Transcript Slide 1

>
North American and Global
Forest Product Market Trends
Peter J. Ince
US Forest Products Laboratory
Madison, Wisconsin
June 23-25, 2008
Principal Forest Product Markets:
• Paper, Paperboard
& Wood Pulp
• Lumber & Wood Panels
>
Paper, Paperboard & Wood Pulp
>
U.S. Wood Pulp Production since 1900:
70
After decades of robust growth,
U.S. wood pulp output peaked and
declined over the past decade,
impacted by paper recycling and
economic globalization since the
early 1990s . . . and now economic
recession in the past year!
Millions of metric tons
60
50
40
30
Pulp is still a big part of
U.S. wood demand, but
growth rates changed
from around +2% to 3%
per year in '70s and '80s,
to negative growth since
the mid-1990s.
20
10
2010
2000
1990
Source: AF&PA, API, Forest Service, International Woodfiber Report
1980
1970
1960
1950
1940
1930
1920
1910
1900
0
Global economic forces were behind the change.
>
Globalization
Trade liberalization (GATT  WTO)
Expanded global commerce
Rise of manufacturing in China & developing countries
Increased importance of currency exchange rates
Collapse of global financial system (current recession)
The real dollar exchange value index
soared above-average for much of
the past decade (until 2005), placing
U.S. manufacturers at a competitive
disadvantage. From 2005 to '08 the
dollar was below average, helping
improve the U.S. trade balance . . .
but since July the dollar has gained
as the world economy sank into the
current economic recession . . .
Globalization
Real Broad Dollar Index
115
U.S. Dollar Index
110
$
105
(Not good sign for U.S. trade)
100
95
Long-term historical
average (97.5)
90
85
Real Broad Dollar Index
Since July '08
80
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: U.S. Federal Reserve (H.10 Real Broad Dollar Index)
Percent Growth (yr. over yr.)
As the dollar soared, imports increased. Manufacturing growth went abroad.
U.S. industrial output collapsed in the recession of 2000-2001, but rebounded
with a weaker dollar. Growth remained less than 4% avg. growth of 1950-2000,
. . . and, since last June, U.S. industrial output has again collapsed !!!
10
U.S. Industrial Production Year-Over-Year Growth
Since June 2008
5
0
-5
-10
!!!
-15
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: U.S. Federal Reserve (G.17 Industrial Production, seasonally adjusted)
Global
Change
 Change
in Growth
As manufacturing growth shifted from
North America to Asia and Europe, so did
growth in paper and paperboard demands
(following global demands for packaging,
print media & print advertising).
Globalization
Asia, Europe, and North
America account for 90%
of worldwide growth in
paper & paperboard use.
Change in Paper & Board Production
(million metric tons per decade)
40
35
30
Demand growth has been
sustained in Europe and
Asia.
N. America
Europe
Asia
25
20
However North American
demand has diminished in
the past decade.
15
China became the world’s
most rapidly expanding
consumer and producer of
paper and paperboard,
likely to surpass the USA
within the next decade.
5
10
0
-5
-10
1977-1986
1987-1996
1997-2006
Source: FAOSTAT
U.S. paper and paperboard demands (purchases) faintly followed the
rebound in industrial production after the recession of 2000-2001, but
U.S. paper and board demands plunged since last summer along with
declining U.S. industrial production in the current recession . . .
Industrial Production Index
116
U.S. Industrial Production Index
U.S. Paper & Board Purchases
102
100
112
98
108
96
104
94
100
92
96
90
92
88
88
86
84
84
80
76
Down 15%
since the
2000 peak
72
Paper & Board Purchases
(million metric tons year-to-date)
120
82
80
78
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Sources: U.S. Federal Reserve (G.17 Industrial Production); AF&PA (Paper and Board Purchases)
U.S. Pulp, Paper & Board Mill Employment
Mill Employment (thousands)
240
220
The pulp & paper industry has 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 . . .
200
180
[The Canadian industry recently
entered a similar period of
downsizing and consolidation.]
160
140
120
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Sources: U.S. Bureau of Labor Statistics
U.S. Paper & Board Output per Mill Employee
Annual (YTD) output/employee (m. tons)
700
650
600
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 . . .
550
500
450
400
350
300
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Sources:
U.S. Bureau of Labor Statistics (pulp, paper & board mill employment)
AF&PA (paper and paperboard production, in short tons)
U.S. Pulp, Paper & Board Product Trade
(Tonnage)
As the dollar
115
24
110
22
105
20
100
18
95
16
90
14
85
Real Broad $ Index
Millions of Metric Tons
26
Exports
Imports
surged from 1996
to 2002 the U.S.
trade gap in pulp,
paper and board
bulged to 8 million
metric tons (2002).
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
However, with a
weaker dollar and
productivity
gains, the trade
gap narrowed,
and in 2008 the
trade gap was
closed (U.S.
exports exceeded
imports).
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]
Market Trends – U.S. Pulp, Paper & Board Price Indexes
Price Indexes (1982 = 100)
250
225
Paperboard
Paper
Pulp
200
175
150
125
100
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
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.
Source: BLS (Bureau of Labor Statistics)
Another big element of downsizing:
Timberland Divestiture by
U.S. Pulp & Paper Industry
• Over 35 million acres of industry land
divested nationwide since the mid-1990s
• Driven by various forces (Debt, Tax Code,
Ample Private Timber, Weak Demand)
• Land buyers are TIMOs, REITS & others
Divestiture of timberland by vertically integrated
forest product companies resulted in huge shift
of timberland ownership to TIMOs & REITs:
Source: Cliff Hickman, Forest Service Policy Analysis Staff, Wash. DC
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 . . .
NCREIF Timberland Index--Total Returns (4-qtr. Moving Avg.)
12
NCREIF Timberland Index
10
Polynomial Trendline
Rate (Percent)
8
Period of substantial industry
timberland divestment
6
4
2
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0
-2
Source: NCREIF (National Council of Real Estate Investment Fiduciaries) Timberland Index
Summary of pulp & paper market trends
1.
U.S. pulp production peaked in the late 1990s, as paper
and board output were impacted by industry globalization.
2.
U.S. industry responded to the challenge of globalization
with consolidation and downsizing; A weaker dollar and
productivity gains helped close the trade gap by 2008.
3.
Pulp, paper and board prices climbed from 2002 to 2008
but have likely peaked in the near term, with recession in
industrial production and declining demand.
4.
Longer-term impacts of land divestiture and downsizing
are unclear, but markets are indicating generally lower
timber and timberland prices for the near term.
>
Lumber & Wood panels
Wood panel & lumber usage is tied to housing
construction, so their markets are impacted by
changes in housing demand . . .
Since 2005, the big change in lumber and wood panel
demand was an end to the U.S. housing boom, dropping
by 2008 to the lowest starts in more than 50 years . . .
1.8
1.6
Single-family
housing unit
construction
starts/year
Millions per year
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2008
2007
2006
2005
2004
2003
2002
2001
2000
Source:
Data - U.S. Census Bureau
Strong global forces were behind the credit
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
Consequences of “defying gravity” . . . After the credit boom drove up
home prices, appreciation in existing home prices dropped in 2006.
With this abrupt change in home equity appreciation much of the
economic incentive to buy or build new homes suddenly evaporated.
15
10
Polynomial
Trendline
5
-5
-10
-15
Source: National Association of Realtors (NAR) – U.S. median sales price of existing homes
2009(p) year/year data through January only
2009p
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
1990
Percent Change (Yr./Yr.)
Annual Change in Existing Home Sales Price
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 for home prices still far exceed gains in average earnings.
Thousands of Dollars
250
27.5
Up 72%
225
200
175
U.S. Average Wage of
Production Workers (BLS)
25
Dollars per hour
275
Median New Home Price
(NAHB; Single-Family)
22.5
20
Up 55%
17.5
15
125
12.5
100
10
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
150
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
Thousands (annual rate)
1400
1200
“Baby Boom” era
1000
800
600
400
 Past notable declines featured rising interest rates
 Interest rates today are low, but borrowing has collapsed
 The current collapse features declining home prices
200
2009 - Ja
Source: NAHB and Census Bureau data
2007 - Ja
2005 - Ja
2003 - Ja
2001 - Ja
1999 - Ja
1997 - Ja
1995 - Ja
1993 - Ja
1991 - Ja
1989 - Ja
1987 - Ja
1985 - Ja
1983 - Ja
1981 - Ja
1979 - Ja
1977 - Ja
1975 - Ja
1973 - Ja
1971 - Ja
1969 - Ja
1967 - Ja
1965 - Ja
1963 - Ja
0
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 . . .
300
Billions of Dollars per Year
250
200
By 2008
global
lines of
housing
credit
were
drying
up and
foreign
bond
holders
cashing
out . .
150
Foreign Purchases of
U.S. Agency Bonds
100
50
2005
2000
1995
1990
1985
1980
0
-50
Source: U.S. Dept. of the Treasury
2.00
U.S. Single-Family Housing Starts, SAAR
Housing Starts (millions, annual rate)
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
The credit-driven home building boom
became a bubble that burst in 2006-2008 as
home values declined. The downturn has
continued since last June as credit dried up
(now down 80% since the peak) and
forecasters expect only a gradual recovery . . .
0.00
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sources: U.S. Census Bureau, Seasonally Adjusted Annual Rate (SAAR), by month
A global credit boom drove home prices and
latest housing boom, but wages did not keep
pace and eventually home values declined.
$
Without the lure of home equity gains new home
sales collapsed in 2006-2008. The record housing
construction boom became the housing bubble,
which is still undergoing its long correction.
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)
The housing downturn has severely impacted
lumber production in North America, and more
so for Canada than USA (due to strong C$) . . .
45
U.S. Softwood Lumber Production
Billion Board Feet
Canadian Softwood Lumber Production
45
Down 28%
Billion Board Feet
40
40
Down 32%
0
0
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
Source: WWPA
Source: Statistics Canada
2008
5
2007
5
2006
10
2005
10
2004
15
2003
15
2002
20
2001
20
2000
25
1999
25
1998
30
1997
30
1996
35
1995
35
Impact on lumber prices . . .
Softwood Lumber Prices – Down 40%
Hardwood Lumber Prices – Down 14%
Price Indexes (1982 = 100)
250
225
Hardwood Lumber
Softwood Lumber
200
175
Market
recovery
hinges on
recovery in
housing
150
125
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Sources: BLS (Bureau of Labor Statistics)
U.S. Delivered Log Price Trends (2001 – 2007) . . .
Price Indexes (1982 = 100)
175
275
Hardwood Logs
Softwood Logs
150
250
125
225
100
200
75
175
50
150
2002
2003
2004
2005
2006
2007
2008
Log prices generally followed lumber prices, 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.
Sources: BLS (Bureau of Labor Statistics)
North American OSB production was also crimped
by the housing downturn, but higher U.S. exports
helped sustain U.S. production while Canadian
exports were crushed by a stronger Canadian $:
16
U.S. OSB Production
16
Billion Sq Ft 3/8" Basis
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
Canadian OSB Production
Billion Sq Ft 3/8" Basis
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
Source: APA – The Engineered Wood Assoc.
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 . . .
450
Thousand cubic meters
400
350
300
250
200
150
100
50
Source: FAS
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
0
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 is helping improve the U.S. wood trade balance,
but a stronger dollar in the past year raises doubts about trade.
General Summary:
Global shifts in trade, manufacturing and currency
exchange values had big impacts on pulp, paper
and board markets, leading to a big downshift in
North American growth rates since the 1990s.
A credit boom from the early 90s to 2005 gave
a big boost to housing (and to wood panel and
lumber demand) but the credit boom led also to
an unsustainable housing bubble and market bust.
Forest product markets were further
impacted by the ongoing recession with
declining growth and uncertain outlook
for recovery.