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Market Discussions – COFFI 2018Asian Market Opportunities – A North American Perspective

Bob Smith – GM Specialty Products & Offshore Sales

November 2018

Lumber Capacity: 13 million m³

Pulp/Paper Capacity: 1.5 million tonnes

United StatesAsiaCanadaOther

Americas

Asia

Europe

2017 LUMBER SALESC$3.5 BILLION

2017 PULP SALESC$1.2 BILLION

About Us24 Sawmills• 13 in Canada• 11 in US• 1 Finger Joint Plant• 2 Engineered Product Mills

1 Green Energy Plant3 Pellet Plants

4 Pulp Mills / 1 Kraft Paper Mill (integrated)

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3

Our Business

$

A high profile trade dispute with our largest market in the United States Extreme weather events in both Canada and the United States

Escalating costs from transportation to logistics to fibre

Despite all the headwinds, we have realized solid financial results – our company set numerous financial records in 2017.

We have faced a number of challenges over the past 18 months, including:

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• Peak lumber production in 2006 - 35 million m³

• Coincides with peak US housings starts at 2.2 million units

• Projected provincial timber supply forecast is expected to decrease from 64 million m3 in 2010 to 40 million m3 in 2026 for the BC Interior

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027

Volu

me

(Mill

ion

m³)

British Columbia Interior Lumber Production

Actual Lumber Production Forecast Lumber Production

Timber Supply Forecast Implications from Decreased Annual Allowable Cut on Lumber Production Key Implications

Source: Government of British Columbia, CANFOR4Source: Statistics Canada, Canfor

Top 10 Fire Seasons in BC Chart shows number of square kilometers burned by wildfire each season.

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Area

(KM

²)

Source: BC Wildfire Services (2018 data is current as of Aug. 29)

Fire, pests and drought are projected to take place in vast areas of Canada’s forests at high to very high risk.

Even when viewed separately, disturbance increases are significant; in combination they overlap and cover nearly all of the managed forests.

Cumulative Natural Disturbances in Canada

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Renewable, sustainable products, like wood products, will displace non-renewable and energy-intensive product, and demand is expected to grow as a result.

Growing Demand

First is global commitments to address climate change

Second is the increasing recognition of the environmental benefits forest products offer

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* Includes Southern Hemisphere and othersSources: WWPA, COFI, China Customs, Japan Customs, US Census Bureau, WoodMarkets, Canfor

Global Softwood Lumber Supply & Demand

48

16

Production

Demand

Canada

123

92

Production

Demand

Europe

35

10

Production

Demand

Russia

Supplying Regions

57

80

Production

Demand

USA

26

51

Production

Demand

China

9

15

Production

Demand

Japan

Demanding Regions

Global Supply and Demand*

Million m³ 2018 2019

Demand 363 371

Supply 361 366

Supply Deficit - 2 - 5

Volume (Million m³)

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Global Softwood Lumber Exports by Country Vo

lum

e (m

³)

Source: Global Trade Atlas

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Source: Canfor

151

Mm

³@ 0

.15

per c

apita

184

Mm

³@ 0

.15

per c

apita

Opportunities - Softwood Lumber Consumption Per Capita

Consumption per capita (m³ per person)

10

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CHINA

Urbanization Growing Middle Class GDP GrowthGreen Building

12

China Lumber Imports (MMfbm)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Volu

me

(MM

fbm

)

Russia Canada Thailand USA New Zealand Indonesia Malaysia Others

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China Market for Low Grade Products

Concrete Forming

Furring Strips

Mountain Pine Beetle Infested Forest

The Past: BC’s Mountain Pine Beetle Timber = Low Grade End Uses

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Global Market for High Value Products

Furniture

Door Core/ Flooring, etc.

Hybrid Construction

Housing

The Future: BC’s Remaining Green Timber = Mid & High Grade End Uses

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INDIAPopulation Demographics Green Building Economic Growth

20301

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Lumber vs. Logs, Hardwood vs. Softwood

Source : BCFII

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0 or No Data< 2,5002,501-5,0005,001-15,00015,001-25,000>25,000

Board Feet per acre

1.1-1.7 Growth to

Drain Ratio

High Value Southern Pine Lumber Applications

Flooring Edge glued stair treads

Doors Cabinets

US Southern Yellow Pine Softwood = India Hardwood Replacement

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JAPANHybrid Construction Growth In Mid-Rise Declining Population Growth In Non-Residential

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Japan – A Leader in Offsite, Factory Built Construction

Source: Ministry of Land, Infrastructure, Transport and Tourism

Pre-Cut Pre-FabPanelization

Has been dealing with a tight labour market for many years.

Growth in non-residential and mid-rise will increase wood use outside of typical housing segment

1877 Wood Frame Home

2017 Wood Frame Home

Skyscraper

Prefabrication

Tall Building

In North America, labour shortages

are driving a move towards the

industrialization of home

construction, which includes

modular and prefabricated housing.

North America’s Accelerating Journey towards Prefabrication Housing

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Emerging Applications

Seeing tremendous growth in mid-rise and tall wood construction

UBC’s Brock Commons is 53 metres tall.

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Once completed, Microsoft’s new Silicon Valley campus will be the largest-ever mass timber building in North America – both by volume of wood used and by cubic metres.

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There is the opportunity to expand the wood products used through collaboration with the steel and concrete industries in hybrid construction models.

Hybrid Construction

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For lumber producers, a move to modular and prefabricationbrings new requirements for quality and consistency in products.

This will have a significant impact on yields and further constrain supply.

Impacts

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Conclusion

Demand is strong and sustainable

Our products are being used in new and innovative applications

And innovation is entering the construction sector in a meaningful and transformative way

We need to work together to promote sustainable wood use as part of the solution to our many global challenges.

Overall, it is an exciting time to be in the forest products business.

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Thank you