june 23-25, 2008
DESCRIPTION
June 23-25, 2008. Update on. North American and Global Forest Product Market Trends Peter J. Ince US Forest Products Laboratory Madison, Wisconsin. >. >. Principal Forest Product Markets: Paper, Paperboard & Wood Pulp Lumber & Wood Panels. Update on. - PowerPoint PPT PresentationTRANSCRIPT
June 23-25, 2008
North American and Global Forest Product Market Trends
Peter J. InceUS Forest Products LaboratoryMadison, Wisconsin
Update on>
>
Principal Forest Product Markets:Principal Forest Product Markets:
• Paper, Paperboard Paper, Paperboard & Wood Pulp & Wood Pulp
• Lumber & Wood PanelsLumber & Wood Panels
0
10
20
30
40
50
60
70
19
00
19
10
19
20
19
30
19
40
19
50
19
60
19
70
19
80
19
90
20
00
20
10
Mill
ion
s o
f m
etr
ic t
on
s
After decades of robust growth, U.S. wood pulp output peaked and declined over the past decade, impacted by paper recycling and economic globalization since the early 1990s . . . and now economic recession in the past year!
Source: AF&PA, API, Forest Service, International Woodfiber Report
Pulp is still a big part of U.S. wood demand, but growth rates changed from around +2% to 3% per year in '70s and '80s, to negative growth since the mid-1990s.
U.S. Wood Pulp Production since 1900:Update on
>
GlobalizationGlobalization
Trade liberalization (GATT Trade liberalization (GATT WTO) WTO)
Expanded global commerce Expanded global commerce
Rise of manufacturing in China & developing countriesRise of manufacturing in China & developing countries
Increased importance of currency exchange ratesIncreased importance of currency exchange rates
Collapse of global financial system (current recession)Collapse of global financial system (current recession)
Update on>
80
85
90
95
100
105
110
115
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
U.S
. Do
llar
Ind
ex
Real Broad Dollar Index Since July '08
Globalization Globalization
Long-term historical average (97.5)
Source: U.S. Federal Reserve (H.10 Real Broad Dollar Index)
$
The real dollar exchange value index soared above-average for much of the past decade (until 2005), placing U.S. manufacturers at a competitive disadvantage. From 2005 to '08 the dollar was below average, helping improve the U.S. trade balance . . . but since July the dollar has gained as the world economy sank into the current economic recession . . .
(Not good sign for U.S. trade)
Real Broad Dollar Index
-15
-10
-5
0
5
10
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Pe
rce
nt
Gro
wth
(y
r. o
ve
r y
r.)
U.S. Industrial Production Year-Over-Year GrowthSince June 2008
Source: U.S. Federal Reserve (G.17 Industrial Production, seasonally adjusted)
As the dollar soared, imports increased. Manufacturing growth went abroad. U.S. industrial output collapsed in the recession of 2000-2001, but rebounded with a weaker dollar. Growth remained less than 4% avg. growth of 1950-2000, . . . and, since last June, U.S. industrial output has again collapsed !!!
!!!
Global Global ChangeChange Change in GrowthChange in Growth
As manufacturing growth shifted from As manufacturing growth shifted from North America to Asia and Europe, so did North America to Asia and Europe, so did growth in paper and paperboard demands growth in paper and paperboard demands (following global demands for packaging, (following global demands for packaging, print media & print advertising).print media & print advertising).
-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. America
Europe
Asia
Asia, Europe, and North America account for 90% of worldwide growth in paper & paperboard use.
Demand growth has been sustained in Europe and Asia.
However North American demand has diminished in the past decade.
China became the world’s most rapidly expanding consumer and producer of paper and paperboard, likely to surpass the USA within the next decade.
GlobalizationGlobalization
Source: FAOSTAT
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
Ind
ust
rial
Pro
du
ctio
n I
nd
ex
78
80
82
84
86
88
90
92
94
96
98
100
102
Pap
er &
Bo
ard
Pu
rch
ases
(m
illio
n m
etri
c to
ns
year
-to
-dat
e)
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)
U.S. paper and paperboard demands (purchases) faintly followed the rebound in industrial production after the recession of 2000-2001, but U.S. paper and board demands plunged since last summer along with declining U.S. industrial production in the current recession . . .
Down 15%since the2000 peak
120
140
160
180
200
220
240
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Mill
Em
plo
ymen
t (t
ho
usa
nd
s)
U.S. Pulp, Paper & Board Mill Employment
Sources: U.S. Bureau of Labor Statistics
[The Canadian industry recently entered a similar period of downsizing and consolidation.]
The pulp & paper industry has responded to slower demand growth with consolidation & downsizing . . .
Since 1997, dozens of older less efficient mills were closed, and over 40% of all U.S. pulp, paper and board mill jobs were eliminated . . . and another 18 mills were closed and 8,000 mill jobs eliminated in 2008 . . .
300
350
400
450
500
550
600
650
700
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
An
nu
al (
YT
D)
ou
tpu
t/e
mp
loy
ee
(m
. to
ns
)
Sources: U.S. Bureau of Labor Statistics (pulp, paper & board mill employment) AF&PA (paper and paperboard production, in short tons)
Consolidation and downsizing yielded productivity gains – – Output per worker at U.S. mills increased by over 40% just since 2001 . . . Productivity has leveled out but not declined in this recession . . .
U.S. Paper & Board Output per Mill Employee
14
16
18
20
22
24
26
Mill
ion
s o
f Met
ric
To
ns
85
90
95
100
105
110
115
Rea
l Bro
ad $
Ind
ex
ExportsImports
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) As the dollar
surged from 1996 to 2002 the U.S. trade gap in pulp, paper and board bulged to 8 million metric tons (2002).
However, with a weaker dollar and productivity gains, the trade gap narrowed, and in 2008 the trade gap was closed (U.S. exports exceeded imports).
100
125
150
175
200
225
250
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Pri
ce
In
de
xe
s (
19
82
= 1
00
)
PaperboardPaperPulp
Market Trends – U.S. Pulp, Paper & Board Price Indexes
Source: BLS (Bureau of Labor Statistics)
Prices (in U.S. $) increased by ~ 50% over six years, after the recession of 2001-2002 . . . In the current economic recession prices are receding and have likely peaked for the near term, but prices remained high well into 2008, partly due to exports.
6-year upturn in
prices
Prices trending downward
Another big element of downsizing:
Timberland Divestiture by U.S. Pulp & Paper Industry
• Over 35 million acres of industry land divested nationwide since the mid-1990s
• Driven by various forces (Debt, Tax Code, Ample Private Timber, Weak Demand)
• Land buyers are TIMOs, REITS & others
Divestiture of timberland by vertically integrated forest product companies resulted in huge shift of timberland ownership to TIMOs & REITs:
Source: Cliff Hickman, Forest Service Policy Analysis Staff, Wash. DC
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
Ra
te (
Pe
rce
nt)
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
Summary of pulp & paper market trends
1. U.S. pulp production peaked in the late 1990s, as paper and board output were impacted by industry globalization.
2. U.S. industry responded to the challenge of globalization with consolidation and downsizing; A weaker dollar and productivity gains helped close the trade gap by 2008.
3. Pulp, paper and board prices climbed from 2002 to 2008 but have likely peaked in the near term, with recession in industrial production and declining demand.
4. Longer-term impacts of land divestiture and downsizing are unclear, but markets are indicating generally lower timber and timberland prices for the near term.
Wood panel & lumber usage is tied to housing construction, so their markets are impacted by changes in housing demand . . .
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Mil
lio
ns
per
yea
rSince 2005, the big change in lumber and wood panel demand was an end to the U.S. housing boom, dropping by 2008 to the lowest starts in more than 50 years . . .
Source: Data - U.S. Census Bureau
Single-family housing unit construction starts/year
“Governments and central banks around the world pursued policies that, with the benefit of hindsight, 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
-15
-10
-5
0
5
10
15
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009p
Perc
en
t C
han
ge (
Yr.
/Yr.
)
Source: National Association of Realtors (NAR) – U.S. median sales price of existing homes2009(p) year/year data through January only
Consequences of “defying gravity” . . . After the credit boom drove up home prices, appreciation in existing home prices dropped in 2006. With this abrupt change in home equity appreciation much of the economic incentive to buy or build new homes suddenly evaporated.
PolynomialTrendline
Annual Change in Existing Home Sales PriceAnnual Change in Existing Home Sales Price
Median New Home Price (NAHB; Single-Family)
100
125
150
175
200
225
250
275
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Th
ou
san
ds
of
Do
llars
U.S. Average Wage of Production 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
Do
llars
pe
r h
ou
r
Booming credit facilitated booming home prices, but average wage gains did not keep up with new home prices, so home affordability became a big issue . . . Even after recent declines in home prices the gains for home prices still far exceed gains in average earnings.
Up 72%
Up 55%
Source: NAHB and Census Bureau data
“Baby Boom” era
Ho
usin
g B
ust →
→ →
U.S. New Home Sales - Long History
Credit
Boom e
ra
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
-50
0
50
100
150
200
250
300
19
80
19
85
19
90
19
95
20
00
20
05
Billi
on
s o
f D
ollars
per
Year
Source: U.S. Dept. of the Treasury
As the U.S. trade deficit expanded since the early 90s, billions of dollars came back from foreign sources into U.S. mortgage markets via foreign purchases of GNMA, FNMA & FHLMC agency bonds (and CDOs) that fund mortgages. This global credit boom helped facilitate the U.S. housing boom, but loose credit led to inflated home values and bad debts . . .
By 2008 global lines of housing credit were drying up and foreign bond holders cashing out . .
Foreign Purchases of U.S. Agency Bonds
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Ho
us
ing
Sta
rts
(m
illio
ns
, an
nu
al r
ate
) U.S. Single-Family Housing Starts, SAAR
The credit-driven home building boom became a bubble that burst in 2006-2008 as home values declined. The downturn has continued since last June as credit dried up (now down 80% since the peak) and forecasters expect only a gradual recovery . . .
Sources: U.S. Census Bureau, Seasonally Adjusted Annual Rate (SAAR), by month
- - - - - -
- - - - Credit Boom Era - - -
- - - - - -
- - - - Housing C
ollapse (80% drop)
NAHB Forecasts
for 2009 & 2010
$
Without the lure of home equity gains new home sales collapsed in 2006-2008. The record housing construction boom became the housing bubble,
which is still undergoing its long correction.
A global credit boom drove home prices and latest housing boom, but wages did not keep pace and eventually home values declined.
What experts said last year about housing downturn 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)
0
5
10
15
20
25
30
35
40
45
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
0
5
10
15
20
25
30
35
40
45
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
The housing downturn has severely impacted lumber production in North America, and more so for Canada than USA (due to strong C$) . . .
Canadian Softwood Lumber Production
Billion Board Feet
Source: Statistics Canada
U.S. Softwood Lumber Production
Billion Board Feet
Source: WWPA
Down 28%
Down 32%
125
150
175
200
225
250
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Pri
ce In
dex
es (
1982
= 1
00)
Hardwood Lumber
Softwood Lumber
Impact on lumber prices . . .
Softwood Lumber Prices – Down 40%
Hardwood Lumber Prices – Down 14%
Market recovery hinges on recovery in housing
Sources: BLS (Bureau of Labor Statistics)
50
75
100
125
150
175
2002 2003 2004 2005 2006 2007 2008
Pri
ce In
dex
es (
1982
= 1
00)
150
175
200
225
250
275
Hardwood Logs
Softwood Logs
U.S. Delivered Log Price Trends (2001 – 2007) . . .
Log prices generally followed lumber prices, climbing to recent peaks in 2004-2005, but collapsing with the housing bust. The drop in log prices (-30% for softwood and -33% for hardwood from recent peaks) is now similar to the average drop in lumber prices.
Sources: BLS (Bureau of Labor Statistics)
0
2
4
6
8
10
12
14
16
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
0
2
4
6
8
10
12
14
16
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Canadian OSB Production Billion Sq Ft 3/8" Basis
North American OSB production was also crimped by the housing downturn, but higher U.S. exports helped sustain U.S. production while Canadian exports were crushed by a stronger Canadian $:
Source: APA – The Engineered Wood Assoc.
U.S. OSB Production Billion Sq Ft 3/8" Basis
0
50
100
150
200
250
300
350
400
450
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Th
ou
sa
nd
cu
bic
me
ters
Source: FAS
U.S. OSB exports surged in 2007-2008, due to low prices and excess capacity, but a stronger U.S. dollar might dampen export growth . . .
Summary of trends in lumber and wood 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 is helping improve the U.S. wood trade balance,
but a stronger dollar in the past year raises doubts about trade.
General Summary:
Global shifts in trade, manufacturing and currency exchange values had big impacts on pulp, paper and board markets, leading to a big downshift in North American growth rates since the 1990s.
A credit boom from the early 90s to 2005 gave a big boost to housing (and to wood panel and lumber demand) but the credit boom led also to an unsustainable housing bubble and market bust.
Forest product markets were further impacted by the ongoing recession withdeclining growth and uncertain outlook for recovery.