Status of the Wood Products Industry

Report
Outlook for Markets – it’s a new world
out there as the housing collapse, changing
consumer preferences
and new legislation alter the playing field
Al Schuler
USDA Forest Service
Princeton, WV
([email protected])
Urs Buehlmann
Virginia Tech
Blacksburg, VA
Allegheny SAF
Stonewall Jackson State Park , WV
February 17-18, 2010
Presentation Content
①
②
③
④
⑤
U.S. Housing Markets
U.S. Economy – recovery outlook
U.S. Wood Products Markets
International Trade Issues
U.S. Forest Products Industry – Future
Opportunities
⑥ Summary
① U.S. HOUSING MARKETS
70% OF STRUCTURAL SOFTWOOD PRODUCTS AND
50% OR MORE OF HARDWOOD PRODUCTS ARE
CONSUMED IN
RESIDNETIAL CONSTRUCTION (NEW PLUS REMODELING)
Bottom line – wood product markets will not improve much
until housing gets better
U.S. New Home Sales - Long History
 The latest boom-bust cycle was the biggest ever!
 It was distinct from cycles of the “baby boom” era.
 The latest boom was driven by a global credit boom
that kept pushing home prices up (until 2006).
Thousands (annual rate)
1400
1200
“Baby Boom” era
1000
800
600
400
 Past notable downturns featured rising interest rates.
200  Interest rates did not rise this time, but borrowing collapsed.
 The recent housing bust featured declining home equity & prices.
2009 - Jan
2007 - Jan
2005 - Jan
2003 - Jan
2001 - Jan
1999 - Jan
1997 - Jan
1995 - Jan
1993 - Jan
1991 - Jan
1989 - Jan
1987 - Jan
1985 - Jan
1983 - Jan
1981 - Jan
1979 - Jan
1977 - Jan
1975 - Jan
1973 - Jan
1971 - Jan
1969 - Jan
1967 - Jan
1965 - Jan
1963 - Jan
0
Source: Peter Ince, USDA FS, NAHB and Census Bureau data
Single Family Starts have Stabilized
but, they are still down 74% from the peak
(Jan. 2006)
Thousand units, SAAR
It’s tough to compete
With a resale market
That includes a high proportion
Of “distressed sales”
Source: Census
Single Family Resales have stabilized and are
improving thanks to tax credit and low
mortgage rates, but
Monthly, Thousand units, SAAR
6,500
6,000
many sales are “distressed” due
to foreclosures – this will continue
until the employment situation
improves. 2009 vs 2008:
SF volume up 5%, but
prices are down 12%
5,500
5,000
4,500
4,000
"2004" "2005" "2006" "2007" "2008" "2009"
Source: NAR (http://www.realtor.org/research)
Prices are starting to come back to reality
But, foreclosure problems slow the process
of balancing inventories
Until inventories come back to normal, price
Pressures will continue and Improvement
In housing will be slow.
Case Shiller 20 City Price Index
January 2000 = 100
Prices still down 29% from the peak,
but they have stabilized thanks to
government support – but, prices need
to fall further to reach historical
price/income ratios
Single family Housing Inventory
still “the problem”, but, its improving?
However, this is only the “listed inventory” – shadow inventory is substantial!
Thousand Units, Single Family
5000
Monthly (SAAR) - 2008 – 2009
4500
4000
Annual – 1990 - 2007
3500
3000
TREND
2500
2000
1500
1000
500
0
20
20
20
20
20
19
19
19
19
10
09
08
05
02
99
96
93
90
Existing
New
Source: U.S. Census (http://www.census.gov/hhes/www/housing/hvs/hvs.html)
The main problem in housing market - lost homes/foreclosures
– by adding to supply, they put downward
pressure on prices – an insidious circle ,exacerbated by
high unemployment and weak income growth
Forecast from Moody’s and National Assoc. Realtors
Latest Harvard* Housing Demand Forecasts
2010 – 2020 ( June 2009)
Annual rate (000)
Vacancy demand – 2nd homes, speculation building
removals – net loss from existing inventory
of housing stock
Low rate: lower household formations
& lower immigration projections
2009 starts
forecast
Source: HJCHS, W07-7 , amended (http://www.jchs.harvard.edu/publications/publications_by_year.htm)
② U.S. ECONOMY
– RECOVERY OUTLOOK
Housing is stabilizing, albeit at low levels
Foreclosures remain problem –
add to inventory and weak pricing
Consensus outlook
(1) slow recovery in housing
(2) slow recovery in the economy
Why a slow recovery ?
Housing
Too much housing inventory
Need stronger demand to sop
up inventory, but
Weak Economy
high unemployment
+ weak income growth (negative in 09)
+ consumer debt
= weak consumer spending
U.S. Economy in 2008
Government spending 20%
Net Exports (- 5)%
Non residential
investment
11.7%
Consumer spending 70%
(consumption of goods &
services by/for the
consumer)
Residential
Investment (incl. R&A) 3.3%
Source: BEA ( http://bea.gov/national/nipaweb)
Spending on goods/services for/by the
consumer is 70% of the U.S. economy (
and big part of global economy)
Economy won’t get better until
consumer spending improves
and that will be difficult due to high
levels of debt
exacerbated by low inflation
(i.e, debt burden is more onerous in low
inflation environment)
Wild card - - Implications for the economy
(and wood products) if consumer spending pulls
back to 65% ( or lower) of the economy? Long term,
this is good ( less consumption = more investment) =
Better productivity = more competitive = higher GDP
Cumulative Net change in Non Farm Payrolls
over 7 million job losses in past 24 months
4.8 million in 2009 – 15.5 million unemployed today –
but, it is definitely stabilizing
( thousand )
0
pr
9"
9"
"
"
08
t0
ep
"S
"A
ov
"
08
08
e
un
an
"N
"J
"J
0
-500
-1000
-1500
-2000
-2500
-3000
-3500
-4000
-4500
-5000
-5500
-6000
-6500
-7000
-7500
-8000
January 2010(20,000)
Source: U.S. BLS ( www.bls.gov)
Global Economic Outlook
 2009 - World wide recession ( except China & India)
 2010 will see slow rebound in U.S. and Europe
and stronger rebound in emerging countries
Recovery in global economy hinges on U.S. consumer
U.S. economy ~ 27% of global economy ( 2006 basis)
at 70% of U.S. economy, spending by/for American
consumer products account for ~ 20% of global
economy
Global Economic Outlook
Solid growth in China, India,
and developing Asia
GDP, percent change, YOY
Slow growth in advanced
economies – Europe, U.S.,
Japan
10%
8%
6%
4%
2%
0%
-2%
2009
2010
2011-2016
-4%
-6%
China
India
World
USA
Euro region
Source: Conference Board ( December 2009)
③ U.S. WOOD PRODUCTS MARKETS
Heavily geared to housing activities
70% of softwood lumber and structural panels
consumed in new construction plus remodeling activity
The majority of hardwood products are tied to housing
activity, either directly ( e.g., kitchen cabinets, molding,
flooring), or indirectly ( e.g. furniture).
Softwood Market Shares:
Average use during 1998 – 2007
U.S. Softwood Lumber
U.S. Structural Panels
Export 2%
Industrial
16%
Export 2%
R&A
30%
Industrial
17%
R&A
19%
New Residential*
40%
NR
12%
NR.
10%
New Residential*
53%
*New Residential incl. SF, MF, and Mobile Homes
Source : Lumber – WWPA; Panels - APA
Lumber and Panel Prices Follow Housing
Between 2005 – 2008: North American lumber production down 31% (23 BBF),
prices down 31%; structural panel production down 12.4 BSF, prices down 29%
Starts ( Million units)
FOB, Price, $/M
2.5
$660
2
$560
1.5
$460
1
$360
0.5
$260
0
2002
$160
2003
2004
Starts
2005
2006
Lumber ( FLC)
2007
2008
2009
Panels ( SPC)
U.S. Hardwood Lumber Consumption Trends
BBF
Residential markets are now 3.5 times the size of furniture markets
Exports bigger than furniture
5
4
3
2
1
0
1963 1967 1972 1977 1982 1987 1992 1997 2002 2007
Furniture
Construction & Remodeling*
Industrial
Exports
* flooring, millwork, trusses, cabinets, & fabricated wood members
Source: Bill Luppold, USDA FS
Index of Hardwood Lumber, Cross Ties
and Pallet Cant Prices 2004 to 2009
110
105
100
2004 = 100
95
90
85
80
75
Impact of housing collapse
70
65
60
2004
2005
FAS
2006
1C
2007
2C
Pallet
2008
2009
Tie
Source: Bill Luppold
Eastern Hardwood Lumber Production
1958 to 2009
(2009 estimated based on a survey of state utilization foresters)
13000
11000
10000
9000
8000
7000
2009 level about 6.5 BBF
Down 48% from peak in 1999
6000
5000
19
58
19
61
19
64
19
67
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
06
20
09
Millions of board feet
12000
Source: Bill LUppold
U.S. softwood lumber output is currently down
by -46% and OSB down by -56% since 2005 . . .
45
U.S. Softwood Lumber Production
Billion Board Feet
30
OSB Production
Billion Sq Ft 3/8" Basis
40
25
35
20
30
25
15
20
10
15
10
5
5
0
2009p
2008
2007
2006
2009p
2008
2007
2006
2005
Source: WWPA (p = 3rd Quarter 09)
2005
0
Source: APA – The Engineered Wood Assoc.
U.S. Log Price Trends (2002 – 2009) . . .
Starting to get better!!
Hardwood Logs
150
250
Price Indexes (1982 = 100)
Softwood Logs
225
125
200
100
175
75
2002
150
2003
2004
2005
2006
2007
2008
2009
Log prices generally followed lumber markets, climbing to recent peaks in 2004-2005, but
collapsing with the housing bust. The drop in log prices (-24% for softwood and -27% for
hardwood from recent peaks) is now similar to the average drop in lumber prices.
Source: Peter Ince, USDA FS, BLS
(Bureau of Labor Statistics)
Capacity Utilization - U.S. Softwoods
Production/Capacity
Both approaching 50% utilization
That means lots of downtime,
shutdowns ,and little or no profit
Sources: OSB – APA; Lumber RISI
④ International Trade Issues
Global Drivers . . .
Trade liberalization (GATT  WTO)
Expanded global commerce
Shift of manufacturing growth to Asia and Europe
Collapse of global financial system (current recession)
Source: Peter Ince, USDA FS
Domestically-produced shares* of U.S. consumption
declined for many wood products from 1990 to 2008 –
Implications for demand for U.S. wood and timber?
100%
1990
2008
2006 data
for flooring &
molding
80%
60%
40%
20%
0%
Paper &
Board
OSB &
Plywood
Softwood
HH
Hardwood Hardwod
Lumber Furniture Lumber
flooring
Hwd &
softwd
molding
*Consumption Value = P + I – E Import share = I / C
Domestic share = 1.0 – ( I / C)
Sources: Shipments : Dept Commerce, Bureau Census , ASM
Imports & Exports : FAS, B. Luppold for hardwood lumber, P. Ince for paper & board
Market Share of U.S. Imports
60%
50%
40%
30%
20%
10%
0%
20
20
08
06
*These market shares are conservative because
some imported components and finished furniture
is included in the domestic shipments
04
02
00
98
96
94
92
Upholstered
Molding(hwd + soft)
20
20
20
19
19
19
19
Kitchen cabinets
HH Furniture
Wood Office
Hardwood Flooring
Consumption = shipments + imports – exports.
Import share = imports/consumption
Source: Census, ASM; ITA (www.ita.doc.gov)
Forest Products Export Trade
World Exports (Billion $)
U.S. Share (%)
$250
16%
14%
$200
12%
World (L)
U.S. Share (R )
$150
10%
8%
$100
6%
4%
$50
2%
06
20
04
20
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
19
19
82
0%
80
$0
FAO – ForesSTAT (http://faostat.fao.org/site/626/DesktopDefault.aspx?PageID=626#ancor)
U.S. Softwood Lumber Trade
BBF
30
30
25
25
20
20
15
15
10
10
5
5
0
0
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20
Imports- Canada
Imports - Elsewhere
Exports
Source: RISI, WWPA
Hardwood Lumber Exports
1990 to 2009
(2009 based on volume through May 2009)
1400
Millions of board feet
1300
1200
1100
1000
900
800
700
600
500
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: Bill Luppold, USDA FS
Export opportunities China building code changes– to allow wood frame
construction in Shanghai – the Shanghai local
code may be easily adaptable to other cities
and provinces across China
Russian export tax – opportunities for other suppliers
e.g., China is largest importer of Russian logs –
in 2007, China imported 27 million m3 from Russia
including hardwoods and softwoods – 75% of
China’s
total log imports. In April, 2008, the tax went to 25%
(from 5%), and is scheduled to go to 80% in 2010.
Russian Export Tax Update
Products
Rate or
minimum
amount
Jul1,
2007
Apr 1, 2008
Jan1 2009
Softwood logs
(>15cm)
%
Euro/m3
20%
10
25%
15
25%
50
Hardwood logs
(.>15cm)
%
Euro/m3
20%
24
20%
24
100%
50
Poplar
%
Euro/m3
10%
5
10%
5
80%
50
Industrial Birch
%
Euro/m3
10%
5
Source: Russ Taylor, Wood Markets Monthly, Vancouver, Canada
December 2009
World Log Exports – hardwoods and softwoods
Billion $
Source: Global trade atlas
World Log Imports – hardwoods and softwoods
Billion $
Source: Global trade atlas
Russian Log Exports – hardwoods and softwoods
Billion $
Source: Global trade atlas
China Log Imports – hardwoods and softwoods
Billion $
Source: Global trade atlas
⑤ U.S. FOREST PRODUCTS INDUSTRY
- FUTURE OPPORTUNITIES
New Opportunities – new climate –
Good or Bad – Depends on us!
Resource constraints + climate change policies + shifting consumer values
“Use to be a simple business of converting trees into lumber, panels, and paper
Now, uniquely positioned ,or exposed, to political and economic forces that
Are reshaping the regulatory and market landscapes” - - A,.Sauer, World Resources
Institute
 Energy Independence and Security Act of 2008 - sets targets for
cellulosic biofuels production through 2022 – 36 billion gallons
renewable fuels by 2022 – 21 of the 36 must be “advanced biofuels
such as cellulosic ethanol
 American Clean Energy and Security Act of 2009
(Waxman/Markley climate change bill - establish targets
to obtain a certain percent of electricity (17%) from
“renewable sources” fuels including biomass by 2018 – objective is to
reduce GHG emissions
Impacts on forest products industry
New revenue streams and markets for forest products and services
(1) carbon storage and sequestration – “being paid to grow
trees”
(2) biomass and biofuels for transport fuels and electricity
Competitive advantages in a low carbon economy
carbon neutral/carbon negative products
there will be incentives to reduce green house gas emissions
via carbon tax or cap and trade system
Green preferences will increase with increasing awareness of
climate change benefits of sustainable forest products.
Wood products industry must get involved to make sure these
benefits evolve!
U.S. Oil Supply
42%
58%
World comparisons – Carbon Dioxide Emissions
American Clean Energy and Security Act of 2009 mandates goals/targets
/timetables for reduction in CO2 emissions – data below shows the U.S.
Has long ways to go
U.S. produces 20% of emissions,
With 5% of population
Source: EIA
Great opportunity for wood as climate
Change policies directly, or indirectly raise the
price of energy from fossil fuels
Source: EIA
Europe is largest market for wood pellets – why?
(1) European Union mandated 20% of electricity from renewable sources
by 2020, and (2) high taxes on CO2 emissions from fossil fuels
Domestic production
Imports
Source: FAO – state of world’s forests 2009
Changing Supply Chain - - New/Additional Fiber Demand from Wood BioEnergy in U.S. South
Ranges from 10% to 25% depending on technology and financing –
Will drive pulpwood/chip prices higher, and eventually, sawtimber, and
veneer prices as landowners shorten rotations/harvest age.
Source: Forisk Consulting
New fiber demands depend on technology, and financing of bioenegy facilities. Much
of the fiber will be pulpwood and chips as economics of
Harvesting crowns, limbs, etc. is ”iffy”. Estimates range from 15 to 35 million
additional tons of pulpwood/chips will be needed for bioenergy by 2020.
Thus, 10 % to 25% additional fiber demand based on 2006 consumption levels of 130
million tons.
Sign of the times??
Minnesota OSB plant converted to Biomass
facility (Dec. 2009)
With the demise in U.S. housing, the OSB industry
has excess capacity – an older OSB plant in Cook, MN
was recently purchased by Hill Biomass for conversion
to biomass products (pellet plant)
Another recent item (Feb. 2010) – Weyerhaeuser and
Mitsubishi sign MOU to join forces to produce wood
pellets
North American Wood Residue Supply (from 3 main
sources) and Demand (from 4 main end uses).
Excess supply of fine wood residues has nearly evaporated . . .
suggesting that future expansion of wood pellet capacity would
have to rely on more costly alternative wood sources . . .
24
Million Metric Tons
22
20
18
Supply
Demand
16
14
12
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
10
Source: Spelter, USDA, FPL
Green Building (sustainable) Trends
What is green building? A philosophy that focuses on buildings that:
(1) Efficiently using water, energy, and other resources
(2) Protecting occupant health and improving employee productivity
(3) Reducing waste, pollution and environmental degradation
• Market for “green homes” is expected to increase from $2 billion
to $20 billion over the next five years in the USA
• Implications for wood products industry: certified
wood products plus LEED and other green building
certification programs will benefit wood – any trends
that promote sustainable products will favor wood!
Life cycle analysis shows that wood is a sustainable
material.
U.S. Residential Green Home Market
Opportunity
Billion $
$80
$70
$60
$30
$50
$40
$30
$20
$8
$10
$0
$7
$12
2005
2008
Lower market size
$40
2013
Upper market size
Source: McGraw – Hill construction market forecast
McGraw _ Hill construction, Green Outlook 2009
Green homes accounted for 17% of SF homes built in 2008
-- - up from 12% in 2007 - - over 1 million new homes have
the Energy Star designation
Source: M. Snow, AHEC
Source: M. Snow, AHEC
Lacey Act, as amended*, will encourage more acreage
of certified forests plus more COC certificates?
*The Lacy Act of 1900,originally designed to combat illegal
trafficking of wildlife and fish, was amended in 2008 to include illegal logging
and products made from illegally harvested timber
Source: Mike Snow, AHEC
Today, 8% of global forest area is certified by the FSC or PEFC
In addition, there are additional areas certified by other systems
Source: FAO, AFPMR – 2008-2009
⑥ Conclusions
Wood products markets won’t improve until housing
improves
 Housing improvement hinges on balancing supply and
demand - Foreclosures are a big problem on supply side



Stronger economy is key to stronger housing demand
and fewer foreclosures
Consumer spending is big question mark – 70% of
economy - - consumers are heavily in debt ( so is federal
government)
U.S. economy will recover slowly as will housing





International economy in recession in 2009 with mixed recovery
in 2010 – U.S., Europe, and Japan recover slowly while China and
India see stronger growth. Growth depends on health of U.S.
consumer
International trade in wood products – stronger world growth (2010)
and favorable exchange rates should fuel stronger U.S. exports.
Opportunities to expand log and lumber exports to wood starved
China
New opportunities ( and challenges) for forest product industry
brought on by changing consumer preferences and new legislation - biofuels, wood pellets, carbon storage – cap and trade legislation,
green building materials, certified forest products, amended Lacey
Act
Problems – higher wood fiber prices if biofuels and wood pellets
compete with existing industries for roundwood and residues – good
for log prices, but not so good for OSB , PB, and MDF industries

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