Southern Timber Industry Situation and Outlook Yanshu Li

Southern Timber Industry Situation and Outlook Yanshu Li Warnell School of Forestry & Natural Resources University of Georgia Yanshu. li@uga. edu

Outline • • • Major timber products Forest resources condition Demand Timber market prices Timber market outlook

Major timber products Pulpwood Paper, paperboard products Softwood CNS Wood panels Hardwood Sawlog & veneer log Lumber

U. S. South is the “wood basket” of the country… Forest land area 32% Volume of growing stock 32% Industrial roundwood harvest Sawlog Pulpwood 62% 50% 76% 0% 10% 20% 30% 40% 50% 60% 70% 80% Source: USFS FIA & TPO

and the world Forest land area 2% Volume of growing stock 2% Industrial roundwood harvest 12% Sawlog 8% Pulpwood 21% 0% 5% 10% 15% 20% 25% Source: USFS FIA & TPO, FAO

If U. S. South were a country… • No. 1 producer of industrial roundwood • No. 1 producer of pulpwood roundwood • No. 3 producer of sawlog and veneer logs after Canada and Russia

Area of timberland by forest type 210 million acres Pine 34% Hardwood 56% Mixed 11% Source: USFS FIA

Area of timberland by ownership Public 13% Family owners 58% Corporate 29% Source: USFS FIA

Southern industrial roundwood harvest has been recovering, mostly in pulpwood 10, 000. 0 Sawlogs & veneer logs pulpwood other industrial rwd Million cu. ft 8, 000. 0 6, 000. 0 40% 2, 000. 0 2005 2007 2009 2011 2013 Source: USFS TPO

In Georgia, total industrial roundwood harvest back to pre-recession level but sawlogs still 18% below 2005 level 1, 400 Million cu. ft 1, 200 1, 000 800 600 400 2005 2007 2009 Sawlogs & veneer logs 2011 pulpwood 2013 2015 2016 other industrial Source: USFS FIA, GFC

Annual growth 2000 1800 1. 74 1600 1400 1200 1000 800 600 400 200 0 Annual removal 1. 49 2. 38 1. 71 (South total) Growth/removal ratio 1. 85 1. 91 1. 63 1. 35 1. 39 1. 47 2. 02 1. 56 1. 98 Source: USFS FIA Vi rg in ia s xa Te l Ok ina So laho ut m h Ca a ro Te lina nn es se e ro pi No rth Ca ip iss na M iss sia ui Lo tu c ky a gi Ke n or Ge rid Flo as ns ka Ar a 1. 77 a am ab Al Million cu. Ft. We are growing more than we cut

Million cu. Ft. We are growing more than we cut 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Annual growth Annual removal 1. 65 1. 84 Pine Hardwood Source: USFS FIA

Growing stock has been accumulated, especially in sawtimber class Growing stock volume 70, 000 Million cu. ft 60, 000 Large-diameter Medium-diameter Small-diameter 50, 000 40, 000 30, 000 20, 000 10, 000 0 2011 2012 2013 2014 2015

Summary of forest resources in U. S. South • • Sizeable timberland The majority of timberland is privately owned Abundant timber resources, highly sustainable The recent recession has led to accumulation of sawtimber on the stump

Derived demand from end products Pulpwood CNS Sawlog & veneer log Paper, paperboard products Wood panels Lumber

About two-thirds of U. S. lumber and wood structural panels are used in house construction/remodeling, so lumber and panel markets follow housing starts. Wood industry is among the hardest hit during the recession

Paperboard demand is more associated with general economy and industrial production.

Restructuring in the pulp and paper industry • Demand for graphic paper (newsprint and printing paper) has decreased due to growing digital media usage and increased environmental awareness among consumers • Demand for paperboard products has increased as e-commerce gains popularity Source: The Economist

Lumber production has increased as housing market recovers, but at a slower rate 2000 1500 1000 500 Single family 45 Multi-family US Softwood Lumber Production 40 US South sfwd Lbr Prod. 35 /year % 9. 5 30 25 ar 4%/ye 7. 20 15 10 11. 3%/year 0 5 0 20002001200220032004200520062007200820092010201120122013201420152016 Lumber production in BBF Housing start (1000 units) 2500

Why lumber production grows slower? • Housing start grew mostly in multi-family • Substitution from other materials • Substitution from Canadian lumber

Lumber production has increased as repair and remodeling expenditure rises US softwood lumber production US South sfwd lumber production 350 45 300 40 35 Billion $ 250 30 200 25 150 20 15 100 10 50 5 0 0 20002001200220032004200520062007200820092010201120122013201420152016 Source: Random Length, WWPA, Harvard Joint Center for Housing Studies Billion board feet Homeowner repair and remodeling expenditure

Structural panel production has increased gradually with residential construction and repair/modeling US Wood Structural Panel Production Housing Start Repair&Remodelling Exp. Index (2000=100) 20002001200220032004200520062007200820092010201120122013201420152016 Source: Random Length, APA, Harvard Joint Center for Housing Studies 200 180 160 140 120 100 80 60 40 20 0

0 Single. Family Multi. Family Lumber. Price Panel. Price 2, 000 500 1, 500 400 1, 000 300 200 500 100 0 Data source: US Census, Random Length $/MBF or $/MSF 2, 500 Jan-1998 Aug-1998 Mar-1999 Oct-1999 May-2000 Dec-2000 Jul-2001 Feb-2002 Sep-2002 Apr-2003 Nov-2003 Jun-2004 Jan-2005 Aug-2005 Mar-2006 Oct-2006 May-2007 Dec-2007 Jul-2008 Feb-2009 Sep-2009 Apr-2010 Nov-2010 Jun-2011 Jan-2012 Aug-2012 Mar-2013 Oct-2013 May-2014 Dec-2014 Jul-2015 Feb-2016 Sep-2016 Apr-2017 Housing start (1000 units) Lumber and panel prices have improved, recently reaching record-high levels 700 600

SE Sawtimber Price 450 400 350 300 250 200 150 100 50 0 RL Composite Lumber Price R=0. 82 Data source: TMS, Random Length 17 20 16 20 15 20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 R=-0. 38 $/MBF 45 40 35 30 25 20 15 10 5 0 19 $/green ton But pine sawtimber prices in the South show no response to improved lumber prices

Pine grade sawmill capacity still well below 2006 Source: Forisk

Paper and paperboard production in the U. S. Paperboard production Paper Production 60 40 30 20 10 16 20 15 20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 0 20 Million tons 50

Pulpwood prices held up well during the recession and after, slightly trended down over the past year SE pine pulpwood price RL structural panel price 12 8 $/MSF $/ Green ton 10 6 4 2 0 500 450 400 350 300 250 200 150 100 50 0 19981999200020012002200320042005200620072008200920102011201220132014201520162017 Data source: TMS, Random Length

Why pulpwood prices held up well during then and declined now? • Paper and paperboard industry fared better during the recession and recovered sooner • Reduced supply of mill residues from lumber mills due to curtailment or closures • Reduced supply of pulpwood due to reduction in harvest (for sawlogs) • Demand for OSB pushes up pulpwood prices as housing start improves • Emerged demand for energy product (wood pellets, woody biomass for electricity) • As sawmill production resumes, improved supply of mill residues and pulpwood put downward pressure on pulpwood price

Stumpage prices in U. S. South (nominal price) Pulpwood Pine sawtimber 45 40 35 30 25 20 15 10 5 0 $24. 73 $17. 13 16 20 14 20 12 20 10 20 08 20 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 8 2 $10. 17 80 19 $/Green ton CNS Data source: TMS

Observations • Pine sawtimber and CNS prices dropped more than 30% during the recession while pulpwood prices held well • Pine sawtimber prices remain flat despite the recovery in housing market • CNS prices improved but not back to the pre-recession level • Current pulpwood prices are at historical record high • Price spread between sawtimber, CNS and pulpwood narrows

Stumpage prices in U. S. South (1982 real price) CNS Pulpwood Pine sawtimber 25 Pine sawtimber and CNS at historical lows! $12. 26 15 10 $8. 49 5 $5. 04 16 20 14 20 12 20 10 20 08 20 06 20 04 20 02 20 00 20 98 19 96 19 94 19 92 19 90 19 88 19 86 19 84 2 19 19 8 80 0 19 $/Green ton 20 Data source: TMS

Timber market outlook

Key supply and demand factors affecting timber products prices Demand • U. S. housing start and residential repairing & remodeling activities are key drivers for the demand for solid wood products • Industrial uses will rise with overall economy trend • Trade policies (e. g. US-Canada Softwood Lumber Agreement) • Demand for paperboard depends on the growth of manufacturing sectors and general economy • Demand from oversea markets • Demand for energy products

Key supply and demand factors affecting timber products prices (con’t. ) Supply • Timber inventory level • Mill capacity and operating rate • Weather condition and local logging capacity • Landowners’ expectations

• U. S. population grows slowly • Household formation growth has been improving but lower than long-term average Source: Federal Reserve Bank of San Francisco

US general economy has been improving slowly GDP growth rate Unemployment rate 22 20 20 20 18 20 16 20 14 20 12 20 10 20 08 20 06 20 04 20 20 20 02 10 9 8 7 6 5 4 3 2 1 0 00 5 4 3 2 1 0 -1 -2 -3 -4 Source: IMF

Housing starts will continue slow recovery 2, 500 Housing start Thousand units 2, 000 1, 500 1, 000 Single-family housing start Foreca 1. 3 million 945, 000 500 0 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: Fannie Mae, September 2017

Remodeling and repairs growth might trend down slightly

Industrial production growth rate GDP growth Industrial production growth 10 5 0 2. 3 % Forecast 0. 8 % -5 -10 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 -15 Source: IMF, Federal Reserve Board

Some other factors to consider • Impacts of Hurricane Harvey and Irma • Impacts of wildfire in BC • Final decision on the U. S. -Canada softwood lumber agreement • Impacts of Brexit on wood pellets export

Summary • Demand for timber products is expect to improve slowly with the recovery of housing market, expansion of repair & remodeling expenditures, and some favorable factors • A large over-supply on the stump will continue to keep sawtimber prices down • Pulpwood prices are expected to remain strong but will feel downward pressure from increased lumber production • It still take years to get to the new norm