dan meyer northern editor september 6, 2006

Dan MeyerNorthern Editor

September 6, 2006

Trends in Global Markets for North American Hardwoods

OverviewMacro TrendsEurope

Sleep-Inducing GraphsKey OpportunitiesMarket Summary

AsiaCanada/MexicoOthers to Watch?

U.S. Lumber Exports

$1,059/MBF$1,108

$1,137$1,160

$1,180

U.S. Lumber Exports

EU Mfg. on the Move…Again

U.S. Lumber Exports to European Union

260

270

280

290

300

310

2001 2002 2003 2004 2005 2006 est.

Mill

ion

BF

EU-10EU-15

EU

EU

Biggest Markets in EU

60

65

70

75

80

2001 2002 2003 2004 2005 2006 est

Mill

ion

Boa

rd F

eet

Italy

Spain

SpainMonthly Lumber Exports to Spain

0

2

4

6

8

10

12Ja

n-01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Mill

ion

Boa

rd F

eet

Jul

Jul Jul

May

Oct

MayOct

Oct

Mar

May

Italy

Monthly Lumber Exports to Italy

0

2

4

6

8

10

12Ja

n-01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Mill

ion

Boa

rd F

eet

JulJul

JulJul Jul

Jun

Jun

Jun Jun

Monthly Lumber Exports to UK and Germany

0

1

2

3

4

5

6

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Mill

ion

Boa

rd F

eet

UK

Germany

UK Germany

Dec Dec Dec Dec Dec

U.S. Lumber Exports to Western Europe

0

10

20

30

40

50

60

70

80

90

ITALY SPAIN UK GERMANY

Mill

ion

BF

2001 2002 2003 2004 2005 2006 est.

Annual Look

Markets to Avoid

Big But Shrinking Markets in EU

4

6

8

10

12

14

16

18

20

22

2001 2002 2003 2004 2005

Mill

ion

Boa

rd F

eet

Belgium-LuxembourgFrance

Netherlands

Medium and Growing in EU

Medium-Sized, Growing Markets in EU

4

6

8

10

12

14

16

18

20

2001 2002 2003 2004 2005 2006 est

Mill

ion

Boa

rd F

eet Portugal

Denmark

Medium and Growing in EU

Medium-Sized, Growing Markets in EU

4

6

8

10

12

14

2001 2002 2003 2004 2005 2006 est

Mill

ion

Boa

rd F

eet Ireland

Greece

Sweden

Small But Growing in EU

Small But Growing Markets in EU

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2001 2002 2003 2004 2005 2006 est

Mill

ion

Boa

rd F

eet

Estonia

Latvia

Lithuania

Austria

Rapid growth since joining EUTariff reductions, free trade stance,

investment in mfg. sectors, wage rates among lowest on continent—make it a low-cost mfg.centerfor Europe.

Key European Opportunities: Poland

Poland

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2001 2002 2003 2004 2005 2006 est

Mill

ion

Boa

rd F

eet

Increased lumber shipments to Germany ending up in Poland.

Sizeable furniture industry and rapidly growing flooring industry—both heavily export oriented.

Polish wood furniture exports up 24% in 2005 to U.S.$1.44 billion.

Key European Opportunities: Poland

Poland’s mfg. competitiveness similar to Spain and Portugal’s positions at initial EU formation.

Poland’s industrial production growing at 10% annually.

N.A. lumber exports will increase significantly.

Key European Opportunities: Poland

EU membership discussions opened in Oct 2005

Key European Opportunities: Turkey

Turkey

0.0

0.5

1.0

1.5

2.0

2.5

2001 2002 2003 2004 2005 2006 est

Mill

ion

Boa

rd F

eet

Market potential similar to Poland’s; but won’t be realized as quickly.

Wood household furniture exports surged 54% in 2004 to $136 mil.

EU admission likely; maybe as soon as 2007.

Key European Opportunities: Turkey

Turkey’s geographic location at the crossroads of European, Asian and African trade routes.

Attractive location from which to source lumber and mfr. products for export to all three continents.

Key European Opportunities: Turkey

European Winners

Big Growth Markets in Europe ytd 2006

0.0 1.0 2.0 3.0 4.0 5.0

Ash to Portugal

Walnut to Italy

Ash to Spain

Red Oak to Switzerland

White Oak to Germany

White Oak to Ireland

Yellow Poplar to Germany

Yellow Poplar to Spain

Ash to Italy

Yellow Poplar to Italy

Change in Export Volume (Million Board Feet)

European Losers

Biggest Losers in Europe ytd 2006

-6.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0

White Oak to Spain

Maple to Italy

Yellow Poplar to Slovenia

Alder to Germany

Cherry to Italy

White Oak to Italy

Ash to Uk

Alder to Belg-Lux

Cherry to Uk

White Oak to Belg-Lux

Change in Export Volume (Million Board Feet)

N.A. lumber demand slid south; now shifting east.

We’ll see more lumber shipped to Poland via Germany.

Turkey shows Poland-like promise.

European Summary

Exports to France, Belgium will decline further.

Short-term outlook for many other EU-15 countries is good, but long-term pressures will limit sustained market strength.

European Summary

ASIA

China

U.S. Lumber Exports to China

0

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 est.

Mill

ion

BF

China

Trend in U.S. Monthly Exports to China

1

2

3

4

5

6

7

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Mill

ion

Boa

rd F

eet

Alder

Poplar

China

Trend in U.S. Monthly OAK Exports to China

0.0

1.0

2.0

3.0

4.0

5.0

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Mill

ion

Boa

rd F

eet

Red Oak

White Oak

China

U.S. Lumber Exports to China

0

5

10

15

20

25

MAPLE CHERRY ASH WALNUT

Mill

ion

BF

2001 2002 2003 2004 2005 2006 est.

U.S. Lumber Exports to Asia

0

10

20

30

40

50

JAPAN TAIWAN THAILAND VIETNAM

Mill

ion

BF

2001 2002 2003 2004 2005 2006 est.

Other Asian Markets

U.S. Monthly Exports to Vietnam

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06

Mill

ion

Boa

rd F

eet

Key Asian Opportunities: Vietnam

Monthly U.S. Exports to Vietnam

0

400

800

1,200

1,600

2,000

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Thou

sand

Boa

rd F

eet

White Oak

Yellow Poplar

Key Asian Opportunities: Vietnam

Key Asian Opportunities: Vietnam

Asian Winners

Asian Growth Markets,First Half 2006 vs. First Half 2005

0 +5 +10 +15 +20

Alder to Taiwan

Walnut to Thailand

White Oak to Indonesia

Ash to Korea

White Oak to Malaysia

Maple to Japan

White Oak to China

Yellow Poplar to Vietnam

Red Oak to China

Yellow Poplar to China

Change in Export Volume (Million Board Feet)

Asian Winners (excluding China)

Asian Growth Markets (minus China),First Half 2006 vs. First Half 2005

0 +1 +2 +3 +4 +5

White Oak to Taiwan

Ash to Japan

Cherry to Taiwan

Alder to Taiwan

Walnut to Thailand

White Oak to Indonesia

Ash to Korea

White Oak to Malaysia

Maple to Japan

Yellow Poplar to Vietnam

Change in Export Volume (Million Board Feet)

Asian Losers

Slow Asian Markets,First Half 2006 vs. First Half 2005

-10 -8 -6 -4 -2 0

Alder to China

Cherry to China

White Oak to Japan

Maple to Korea

Walnut to China

Alder to Philippines

Maple to China

Maple to Indonesia

White Oak to Thailand

Cherry to Vietnam

Change in Export Volume (Million Board Feet)

Asian Summary

China 8x larger than next largest Asian market.Price will remain buyers’ main concernFickleSome say too difficult to deal with

Asian Summary

Japan will show steady economic improvement, and increased consumer spending and business investment.Direct lumber shipments won’t improve

Asian Summary

Taiwan is fadingModest growth in Hickory, Alder

Thailand is stagnant Walnut up in 2006

Korea is flatSome promise for increased Ash

Asian Summary

Vietnam is market to watchYellow PoplarCherryAshWhite Oak

North America

Canada

Decline in U.S. Imports of Canadian Products

0%

20%

40%

60%

80%

100%

120%

Moulding Flooring

Perc

ent o

f 200

4 Vo

lum

e

2004 20042005 2005

-19.1% -50.1%

2006 2006

Canada

U.S. Monthly Lumber Exports to Canada

5

7

9

11

13

15

17

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Mill

ion

Boa

rd F

eet Red Oak

Maple

Canada

U.S. Lumber Exports to Canada

0

10

20

30

40

50

60

WHITE OAK CHERRY ASH ALDER

Mill

ion

BF

2001 2002 2003 2004 2005 2006 est.

U.S. Lumber Exports to North America

0

100

200

300

400

500

CANADA MEXICO

Mill

ion

BF

2001 2002 2003 2004 2005 2006 est.

-2.7%

+21.0%

Mexico

Mexico

U.S. Lumber Exports to Mexico

0

5

10

15

20

25

30

35

40

45

RED OAK MAPLE ALDER YELLOWPOPLAR

Mill

ion

BF

2001 2002 2003 2004 2005 2006 est.

North American Winners

Growth Opportunities in N. America ytd 2006

0 2 4 6 8 10

Beech to Mexico

Yellow Poplar to Canada

Walnut to Canada

Ash to Mexico

Birch to Canada

Maple to Canada

White Oak to Mexico

Alder to Mexico

White Oak to Canada

Maple to Mexico

Change in Export Volume (Million Board Feet)

Key North American Losers

Biggest Losers in North America ytd 2006

-10 -8 -6 -4 -2 0

Red Oak to Mexico

Red Oak to Canada

Cherry to Canada

Alder to Canada

Ash to Canada

Yellow Poplar to Mexico

Cherry to Mexico

Birch to Mexico

Walnut to Mexico

Beech to Canada

Change in Export Volume (Million Board Feet)

CANADA MEXICOALDER 1.8 3.8

ASH 1.5 0.5

BEECH 0.2 0.2

BIRCH 0.8 0.4

CHERRY 3.3 0.5

HICKORY

MAPLE 0.8 8.0

RED OAK 5.2 8.2

WHITE OAK 5.8 1.8

POPLAR 0.3 1.3

WALNUT 0.4 0.3Change in Million Board Feet

First half 2006 vs. first half 2005

North AmericanSummary

Growth Potential for 2006

Difficult business climate will continue to plague Canada.

We expect additional CDN furniture and flooring plants to exit market.

Total lumber export volumes to Canada will fall.

North American Summary

Much of the manufacturing business that Mexico lost to China circa 2001 has been regained.

Mexico’s comparative proximity advantage working well with U.S.’s JIT demands.

Mexican domestic demand rising

North American Summary

Sales to Mexican distributors and flooring mfrs. will grow, as will the diversity of species.

North American Summary

United Arab Emirates – Now India – Later

Other Markets to Watch?

United Arab Emirates

6 Months Ago

United Arab Emirates

Today

United Arab Emirates

6 Months Ago

United Arab Emirates

Today

United Arab Emirates

It’s a great time to get into export markets

Demand exceeding supply for#1 and #2 Com White Oak#1 and #2 Com Poplar#1 and #2 Com Red Oak

Export markets are more volatile, lots of shifting

Parting Thoughts

U.S. exporters competing around the world with world suppliersScandavian flooring mfrs. replacing

N.A. Cherry with S.A. JatobaSurging Russian Oak use in ChinaEastern European Oak edging into

Western European markets, hasn’t yet capped N.A. White Oak prices

Not just a Rubberwood world anymore

Parting Thoughts

“Hardwoods from all regions of the world are now available everywhere, making it less likely that one species will go crazy in demand or price before another one knocks it down.”

We may never again see runs like we’ve seen with Alder and White Oak

Parting Thoughts

Parting Thoughts

U.S. hardwood lumber exports will increase 5% in volume in 2006.

Shipments will be more heavily concentrated among larger exporters.

Export markets are increasingly important to domestic manufacturers.

Data Resourceswww.fas.usda.gov/ustrade/

In the “Export” section, click “FAS”

Dan Meyerdan@hardwoodreview.com

Thank You

All data from USDA Foreign Agricultural Service