Global Trends

Emerging Trends in the Global Trade of Forest Products PRUTIMBER Timberland Investment Workshop Point Clear, Alabama April 8, 2002 Bob Flynn, Director Wood Resources International Ltd. Wood Resources International Ltd.

Global trade in forest products has been expanding at a rate of nearly 4.5% per year 180 160

AAGR = 4.5%

120 100 80 60 40 20

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

0 1980

Billion US$

140

Wood Resources International Ltd.

60% of global trade in forest products is in pulp and paper products Global Trade in Forest Products, 2000 Percent of Value by Product Other 4% Logs 7%

Paper 46%

Lumber 17% Pulp 14%

Panels 12% Wood Resources International Ltd.

Trade in paper products has been growing at a much faster rate than most solidwood products Global trade in value of forest products, 1980 - 2000 – Average annual growth rate: • • • • • •

Paper = +6.15% Pulp = +4.10% Solidwood Products = +3.22% Softwood Lumber = +2.57% Plywood = +5.40% Other Wood-based Panels = +7.24%

Wood Resources International Ltd.

The United States: Largest Producer and Importer of Wood Products Changing Sources of Supply

Wood Resources International Ltd.

The US has a large and growing trade deficit in solid wood products

2002*

2001

2000

1999

1998

1997

1996

1995

1994

1993

Exports

1991

1990

1989

1988

1987

Imports

1992

18000 16000 14000 12000 10000 8000 6000 4000 2000 0 1986

Million US$

US Trade in Solid Wood Products

Wood Resources International Ltd.

US Trade in Pulp and Paper Products

2000

1999

1998

1997

1996

1995

Exports

1994

1992

Imports

1993

20 18 16 14 12 10 8 6 4 2 0 1991

Billion US$

The US trade balance in pulp and paper products is also negative, due partially to the strong US$

Wood Resources International Ltd.

Canada continues to dominate US softwood lumber imports, but other sources are increasing 25000 20000 15000

Rest of World Canada

10000 5000

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

0

1990

Million Board Feet

71% increase in volume

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US-Canada Softwood Lumber War – impact on timberland values difficult to estimate • War not over yet--- May 6 ruling by ITC could eliminate import duties, or WTO could over-turn • Impact of Softwood Lumber Agreement (1996-2001) – Incentive to non-quota provinces to increase softwood lumber production and exports – Incentive to push harder into export markets, replacing US product – Incentive to add value in Canada – But lumber prices still higher than without duties/quota, which acts to push up timberland prices

Wood Resources International Ltd.

US imports of European softwood lumber now exceed those from South America 700 600

Europe

South America

New Zealand

400 300 200 100

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

0

1991

MMBF

500

Wood Resources International Ltd.

Imports of softwood lumber from New Zealand jumped 53% in 2001, but imports from Brazil and Chile declined 300

Brazil

250

Chile

N Zealand

200 150 100 50 2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

0 1991

Million Board Feet

350

Wood Resources International Ltd.

360 320

Brazil

Chile

New Zealand

Mexico

280 240 200 160 120 80

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

40 0

1991

Million Lineal Meters

US imports of finished products like softwood moulding from Brazil and Chile continue to increase

Wood Resources International Ltd.

Timber from plantation forests in the Southern Hemisphere is becoming much more important in the global markets

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The growth in US imports of Brazilian wood products has been almost entirely from plantation wood US Imports of Solidwood Products from Brazil 300

Hardwood

200 150 100 50 2001

2000

1999

1998

1997

1996

1995

1994

0 1993

US Million $

250

Softwood

Wood Resources International Ltd.

Plantation forests are also taking over much of the international pulpwood trade Japanese Hardwood Chip Imports, Percentage by Source Forest Type

100%

Percent

80% 60% Plantation Natural

40% 20% 0% 1990

1995

2000

2001

2005

2010 Wood Resources International Ltd.

The volume of pine available for harvest in Chile and New Zealand will expand rapidly in the coming 5 years, but demand will likely be slower Million cubic meters

40

Available Timber Supply - Official Forecasts

35 30 25 20 New Zealand

15

Chile

Source: INFOR, NZ MAF

2026

2024

2022

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

10

Wood Resources International Ltd.

But the “Wall of Wood” may not be as tall as some have assumed

2010

2009

2008

2007

2006

DANA Estimate

2005

2004

2003

NEFD 2000 Prediction

2002

12.5 12 11.5 11 10.5 10 9.5 9 8.5 8

2001

Million cubic meters

Central North Island New Zealand Timber Harvest Forecast

Wood Resources International Ltd.

10 9 8 7 6 5 4 3 2 1 0

Pruned Log Supply Forecast

Chile

2019

2017

2015

2013

2011

2009

2007

2005

2003

2001

1999

New Zealand

1997

Million cubic meters

More importantly, pruned log availability is set to triple between 1999 and 2003

Wood Resources International Ltd.

New Zealand and Chile have taken radically different approaches to log exports Radiata Pine Log Export Volume

7 6

New Zealand

5

Chile

4 3 2 1 2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

0 1986

Million cubic meters

8

Wood Resources International Ltd.

The total imports of radiata pine in Japan have not increased since 1991 thousand cubic meters

2500

Lumber

Logs

2000 1500 1000 500

2001E

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

0

Lumber equivalent volume Wood Resources International Ltd.

Chile: Exports of KD surfaced lumber are expanding rapidly in certain markets thousand cubic meters

160 140 120

Spain Costa Rica Dom. Republic Mexico Japan

100 80 60 40 20 0 1998

1999

2000

2001E Wood Resources International Ltd.

New Zealand sawnwood exports to China have increased rapidly 120 100

China

Hong Kong

80 60 40 20

2000

1999

2001E

Note: 100,000 m3 = 42 MMBF

1998

1997

1996

1995

0

1994

thousand cubic meters

140

Wood Resources International Ltd.

But New Zealand’s exports of logs to China have been growing even faster 1000 thousand cubic meters

900 800 700 600 500 400 300 200 100 0 1996

1997

1998

1999

2000

2001 Wood Resources International Ltd.

The US continues to be the dominant market for Brazilian softwood lumber exports thousand cubic meters

1600 1400 1200

Other Asia Europe N Africa USA

1000 800 600 400 200 0 1998

1999

2000

2001E Wood Resources International Ltd.

Is trade in forest products moving away from raw materials (logs and woodchips) and towards greater volumes of “value-added” products?

Wood Resources International Ltd.

Japanese imports of logs have been declining, while imports of lumber have increased 50,000 40,000

Logs

Lumber

35,000 30,000 25,000 20,000 15,000 10,000 5,000

2001E

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

0

1979

Thousand cubic meters

45,000

Wood Resources International Ltd.

On a lumber equivalent basis, Japan now imports more lumber than logs 30,000

Logs

Lumber

25,000 20,000 15,000 10,000 5,000

2001E

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

0 1979

Thousand cubic meters

35,000

Wood Resources International Ltd.

In a number of countries, exports of logs have declined in favor of processed product exports Malaysia: Log and Plywood Export Trends 4500

25000

1,000 cubic meters

20000

3500 3000

15000 10000

Logs (Left) Plywood (Right)

2500 2000 1500 1000

5000

1,000 cubic meters

4000

500 0

0

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Wood Resources International Ltd.

But while the log trade has fallen quickly in some countries, the total trade is only slowly declining Total Log Imports in Japan, China, and Korea

50 40 30 20 10 2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

0 1979

Million cubic meters

60

Wood Resources International Ltd.

And the trade in raw material imports in Northern Europe has expanded rapidly in the 1990s Scandinavian Roundwood Imports, 1981 - 2001 30

Norway Sweden Finland

25 20 15 10 5

2001E

1999

1997

1995

1993

1991

1989

1987

1985

1983

0 1981

million cubic meters

35

Wood Resources International Ltd.

Trade in woodchips has also expanded: Japanese imports in 2000 were an all-time record volume Japan: Woodchip Consumption by Source Domestic

25000

Imported

20000 15000 10000 5000 2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

0 1980

thousand cubic meters

30000

Wood Resources International Ltd.

The Pacific Rim Log Market--Changes in Sources and Markets

Wood Resources International Ltd.

Russia is now the leading source of softwood logs for Japan, but the total volume has fallen 20000 16000 14000

Russia Chile N Zealand Canada USA

12000 10000 8000 6000 4000 2000 2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

0 1980

thousand cubic meters

18000

Wood Resources International Ltd.

Korean log imports have been decreasing, and have shifted to almost all softwood 10000 Softwood Hardwood

8000 7000 6000 5000 4000 3000 2000 1000

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

0

1976

thousand cubic meters

9000

Wood Resources International Ltd.

South Korea’s softwood log imports are dominated by New Zealand and Russia 7000 6000

Other Russia N Zealand Chile US

5000 4000 3000 2000 1000

2001*

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

0

1989

thousand cubic meters

8000

Wood Resources International Ltd.

China is now the largest log import market in Asia 35

Japan

Korea

25 20 15 10 5 2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

0 1986

Million cubic meters

30

China

Wood Resources International Ltd.

China’s log imports have increased rapidly, and are now balanced between softwood and hardwood

2001

2000

1999

1998

1997

1996

1995

1994

1993

Hardwood

1992

Softwood

1991

1990

1989

1988

1987

10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 1986

Million cubic meters

China Log Imports by Species Type

Wood Resources International Ltd.

Russia dominates China’s softwood log market, and the volume has increased rapidly since 1996 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

Other Russia N Zealand USA

1989

thousand cubic meters

China: Softwood Log Imports by Source

Wood Resources International Ltd.

Japanese consumption of softwood lumber has declined sharply thousand cubic meters

40 35 30 25

Imports Production

20 15 10 5 0 1990

2000 Wood Resources International Ltd.

While China’s hardwood lumber imports have increased quickly, softwood lumber imports have increased more slowly China: Lumber Imports 3500

Softwood

3000

Hardwood

2500 2000 1500 1000 500

2001E

2000

1999

1998

1997

1996

1995

1994

1993

0

1992

thousand cubic meters

4000

Wood Resources International Ltd.

China is also one of the world’s largest exporters of wooden furniture, a driving force behind Chinese wood imports

2002F

2001E

Exports

2000

1998

Production

1999

18 16 14 12 10 8 6 4 2 0 1997

Billion US$

China: Production and Exports of Furniture

Wood Resources International Ltd.

China has quickly become the second largest market for pulp imports, which are expected to continue expanding China: Pulp Imports 6000

4000 3000 2000 1000 2001

2000

1999

1998

1997

1996

1995

1994

0 1993

Million tonnes

5000

Wood Resources International Ltd.

Softwood timber harvest in Europe is expected to increase through 2010 Annual Softwood Timber Harvest million cubic meters

350 300 250

Russia/Belarus/Ukraine Europe

200 150 100 50 0 1997

Source: Nilsson, 2000

2010 Low

2010 High Wood Resources International Ltd.

2001(e)

2000

1999

1998

1997

1996

Apparent Consumption

1995

1993

1992

Production

1994

100 95 90 85 80 75 70 65 60 55 50 1991

Million cubic meters

European production of softwood lumber has expanded faster than consumption, & the region is a net exporter

Wood Resources International Ltd.

European softwood lumber exporters are gaining market share in Japan also 9000 8000 7000 6000 5000 4000 3000 2000 1000 0

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

North America Europe Other

1990

thousand cubic meters

Japanese Softwood Lumber Imports

Wood Resources International Ltd.

The strong US dollar has helped foreign suppliers over the past 5 years US$ Ex Rate Index 1998 = 1.0

2.4 2.2

Chile

Brazil

N Zealand

S Africa

2 1.8 1.6 1.4 1.2 1 0.8 1998

1999

2000

2001

Feb 6-02 Wood Resources International Ltd.

Summary: Changing Global Trade Trends • Total trade increasing at 4.5% per year • Some products (paper and wood panels) increasing faster than others • Processed products more important, but raw material flows still a large trade volume • Plantation wood products increasingly gaining market share • Europe becoming an important net solidwood product exporter • USA a large net importer, and major target of Southern Hemisphere and European wood producers --- strong US dollar an important factor • China is the fastest growing wood products market Wood Resources International Ltd.

Summary: Impacts of changing trade trends on Southern Pine • US Market – Increasing imports of radiata and Brazilian pine imports taking market share in moulding and millwork markets, and in treated boards, decking, and fencing. – European lumber imports competing mainly with SPF, but taking a small amount of market share in dimension and untreated boards – Lower volume of log, lumber, and plywood exports, due to competition in foreign markets, increases supply of available wood products in the US

Wood Resources International Ltd.

Summary: Impacts of changing trade trends on Southern Pine (Continued) • International Markets – SYP losing market share in the Caribbean to Honduran pine lumber and Brazilian pine plywood – SYP losing market share in the clear pine market in Europe to radiata pine – SYP losing market share in European plywood market to Brazilian pine plywood – Southern hardwood chips have lost almost all market share in the Japanese chip market

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