionals or by the homeowner. As is well known, construction spending in the U.S. has declined sharply since its peak of US$1.17 Trillion in 2006
(Chart >). Much of this was due to the collapse of the U.S. housing market. This is now stabilizing, and will recover – but at a slow pace for the next five years (Chart >).
Chart > Chart >
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Wood-Cement BoardsCommercial Opportunities for Alberta Producers
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April 2010
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Demand in Alberta and Western North American Markets
45
22
105
27
13
5
3
21 30
00 = 2007 Permits
000’s50 9
64839
US West (At 2005 Peak) was
545,000 v 330,000 in ‘07
New Residential Construction Activity in Western North America
2007
Western Canada
(excluding MB)
= 93,000 Starts
Total 423,000
New Homes
Market Value (2007)
W. Canada C$32 BN
US West US$60 BN
Total ~US$90 BN
Sources: US DoC
CMHC
BD08-116-101
0
2000
4000
6000
8000
10000
Mill
ion $
2005 2007 2009 2011 2013 2015
Home Improvement Expenditures
Constant 1997 Dollars
Source: Construction Labour Council
BC
Alberta
Sask
5.7
3.4
0.9
$10 BN
$8.1
BN
2011-2015 AverageBD08-116-102
Alberta‟s domestic market, in the recent past, has provided a substantial demand boost for the province‟s construction activity.
So too has the local home improvement market (Chart 25). Forecasts indicate that Alberta‟s domestic market for new housing
will not be nearly as buoyant as during recent peak years of construction activity – even so, by historical standards, demand will
average a comparatively healthy 25,000 units per year (which will include a significant multi-family element). In addition, for
WWCBs, the wider „western North America‟ market size is significant (Chart 26).
Chart 25
Chart 24 Chart 26
0
100
200
300
400
500
1993 1995 1997 1999 2001 2003 2005 2007 2009
Non-Residential Construction Spending in the U.S.
Private Non-Residential Public
$274BN
$416 BN
$150BN
$377BN
#3004-900-29Source: Census Bureau
6. Where are the Major North American Markets for WWCBs?
In contrast to the sharp drop in residential construction spending, the decline in non-residential construction (Chart 24) spending
in the United States has had far less impact on building product demand. This is important for WWCB manufacturers because
(a) the wide range of market segments that WWCBs serve and (b) the prospect of limited cyclicality most likely would help a new
plant located in North America to produce on a consistent basis, at a comparatively high level of capacity utilization.
(continued)
Drfa
Wood-Cement BoardsCommercial Opportunities for Alberta Producers
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April 2010
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Source: http://www.srd.gov.ab.ca/forests/pdf/economic_impact_AB_forest_fndustry_2008_map.pdf
WWCB Production in Alberta: Export Market Focus
Table 1
There is a significant domestic market for wood products in
Alberta, but export markets account for the bulk of sales
revenues for the province‟s forest industry. Alberta is well
connec ted (Chart 27).
During typical years (represented by 2004-2007 averages in
Table 1) around 78% of the province‟s exports were shipped to
the United States. The remainder went mostly to Asian markets,
with Japan being slightly larger in demand for Alberta‟s forest
products than South Korea and China.
AB
Alberta is Well Connected
#2911-162
900 Miles
Alberta‟s US Markets For Wood Products Have Grown Rapidly
54% to US West$600 Million Increase
Since 1992
ALBERTA
28% to Midwest
Great Lakes $300 Million Increase
Since 1992
5% to US Northeast$50 Million Increase
Since 1992
13% to US South-
South East$150 Million Increase
Since 1992
Woodbridge Associates Inc.
Data Source: Strategis
Total Shipment Value C$1.3 BN in 2003
#2911-121
Within North America, most
of Alberta‟s wood products
exports are shipped to the
US West Coast (54% in
2003). A further 28% was
shipped to the US Midwest
(Chart 28).
Most of the wood products
shipments to these U.S.
markets, from Alberta are
structural wood products.
As such, they have a high
degree of dependency on
the U.S. housing market –
which, both cyclically and
systemically, has been
weak in recent years.
Chart 27 Chart 28
7. Outlook for WWCB Demand Drivers
Drfa
Wood-Cement BoardsCommercial Opportunities for Alberta Producers
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April 2010
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Global and North American Recession
It is generally acknowledged that the path and pace of the global economic recovery is highly unlikely to mirror the high rates of GDP growth and new jobs creation which
historically have followed most recessions. Even so, the global and North American economies are beginning to stabilize and recover modestly. Overseas, major engines of
economic growth in China and other parts of Asia, are recovering quickly (Chart 29). The chart shows that China far outpaced the G7 countries during 2009 in terms of GDP
growth. In the case of all major economies and/or regions, government rescue aid and stimulus packages have a great deal to do with these early signs of recovery. It is by no
means certain, however, that they can be sustained at the recent pace – no matter how modest.
No single measures of macro-economic performance are ever adequate. In the current circumstances, a broad array of macro and micro economic data have to be reviewed
in order to identify and present a reasonably accurate picture of what is taking place. Such a review is well outside the scope of this report and our terms of reference.
Nevertheless, some highlights are important as background data for our economic and market driver assumptions (e.g. U.S. housing starts). Selected highlights are provided
below.
The World Bank is predicting that developing countries will lead a global economic recovery in 2010 and 2011 (Chart 30). Importantly, despite the dependence of most
nations on stimulus programs, most predictions for the next two years are for positive rates of GDP growth in emerging economies and developed economies. Within this
overall picture, there are some stark disparities. Japan‟s economy, for instance, continues to struggle with few growth prospects. China‟s GDP may already have exceed that
of Japan, to become the second largest economy in the world (Chart 31). It is likely, however, that China may have to moderate its growth rate because of high rates of
inflation. Overall, in terms of a new WWCB plant located in Alberta, the timing of an investment of this type appears good.
Chart 29
Chart 31
Chart 30
8. Timing of WWCB Investment into Alberta
Drfa
Wood-Cement BoardsCommercial Opportunities for Alberta Producers
BUSINESS CASE
Draft Report November 2009
Prepared for Alberta Finance and Enterprise
Page 16
For Further Information Regarding the Potential Investment Opportunity
Presented in this Report, Please Contact:
Alberta Finance and Enterprise
Contact Details to be Added
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