Hardwood Industry

1. Hardwood Industry

2. Three Topics • Current Reality Check • Many Reasons for Optimism • Opportunities for Success

3. Current Market Reality Check: It’s Been a Rough 5 Years

4. Current Markets • Lumber Price Recession

5. Current Markets • Hardwood Lumber Production

6. Current Markets • Wood Manufacturing Employment

7. Current Markets • Until job markets and economic uncertainty improve…housing will remain depressed. • Until housing markets improve… hardwood industry will remain depressed.

8. Many Reasons for Optimism

9. 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

10. 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

11. Reasons for Optimism • Single-Family Permits Trending Up • 6 consecutive months of growth without any type of stimulus

12. Reasons for Optimism • Housing Shortage Coming • We’ve been building at a pace below the “static demand” for nearly 5 years

13. 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.

14. Reasons for Optimism • Flooring Market Improving • Mfrs. currently only replacement buying • But, moving lots of flooring, “satisfied” • Quick, big bang for remodeling buck

15. 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

16. 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

17. 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

18. 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

19. 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)

20. 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)

21. 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

22. Opportunities for Success: For SCFA For Landowners For Producers

23. 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

24. 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

25. 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

26. 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

27. 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

28. Strategies for TFA • Possible Partnerships….. • Hardwood Federation • NEW Federal Forest Resource Coalition • United Hardwood Promotion • Hardwood Check-off

29. 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

30. 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

31. 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

32. 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)

33. 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!

34. Strategies for Companies • Diversify markets • Export markets are fickle • Forego short-term gains to build broader customer base • Look to emerging markets • India • Turkey

35. 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

36. 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

37. Issues to Watch

38. 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

39. 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

40. Summary

41. 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

42. 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!