The State of B.C.’s

Wood Products

Industry:

2015 Update

Association of Professional Economists of BC Vancouver, BC May 20 2015

By: Russell Taylor

2a

Introduction to:

International WOOD MARKETS Group

• We are wood products industry consultants and we

assist companies around the world to develop

operational, marketing & business strategies.

• We are known as global market & industry

experts/analysts on timber, lumber, panels & many

millwork products sold in the U.S. & global markets.

• We have had an office in China since 2005.

• We produce Multi-Client Reports: Europe & Russia;

Clearwood Pine; Global Lumber Benchmarking;

China 5-Year Outlook; WOOD Markets – North

America 5-Year Outlook; WOOD Markets Monthly

Report, China Bulletin

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WOOD Markets’ Multi-Client Reports

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Presentation Outline

BC Harvest & Lumber Production Trends:

• B.C. timber harvest & lumber production

trends – recovering since 2009

• B.C. Coast – still a hollowed out industry

• B.C. Interior – Mountain Pine Beetle

Infestation – impact on the future

BC Log & Lumber Markets:

• China’s soaring demand for lumber and logs.

• U.S. lumber market – shortages by 2017?

• Setting up the potential for a ‘super-cycle’

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Forest Industry in BC

• Contributes $12 billion/year to the provincial GDP.

• 146,000 jobs in BC depend on the forest industry.

• 1 in 16 jobs in BC is tied to the forest industry.

• 40% of regional economies = dependent on forestry

• Canada’s largest producer of softwood lumber 52%

• Largest producer of bio-energy in North America.

• 23% of all rail traffic in BC is forest products.

• 8.5% of all cargo shipments through Port Metro

Vancouver are forest products.

• = 60% of all BC Hydro’s industrial revenues.

• The forest industry sends $2.5 billion annually in

revenues to the three levels of government.

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1A. BC Timber Harvest Trends

BC timber harvests peak in 2005 – lower in the future!

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BC Coast Timber Harvest Trends

BC coast harvest peaked in 1988 – now 50% lower

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BC Log Export Trends

Exports to Japan, China & Korea increasing, but not USA!

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BC Log Exports to China

2011- 2014 – Huge volumes!

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1B. BC Lumber Production Trends

BC Coast & Interior: both flat since 2011

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BC Coast Lumber Production Trends

BC Coast = from 4.7 billion bf in 1987 to 1.1 billion in 2009

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BC Interior Lumber Production Trends

Peaks at 15 billion bf in 2005 & to 11 billion bf since 2011

1C. MPB Outlook Reports

International Media

• National Geographic April Edition

• ‘The Bug That’s Eating the Woods’

• ‘The Scale of the Current Epidemic is Unprecedented’

– Last 50 years 60 million acres in North America

– Now Mexico to northern British Columbia

– In BC about 60% of pine dead is dead

• 1 Billion cubic metres (1 billion telephone poles)

Western Canadian Map of Outbreak

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BC Interior: Timber Harvest & MPB

AAC & Sawlog availability to drop steadily to 2020-2025

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BC Interior: Lumber & MPB

Declining lumber production forecast after 2016-17

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2. BC: Global Log & Lumber Markets

Key Global Markets:

• Europe

• Korea

• Taiwan

• India

• Middle East

• North Africa

• Southern Hemisphere

• Japan

• China

• USA

• Canada

Key Markets for B.C.

= Japan, China, USA

and Canada

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BC Softwood Lumber Export Trends

Exports to US = most important market; China now huge

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Canada (BC) Offshore Lumber Exports

BC is now the largest lumber exporter to China

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Economic Growth & Wood Products Demand:

• China’s domestic wood products demand grew at

about 15% per year from 2008-2013, and going

forward, the growth trend is forecast to slow down

to about 5-8%

(Source: WOOD MARKETS’ The China Book).

• China consumes about 75-80+% of its domestic

production, so the GDP growth and wood products

growth are tied closely.

• Imports of logs from Russia have been a key

ingredient in China’s raw materials supply, but the

Russian supply has crashed.

2A. China: Trends & Issues

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China: Softwood Log Imports

Russian log exports declining steadily to China;

NZ now the largest supplier to China

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China: Softwood Lumber Imports

Canada (BC) exports = flat: Russia/Europe/Radiata Pine = up

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China: Softwood Lumber Imports

• Canadian lumber & SPF exports to China in 2014

were lower vs. 2013 (-4%) but same levels as 2011

• Exports from other countries were way up!

• Changes in key suppliers (2011 to 2014) that are

competing with SPF (especially #2) in China

Russia + 1,851,000 m3 +35%

Sweden +316,000 m3 +251%

Finland + 261,000 m3 +202%

Subtotal + 2,428,000 m3 +43.2%

Other competing European suppliers not shown in

the table include Germany (295,000 m3) and the

Baltic States.

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Profile of the Chinese Industry

Sawmills – lowest cost; most efficient

recovery of lumber from logs

Plywood Mills – huge scale

Use of Capital and Labour

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I

The 5-year outlook; or monthly log/lumber prices/updates

WOOD MARKETS’

China Bulletin

Monthly Since 2007

Featuring:

Industry Trends &

Analysis, Statistics +

Import/Domestic Log,

Lumber & Panel

Prices

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3A. US Lumber Market in Q2/2015: What

is going on? – its currently BAD!

Drawing much of the blame for weak pricing was:

• Harsh weather in the eastern half of the continent,

• Low level of U.S. housing starts,

• A slowdown in exports to China (inventories high)

• Labor troubles clogged up US West Coast ports,

• A strong U.S. dollar that encouraged imports from

Canada and overseas while discouraging exports.

• First European lumber vessels in a few years.

• So, usual situation of too much supply chasing

too little demand, where China & USA demand

were particularly weak, creating low prices.

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2x4 W-SPF Prices: Lower since late ‘13

FX devaluation = smaller drop in Cdn$ returns for BC mills

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• U.S. housing: from 2 million units in 2004 to

550,000 in 2009; 2013 = 930,000 units; 2014 = 1.03

million units. NORMAL = ~1.5+ million units.

• Unsold houses, prices & foreclosures improving.

• Still some headwinds to deal with (but getting

better): economy; government debt issues;

housing inventories; mortgage defaults; etc.

• Economic growth & jobs needs a healthy housing

market (and vice-versa) to support growth.

• Housing starts have been impossible to forecast!

3B. US Housing Market Outlook

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US Housing Starts Forecasts: Bullish!

We think so! Our outlook is for a slow recovery where getting

back to 1.5 million housing starts = is going to take more time!

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3C. Highlights of WOOD MARKETS

2015 Report: Outlook to 2019

Highlights of

Canadian lumber

trends & US

outlook

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Canada: Flat Lumber Prod’n

Production decreases in West offset by increases in the East

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Market Shares: Canada Down; Europe Up

Canada’s share drops due to flat output: Europe based on prices

B.C. Wood Pellet Exports

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B.C. has lion’s share of Canadian production and exports

Growth will slow due to limited raw materials

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4. Canada & US Lumber:

Key Supply Drivers: 2015-19

• BC/Canada lumber supply to peak in 2017 – 2018

• BC/Canada lumber exports to peak in 2016 – 2017

• U.S. lumber production – how much can be

produced by the industry?

• Not enough (capacity) to meet U.S. demand?

• Offshore imports (Europe) are expected to fill

the gap (but need higher prices).

• But need U.S. demand (housing starts) and

improvements in export markets first!

• And need China demand for improved results!

President

International WOOD MARKETS Group Inc. Vancouver, B.C., Canada

Russell Taylor RPF, MBA

Suite 603 – 55 E. Cordova Street Vancouver, BC V6A 0A5

Tel: (604) 801-5996 / Fax: (604) 801-5997 Email: retaylor@woodmarkets.com

www.woodmarkets.com

Thank You!