forest market trends 09
TRANSCRIPT
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North American and GlobalForest Market Trends
Peter J. InceUS Forest Products LaboratoryMadison, Wisconsin
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Wood Pulp, Paper & Paperboard
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0
10
20
30
40
50
60
70
1900
191
0
192
0
1930
194
0
1950
1960
197
0
1980
1990
2000
201
0
Millionsofm
etrictons
After decades of robust growth,U.S. wood pulp output peaked in
the mid-1990s and then declined,impacted by paper recycling gainsin the early 90s, shifts in globaldemands since the late 90s, andnow an economic recession . . .
Source: AF&PA, API, Forest Service, International Woodfiber Report
Pulpwood is still a big partof U.S. wood demand (andespecially in Wisconsin), butU.S. production has dropped
by -1%/yr. since the mid-1990s, versus 2% to 3%growth in 1970s and '80s.
U.S. Wood Pulp Production Now Declining:
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-10
-5
0
5
10
15
20
25
30
35
40
1977-1986 1987-1996 1997-2006
Change in Paper & Board Production
(million metric tons per decade)
N. AmericaEurope
Asia
North American output ofpaper and paperboarddeclined in the mostrecent decade, whilegrowth was sustained inEurope and Asia.
China became the worlds
most rapidly expandingconsumer and producerof paper and paperboard,likely to surpass the USA
within the next decade.
Source: FAOSTAT
Outsourcing Production. . .
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Global Drivers . . .
Trade liberalization (GATTWTO)Expanded global commerce
Shift of manufacturing growth to Asia and Europe
Collapse of global financial system (current recession)
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80
85
90
95
100
105
110
115
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
U
.S.
DollarIndex
Real Broad Dollar Index
Globalization
Long-term historical
average (97.5)
Source: U.S. Federal Reserve (H.10 Real Broad Dollar Index)
$
The dollars real exchange value
soared above-averagefor a longperiod (1997-2005), placing U.S.manufacturers at a competitive
disadvantage. From 2005 to '08 thedollar fell below average, helpingimprove the U.S. trade balance . . .but the dollar gained in the past yearas the world economy sank into themost recent economic recession . . .
(Not a good sign for U.S. trade)
Real Broad Dollar Index
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-15
-10
-5
0
5
10
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
PercentGrowth(yr.overyr.) U.S. Industrial Production Year-Over-Year Growth
Source: U.S. Federal Reserve (G.17 Industrial Production, seasonally adjusted)
As the dollar soared, manufacturing growth went abroad and U.S. industrialoutput plunged (in the recession of 2000-2001). Output rebounded with aweaker dollar, but growth barely reached 4% average growth of 1950-2000,. . . and in the past year, U.S. industrial output has collapsed again!!!
!!!
Growth
No Growth
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72
76
80
84
88
92
96
100
104
108
112
116
120
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Indu
strialProductio
nIndex
78
80
82
84
86
88
90
92
94
96
98
100
102
Paper&BoardPurchases
(mill
ionmetrictonsyear-to-date)
U.S. Industrial Production Index
U.S. Paper & Board Purchases
Sources: U.S. Federal Reserve (G.17 Industrial Production); AF&PA (Paper and Board Purchases)
Paper and paperboard demands follow industrial production because ofusage in packaging and print advertising, but industrial outsourcing andelectronic media have displaced growth. U.S. paper and board purchasesplunged along with industrial output in the current recession . . .
Down 11%since 2007
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Apart from the decadal trend in outsourcing anddownsizing of U.S. manufacturing, what causedthe recent dramatic plunge in U.S. production?
The Credit Crisis: Governments and central banksaround the world pursued policies that, with the
benefit of hindsight, caused a huge global boom incredit . . . to levels that defied gravity.Remarks by Treasury Secretary Timothy GeithnerFebruary 10, 2009
Translation: There was aglobal credit boom thatwent bust in 2008 . . .
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The credit bust: When the credit boom wentbust in 2008, U.S. retail sales went into a suddensteep decline (unlike recession of 2001-2002) . . .
Total U.S. Retail Sales ($Billions/month)
0
50
100
150
200
250
300
350
400
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
With the suddencollapse of financialinstitutions and end toeasy credit terms,
total U.S. retail salesdropped by 12.4%from June toDecember of 2008.
The current recession
featured a big drop inconsumer spending(the largest element ofU.S. GDP), althoughspending may havebegun to stabilize in
the past few months.Source: U.S. Census Bureau (http://www.census.gov/marts/www/timeseries.html)
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Motor Vehicle & Parts Sales ($Billions/month)
0
20
40
60
80
100
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
In some credit-dependent sectors, such asmotor vehicles & parts, the drop in salesactivity was even more pronounced . . .
Motor vehicle and
parts dealer salesdropped by 29% fromOctober 2007 toMarch of 2009 (andsales continue todecline in 2009).
Source: U.S. Census Bureau (http://www.census.gov/marts/www/timeseries.html)
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78
80
82
84
86
88
90
Bo
ardProduction,milliontonnes
(12
monthsyear-
to-date)
U.S. Paper & Board Production Annualized
Sources: AF&PA
Thus, U.S. paper and paperboard output generally declined over the pastdecade, and the latest drop in output was steep and abrupt, but it can benoted that the drop in annualized production since 2007 (-7%) was lessthanthe drop in U.S. purchases (-11%). This was due to gains in exports.
Down 7%since 2007
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120
140
160
180
200
220
240
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MillE
mployment(th
ousands)
U.S. Pulp, Paper & Board Mill Employment
Sources: U.S. Bureau of Labor Statistics
The U.S. pulp & paper industry responded to slowerdemand growth with consolidation & downsizing . . .
Since 1997, dozens of older less efficient mills wereclosed, and over 40% of all U.S. pulp, paper and boardmill jobs were eliminated . . . and another 18 millswere closed and 8,000 mill jobs eliminated in 2008 . . .
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300
350
400
450
500
550
600
650
700
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Annua
l(YTD)output/e
mployee(m.
ton
s)
Sources: U.S. Bureau of Labor Statistics (pulp, paper & board mill employment)AF&PA (paper and paperboard production, in short tons)
Consolidation and downsizing yieldedproductivity gains Output per workerat U.S. mills increased by over 40% justsince 2001 . . . Productivity has leveledout but not declined in this recession . . .
U.S. Paper & Board Output per Mill Employee
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14
16
18
20
22
24
26
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
MillionsofMetric
Tons
85
90
95
100
105
110
115
RealBroad$Index
Exports
Imports
Data Sources: AF&PA, Commerce Dept. (trade statistics); Federal Reserve (dollar index);[Data include paper and paperboard products and wood pulp shipments, and exclude recovered paper]
U.S. Pulp, Paper & Board Product Trade(Tonnage) The U.S. trade gap
in pulp, paper and
board had bulgedto 8 million metrictons in 2002 . . .
But as a result ofconsolidation, a
weaker dollar, andproductivity gains,the trade gap wasnarrowed, and in2008 the trade gap
was closed !!(exports actuallyexceeded importsin tonnage).
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100
125
150
175
200
225
250
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
PriceInd
exes(1982=1
00)
PaperboardPaper
Pulp
Market Trends Pulp, Paper & Board Price Indexes
Source: BLS (Bureau of Labor Statistics)
Prices (in U.S. $) increased by ~ 50% over six years, after therecession of 2001-2002 . . . In the current economic recessionprices are receding and have likely peaked for the near term,but prices remained high well into 2008, partly due to exports.
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70
80
90
100
110
120
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
PriceInd
exes(1982=1
00)
Pulpwood
Market Trends U.S. Pulpwood Price Index
Source: BLS (Bureau of Labor Statistics); not seasonally adjusted
Pulpwood prices also experienced an upturn for about six yearsfollowing the 2001-2002 recession . . . In the current economicrecession the pulpwood price index is trending downward.
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Another aspect of consolidation and downsizing . . .Since the early 1990s, divestiture of timberland byvertically integrated forest product companies resulted in
a huge shift of timberland ownership to TIMOs & REITs:
Source: Cliff Hickman, Forest Service Policy Analysis Staff, Wash. DC
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NCREIF Timberland Index--Total Returns (4-qtr. Moving Avg.)
-2
0
2
4
6
8
10
12
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Rate(Percent)
NCREIF Timberland Index
Polynomial Trendline
Timberland total returns (annual timber and land value appreciation)collapsed in the 2001-2002 recession, amid industry divestment.Returns rebounded, but are recently slipping again . . .
Source: NCREIF (National Council of Real Estate Investment Fiduciaries) Timberland Index
Period of substantial industrytimberland divestment
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Summary of pulp & paper market trends
1. U.S. pulp, paper and board production peaked in the late1990s, as output was impacted by industry globalization.
2. The U.S. pulp and paper industry responded to thechallenge of globalization with consolidation anddownsizing; A weaker dollar and productivity gainshelped close the pulp and paper trade gap by 2008.
3. Pulp, paper and board prices climbed from 2002 to 2008
but have likely peaked in the near term, with recedingindustrial production and declining demand.
4. Markets are indicating generally lower pulpwood pricesand lower timberland returns for the near term.
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Lumber & Wood panels
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Historically, more than half of U.S. wood panel & lumberusage is in housing construction, so lumber & panelmarkets are impacted by changes in housing demand . . .
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Since 2005, the big change was the end to the housing
boom with now lowest starts in more than 50 years . . .
Sources:Data - U.S. Census Bureau
2009-Feb = SAAR in February
Single-familyhousing unit
constructionstarts/year
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-Feb
Millionspery
ear
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0
200
400
600
800
1000
1200
1400
196
3
196
5
196
7
196
9
197
1
197
3
197
5
197
7
197
9
198
1
198
3
198
5
198
7
198
9
199
1
199
3
199
5
199
7
199
9
200
1
200
3
200
5
200
7
200
9
Thousands(ann
ualrate)
Source: NAHB and Census Bureau data
Baby Boom era
U.S. New Home Sales - Long History The 90s - 2005 sales boom was the biggest ever! It was a driven by a global credit boom that kept
pushing home prices up (until 2006) It was distinct from earlier baby boom era
Past notable declines featured rising interest rates Interest rates today are low, but borrowing has collapsed The current collapse features declining home prices
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Global forces were behind the recentboom and bust in U.S. housing demand.
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Governments and central banks around theworld pursued policies that, with the benefit ofhindsight, caused a huge global boom in credit,pushing up housing prices and financial
markets to levels that defied gravity.
Remarks by Treasury Secretary Timothy Geithner
Introducing the Financial Stability Plan
Tuesday, February 10, 2009
(the rest of Tim Geithners quote) . . .
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-50
0
50
100
150
200
250
300
1980
1985
1990
1995
2000
2005
B
illionsofDollarsperYear
Source: U.S. Dept. of the Treasury
As the U.S. trade deficit expandedsince the early 90s, billions of dollarscame back from foreign sources intoU.S. mortgage markets via foreignpurchases of GNMA, FNMA & FHLMC
agency bonds (and CDOs) that fundmortgages. This global credit boomhelped facilitate the U.S. housingboom, but loose credit led to inflatedhome values and bad debts . . .
By 2008globallines ofhousingcredit
weredryingup andforeignbondholderscashingout . .
Foreign Purchases ofU.S. Agency Bonds
B i dit f ilit t d b i h i b t
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Median New Home Price
(NAHB; Single-Family)
150
175
200
225
250
275
T
housandsofDollars
U.S. Average Wage ofProduction Workers (BLS)
10
12.5
15
17.5
20
22.5
25
27.5
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
D
ollarsperhou
r
Booming credit facilitated booming home prices, but average wagegains did not keep up with new home prices, so home affordabilitybecame a big issue . . . Even after recent declines in home prices thegains in home prices still far exceed gains in average earnings.
Up 72%
Up 55%
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-5
0
5
10
15
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
p
PercentChang
e(Yr./Yr.)
Source: National Association of Realtors (NAR) U.S. median sales price of existing homes
2009(p) year/year data through January only
Consequences of defying gravity . . . The credit boom drove up
home prices but in 2006 the rate of appreciation dropped. With thisabrupt change in home equity appreciation much of the economicincentive to buy or build new homes suddenly evaporated.
Polynomial
Trendline
Annual Change in Existing Home Sales Price
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$
Without the lure of home equity gains new homesales collapsed since 2006. The record housingconstruction boom became the housing bubble,
which is still undergoing its long correction.
A global credit boom drove home prices andrecent housing boom, but wages did not keep
pace and eventually home values declined.
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What experts said last year about housingdownturn and prospects for recovery . . .
. . . (still relevant today)
The housing boom was unprecedented in
U.S. history, and the correction will be as well.Michael Youngblood, FBR Investment Management(CNN Money, June 12, 2008)
. . . the housing correction, what's going
on in the housing market, this is not over . . .Hank Paulson, U.S. Treasury Secretary(YouTube, February 12, 2008)
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10
15
20
25
30
35
40
45
The housing downturn has severelyimpactedU.S. softwood lumber production . . .
U.S. Softwood Lumber Production
Billion Board Feet
Source: WWPA
Down 54%
since 2005(based onJanuary 2009production atan annualizedrate)
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125
150
175
200
225
250
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Pr
iceIndexes(19
82=100)
Hardwood Lumber
Softwood Lumber
Impact on lumber prices . . .
Marketrecovery
hinges onrecovery inhousing
Sources: BLS (Bureau of Labor Statistics)
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Some additional views on
hardwood lumber markets . . .
byWilliam Luppold
USDA Forest Service, Princeton, WV
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Northeastern
Southeastern
South-Central
North-Central
32 to 36
32 to 36
27 to 29%
28 to 30%
32 to 33%
32 to 36%
Decline in Hardwood Lumber Production From Winter
of 2008 to Winter of 2009 (down ~30% in all regions)
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States that are Hurting, Really
Hurting or in Real Pain Hurtingproduction down 25 to 30 percent
PA, NY, LA, VA, IA, OH
Really hurtingproduction down 35 to 40 percent
TN, MS, KY, NC, MI, ME, WV
Real pain
production down more than 45 percent AL, GA, WI, CT, MA
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Production Employment in Wood
Household Furniture Industry
30
40
50
60
70
80
90
100
110
120
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Wood furniture production hasbeen moving abroad (e.g. mainly toChina) for a decade or more,resulting in declining U.S. furnitureindustry employment.
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Production Employment in Kitchen
Cabinet Industry
70
80
90
100
110
120
130
140
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
A more abrupt andrecent drop in thekitchen cabinet industryis attributable to the
housing bust.
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Indexes of Hardwood Lumber, Cross
Ties and Pallet Cant Prices 2004 to 2009
60
65
70
75
80
85
90
95
100
105
110
2004 2005 2006 2007 2008 2009
2004
=1
00
FAS 1C 2C Pallet Tie
Hardwood gradedlumber price indexeshave dropped muchmore than pallet or
crosstie prices.
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Eastern Hardwood Lumber
Production 1958 to 2009
5000
6000
7000
8000
9000
10000
11000
1200013000
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
Millionsofb
oardfeet
The decline in U.S.hardwood lumberoutput since the 1999peak is around -50% . . .
(back to 1950s levels)
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Eastern Hardwood Lumber
Production 1904 to 1932
2000
4000
6000
8000
10000
12000
1904
1906
1908
1910
1912
1914
1916
1918
1920
1922
1924
1926
1928
1930
1932
Millionsofboardfeet
A 50% drop in lumberproduction has notoccurred since theGreat Depression.
U S Delivered Log Price Trends (2001 2007)
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U.S. Delivered Log Price Trends (2001 2007) . . .
Log prices generally followed lumber markets, climbing to recentpeaks in 2004-2005, but collapsing with the housing bust. Thedrop in log prices (-30% for softwood and -33% for hardwood fromrecent peaks) is now similar to the average drop in lumber prices.
Source: BLS (Bureau of Labor Statistics)
50
75
100
125
150
175
2002 2003 2004 2005 2006 2007 2008
PriceIndexes(1982=1
00)
150
175
200
225
250
275
Hardwood Logs
Softwood Logs
N th A i OSB d ti l i d
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0
2
4
6
8
10
12
14
16
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
North American OSB production was also crimpedby the housing downturn, but higher U.S. exportshelped sustain U.S. production into 2008:
Source: APA The Engineered Wood Assoc.
U.S. OSB ProductionBillion Sq Ft 3/8" Basis
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0
50100
150
200
250
300
350
400
450
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
T
housandcubicmeters
Source: FAS
U.S. OSB exports surged in 2007-2008, due to low prices and excesscapacity, but a stronger U.S. dollar might dampen export growth . . .
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Overall U.S. Trade Deficit has declined since 2005in Forest Products*
-$8
-$7
-$6
-$5
-$4
-$3
-$2
-$1
$01991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
U.S. Forest Products Trade Deficit, Billion $
Source: FAS
* Forest products here include roundwood, sawnwood, wood based panels, pulp
2008:
Imports
$4.2 billion
Exports
$1.13 billion
Deficit
$3.03 billion
(smallest in
15 years)
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Summary of trends in lumber andwood panel markets
1. U.S. lumber and wood panel demands follow housing construction for
obvious reasons (homes and furnishings are made of wood).
2. The U.S. housing market experienced a big collapse in demand, following
the recent credit boom and peaking of home prices.
3. Since 2005 the collapse in housing has changed the market situation for
lumber and wood panel products, with lower demand and prices.
4. An upturn in U.S. markets for lumber and wood panels hinges upon an
upturn in the housing market, the timing of which remains uncertain.
5. The weaker U.S. dollar since 2005 helped improve the U.S. wood trade
balance, but a stronger dollar and global economic recession in the past
year raise doubts about export markets.
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