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Hardwood IndustryHardwood IndustryHardwood IndustryHardwood Industry
Three Topics
• Current Reality Check
• Many Reasons for Optimism
• Opportunities for Success
Current Market Reality Check: Current Market Reality Check: It’s Been a Rough 5 YearsIt’s Been a Rough 5 Years
Current Market Reality Check: Current Market Reality Check: It’s Been a Rough 5 YearsIt’s Been a Rough 5 Years
Current Markets
• Lumber Price Recession
$600
$800
$1,000
$1,200
$1,400
2006 2007 2008 2009 2010 2011 2012
Kiln-Dried
Green
Current Markets
• Hardwood Lumber Production
6
8
10
12
14
16
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Bill
ion
Bo
ard
Fee
t -53.0%
Current Markets
• Wood Manufacturing Employment
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-583,000 Jobs
NAICS 321 - Wood ProductsNAICS 327 - Furniture & Related Products
Current Markets
• Until job markets and economic uncertainty improve…housing will remain depressed.
• Until housing markets improve… hardwood industry will remain depressed.
Many Reasons for OptimismMany Reasons for OptimismMany Reasons for OptimismMany Reasons for Optimism
U.S. Still the Leader
• 34% of funds spent on R&D.
• 47% of engineering degrees 25-39 by women.
• 30 Nobel prizes in science and economic in last 20 years. China – just one.
• 72% of oil needs up from 50% 10 years ago.
• 8 of top 10 universities, China-0
Reasons for Optimism
• Housing starts low but stable
• New home sales low but stable
• Sept existing home sales 34% higher than the low point of July 2010
Reasons for Optimism
• Single-Family Permits Trending Up– 6 consecutive months of growth without
any type of stimulus
300
400
500
600
Aug
09
Nov
09
Feb
10
May
10
Aug
10
Nov
10
Feb
11
May
11
Aug
11
Homebuyer Tax Incentives
Reasons for Optimism
• Housing Shortage Coming– We’ve been building at a pace below
the “static demand” for nearly 5 years
0.0
0.4
0.8
1.2
1.6
2.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Reasons for Optimism
• Outlook for Growth in Remodeling– Harvard JCHS: “volatile and weak”
remodeling activity through Q1 2012– Remodeling expenditures to increase at an
inflation-adjusted 3.5% annual rate in coming years
– NAHB Q2 2011 RMI was the second highest since Q3 2007
– Remodeling expenditures will reach $131 billion by 2012 – a 13% improvement from 2010, and just 10% shy of 2006 levels.
Reasons for Optimism
• Flooring Market Improving– Mfrs. currently only replacement buying
– But, moving lots of flooring, “satisfied”
– Quick, big bang for remodeling buck
$1.50
$1.60
$1.70
$1.80
$1.90
$2.00
$2.10
1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1
Sel/Btr
#1 Com
RED OAK
$1.40
$1.50
$1.60
$1.70
$1.80
$1.90
$2.00
1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1
Sel/Btr
#1 Com
WHITE OAK
Reasons for Optimism
• Railroad Tie Demand Strong– RTA: Crosstie shipments:
+5.1% in 2011-0.7% in 2012+4.0% in 2013+4.1% in 2014
– American Assoc. of Railroads:Carload volume up 1.7% ytdContainer volume up 5.5% ytd
Reasons for Optimism
• Low KD Inventories
• Barriers to Production Increases– Loggers and log supply
– Credit availability
– Workers
– ~ 50% sawmill capacity reduction (?)
• 1 to 2% demand bump will drive up lumber prices and demand for logs
Reasons for Optimism
• Global Supply Decreasing– ITTO: Hardwood log production down
5%, lumber down 4% since 2006
– China log deficit will reach 180 mil. M3 by 2015
– Indian plants running below capacity
– Widespread sawmill closures in Africa
– Legality movement will reduce wood supplies from some SE Asian countries
Reasons for Optimism
• Exports– China Will Come Back in Spring
– Lumber inventories will be thinned out
– Government announced plans to increase furniture exports 12% annually during next 5 years
– Building furniture manufacturing centers in the North and West China
– Building 10 million low-priced units
Reasons for Optimism
• Mexican Market Strong– 36% of imported American hardwoods
in Red Oak and Poplar
– Manufacturers winning back production from China
– Easy to ship relative to other markets (no phyto certificate required)
Reasons for Optimism
• Some Manufacturing Coming Back to U.S.
– Georgia Chopsticks, Americus, GA
– Lincolnton Furniture, Lincolnton, NC
– Ebonite International, Hopkinsville, KY
– Jasper Home, High Point, NC
– Folio 21, High Point, NC (new)
– Conover Chair, Conover, NC (revived)
Reasons for Optimism
• U.S. Has Largest Supply of Sustainable Temperate Hardwoods in World
– Growing importance of “legal sourcing”
– EU Timber Regulation looks like it will accept U.S. hardwoods as “low risk”
– LCA studies will favor American hardwoods
Opportunities for Success:Opportunities for Success:For SCFAFor SCFA
For LandownersFor LandownersFor ProducersFor Producers
Opportunities for Success:Opportunities for Success:For SCFAFor SCFA
For LandownersFor LandownersFor ProducersFor Producers
Strategies for SCFA
• Pressure Administration to Sell More Timber
– 80% reduction in harvests since late 1980s
– For the health of the industry and the forest
– 16 National Forests in AL,GA,SC,FL, NC.
– 49.8 billion board feet of hardwood saw-timber in 12 surrounding states
Strategies for TFA
• Encourage USFS to Proactively Sell the Hardwood “Sustainability Story”
– Failure to do so was identified as a key barrier to industry success at the 2010 Hardwood Leaders Forum
– Southern FIA in Knoxville
– Director Bill Burkman has indicated some support for doing so
– USDA may be coming around
Strategies for TFA
• USDA’s “National Report on Sustainable Forests—2010”
– Relationship between harvesting and sustainability is positive
– Markets and management keep forests in forests
– Healthy forest industry tied with sustained production of environmental, economic and social benefits
Strategies for TFA
• Push for National Certification (?) – By USDA?
– Markets will increasingly be closed to non-certified wood products
– Australia is currently working on most restrictive illegal logging bill
• Will require verified legal certification• 80% of imported hardwood is White Oak
Strategies for TFA
• Partner with Other Organizations– Key recommendation of HLF
– Find a supporting role
– Focus on doing one thing better than all other organizations
– Be willing to work outside the state on issues that ultimately benefit state’s forests and industry
Strategies for TFA
• Possible Partnerships…..– Hardwood Federation
– NEW Federal Forest Resource Coalition
– United Hardwood Promotion
– Hardwood Check-off
Strategies for Landowners
• Sell Timber– Even at below-desired prices
– Timber prices should fluctuate with markets for wood products
– Holding timber off the market• artificially inflates log prices• drives out of business the companies
you eventually want as buyers• limits long-term market options
Strategies for Landowners
• Certification– Group or individual
– Will give market access advantage at some point
– May give payback in higher timber prices now or down the road
Strategies for Landowners
• Tap into new markets– Bio-fuels/pellets
– Need to replace lost pulp/paper demand
– Offers potential to pay for thinning, intermediate management
– Potential to increase total timber sale revenue
Strategies for Companies
• Expand exports– 50% of #1/Btr lumber produced sold into
foreign markets
– Only grade lumber growth market for next few years
– Getting easier for small companies to directly export
– Assistance available through AHEC and US Dept of Commerce (Trade.gov)
Strategies for Companies
• Give export customers what they want– Fixed widths
– Fixed lengths
– Metric thicknesses
• Half of the world’s consumers of hardwood grade lumber want a product most U.S. companies are unable or unwilling to make!
Strategies for Companies
• Diversify markets– Export markets are fickle
– Forego short-term gains to build broader customer base
– Look to emerging markets• India• Turkey
Strategies for Companies
• Consider Certification– Even if timber supplies and ROI are
lacking
– Noah built the ark when it was still sunny
– Difficult process to navigate under pressure
– LEED is flirting with opening up credits for SFI, PEFC
Strategies for Companies
• Grow online marketing– Reach foreign buyers 24/7
– Increase reach, reduce costs
• Hardwood Review.com– WoodLogics™ buyer/seller tool
– Prospecting database
– Market intelligence, trade data
– Price histories/forecasts
Issues to WatchIssues to WatchIssues to WatchIssues to Watch
Issues to Watch
• Hardwood Check-off– Currently in review by USDA
– Will publish sometime this fall
– 60-day comment period
– Additional USDA revisions
– Industry vote expected in March/April
Issues to Watch
• Lacey Act– Supporting by many in hardwood
industry for jobs and price protection
– Gibson incident has divided industry into two camps:
• Re-open Lacey Act for revisions• Don’t re-open…at least not yet
SummarySummarySummarySummary
Summary
• Markets will remain tough for 1-2 more years, but likely get no worse
• Production is stable, somewhat restricted…good for prices in a supply driven market
• Small demand increases = big impacts
• Long-term demand outlook good, especially export demand
Summary
• Industry is smaller, smarter, more nimble
• Industry is more willing to produce to demand
• Sustainability and size of hardwood resource positions U.S. very well for global growth in years ahead
• Best time to get ready is now!