Impending Shortage of NA Lumber Capacity: Implications for U.S. Southern Industry

Size: px

Start display at page:

Download "Impending Shortage of NA Lumber Capacity: Implications for U.S. Southern Industry"

Lionel May
5 years ago
Views:

1 Impending Shortage of NA Lumber Capacity: Implications for U.S. Southern Industry Alabama Forest Owners Association Webinar Dr. Lynn O. Michaelis, Partner January 15, 2014

2 2 Purpose of Today s Presentation 1. Explain what has happened to industry over the last 10 years 2. Clear understanding why future will be very different Key takeaway: Exciting period ahead for U.S. lumber and timber industry, especially for U.S. South

3 Agenda for Today History: Use Carefully! Outlook for Housing and Wood products demand Prospects on Southern Sawtimber Summary of Key Messages

4 Fundamental Change Every Decade!!! Demand vs. Capacity Lumber Price I II III IV I II III IV Billion bf Demand Capacity $/mbf ytd DF green 2x4 price

5 5 $/MBF* Southern prices reflect domestic market, while exports boost West Doug Fir #2 Hem Fir #2 Southern Saw log

6 Sawtimber Demand in the US South Remains Depressed BBF, Int l ¼ Other OSB Pulp Plywood Lumber

7 Agenda for Today History: Use Carefully! Outlook for Housing and Wood products demand Prospects on Southern Sawtimber Summary of Key Messages

8 Key drivers for U.S. Lumber Demand: Residential Lumber Market Share* 2% 8 12% 16% 30% 40%, New Res R&A Non-Res Industrial Net Exports *Market share average

9 Unique Housing Cycle: WHY? Million Units Multi Single

10 Mixed messages in home sales data New Home Sales-000 units 1,500 1,300 1, New Homes 300 Existing Homes (RT) ,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 Existing Home Sales-000 units

11 Price Rebound Should Help Consumer Spending, Especially. Rebound in prices Helps consumer Balance Sheet 240 Median Existing Price 14 Home Equity* $ Trillion $ *SOURCE: FRB flow of funds

12 Housing Collapse Was Due to Excesses: Requires different forecasting approach 1. Aftermath of Crisis: Large vacant inventory and surge of foreclosures 2. Demand (Primarily household formations): will depend on economic and employment growth 3. Correction process: starts stay below demand until excess vacant inventory eliminated

13 Inventory correction is underway, but. Thousands 19,500 19,000 18,500 18,000 17,500 17,000 16,500 16,000 15,500 15,000 14,500 Theoretical* Actual *Assumes 12.5% Vacancy Rate This gap is one estimate of overhang of existing homes

14 Problem: Below trend household formation rate Household Formations* *Based on occupied housing stock--census

15 2.5 Our Outlook Calls For a Sustained Housing Starts Recovery Through at Least 2017 Multi 2.0 Single Million Units

16 Deep Cycle for Lumber Prices: Rebounding, but Volatile $/MBF $550 $500 $450 $400 SPF 2x4 SYP 2x4 DF green 2x4 $350 $300 $250 $200 $150 $

17 North American Domestic Lumber Consumption BBF US Canada US Share (R) % 85% 84% 83% 82% 81% 80% 79% 78% 77% 76%

18 North American Offshore Trade BBF Export Share of Total North American Lumber Consumption Canada US Export Share (R) 25% 20% 15% 10% 5% %

19 Overall Lumber demand approaches 70 bbf by 2017 BBF Lumber Demand on NA mills US Canada Net Exports

20 Agenda for Today History: Use Carefully! Outlook for Housing and Wood products demand Prospects on Southern Sawtimber Summary of Key Messages

21 With Projected Capacity, Operating Rate Moves Above 90% Lumber Capacity (Billion Board Feet) Region Total U.S South West Canada B.C. Interior East of Rockies Operating Rate 91% 59% 94%

22 Inventory of Available Live and Dead Lodgepole Pine, by Years Since Attack, Million m 3 1,600 1,400 1,200 1, >12 yrs yrs 9-10 yrs <8 yrs Live Source: FEA estimates

23 Quebec AAC Will Fall Further MMCM

24 The Deferred Volume in the South Substantial Growth & Drain, BBF, Int'l 1/4" Growth Drain Inventory Sawtimber Inventory Growth Drain Inventory, BBF Int'l 1/4"

25 U.S. Lumber Production: Near or Above Previous Peak Billion BF Other South West Coast

26 High mill margins and timber supply, will push South to new peak production levels BBF South South Peak

27 Sawtimber Harvest returns to 2005 Levels BBF, Int l ¼ Other OSB Pulp Plywood Lumber

28 North American Softwood Lumber Imports BBF

29 Log and stumpage prices continue to recover after.. Southern Lumber Prices 550 Southern Lumber Prices Southern Log/Stumpage prices $ SYP 2x4 $500 $450 Delivered Delivered ($2012) Stumpage Stumpage ($2012) $/MBF SYP 2x $/MBF $400 $350 $300 $250 $200 $150 $

30 The US Wood Pellet Industry Is Undergoing Dramatic Growth Production, Million Tons North Central Northwest Northeast South

31 SUMMARY OF KEY MESSAGES: Exciting Period Ahead!!!! The industry has improved, but still is not healthy Sustained housing and product demand recovery through 2017 Southern sawtimber harvest back to 2005 levels ( ) Log/Stumpage prices in South equal/exceed 2005 levels by 2016 Billion bf 85 NA Lumber Demand vs. Capacity Demand 35 Capacity

32 THE Key Message of Today s Presentation BIG WINNER: Timber Owners South catches up!! ($$)

North American Timber Outlook: The Supply Overhang

North American Timber Outlook: The Supply Overhang October 2016 Peter Barynin Principal Economist, Timber Copyright 2016 RISI, Inc. Proprietary Information Presentation Outline Sawtimber 1. Price Forecast