Competition From Southern Hemisphere Plantation Forests Hardwood Manufacturers Association 2003 National Conference

1. Competition From Southern Hemisphere Plantation ForestsHardwood Manufacturers Association 2003 National ConferenceCharleston, South CarolinaMarch 10-12, 2003 Bob Flynn, Director Wood Resources International Ltd.

2. The growth in US imports of Brazilian wood products has been almost entirely from plantation wood

3. Imports of softwood lumber from Brazil, Chile, and New Zealand have more than tripled since 1996

4. US imports of finished products like softwood moulding are also increasing at a fast pace

5. New Zealand exports radiata pine sawnwood to China and SE Asia for further processing

6. Southern Hemisphere Pine Plantations Variety of species Radiata Pine in Chile, New Zealand, Australia SYP in Brazil, Argentina, Uruguay Patula pine, radiata, SYP in South Africa Almost all privately owned Most plantations subsidized by government programs Total harvest is about 55% of that in the US South Timber growth rate 2-3 times faster than in US Pulp is a driving factor in some countries, but main impact in US market is non-structural lumber and moulding Competing with US lumber and wood panels in international markets – Caribbean, Asia, Europe

7. The “wall of wood” may not be that high, and lack of markets will delay forecast growth in harvests

9. What is Eucalyptus? Total lumber production is less than 2% of global hardwood lumber Native Eucalyptus from Australia = Tasmanian Oak Sydney Blue Gum Rose Gum Jarrah Victorian Ash Wormy Australian Chestnut

10. Major international companies are investing in Eucalyptus solidwood projects Aracruz (Brazil – lumber, flooring, sliced veneer) Mondi (South Africa -- lumber) Boise Cascade (Brazil – veneer, plywood) ENCE (Spain/Uruguay – lumber, plywood) SCANCOM (Brazil/Vietnam – garden furniture) Fletcher Challenge (Argentina – lumber, plywood) Weyerhaeuser (Uruguay -- ???)

11. Weyerhaeuser is “introducing” Eucalyptus lumber into the US Market First major marketing effort for plantation Eucalyptus Starting with FAS and #1 Moving into flooring and sliced veneer Limiting volumes and keeping quality/pricing relatively high Preparing the market for Weyco’s own plantations in Uruguay

12. Eucalyptus Solidwood Products: Key Issues Big difference between the numerous species/clones Need for intensive pruning and thinning to produce high quality wood products – lumber, flooring, furniture, plywood, veneer Key niche is certified products -- FSC (e.g. garden furniture) Initially will be a substitute for tropical hardwoods (e.g. meranti) Processing technology evolving rapidly Financial returns more attractive than growing pulpwood Will be an “emerging industry” for next 5-10 years due to limited area managed for solidwood products

13. Questions??? Robert Flynn Wood Resources International Email – bobgflynn@aol.com Phone – 253-565-4846 Web site – www.WRI-Ltd.com

14. Question/Answers

15. Other Plantation Hardwoods Teak NOT the same as old growth Significant differences in wood quality depending on source Gmelina arborea Costa Rica, Philippines, other Hard to dry, but apparently good for furniture, cabinets Acacia mangium Mostly for pulp, but some in Dominican Republic

16. Relative Advantages/Disadvantages of producing wood products in the Southern Hemisphere Advantages Lower wood costs Lower wages Favorable exchange rates Subsidies for plantations Shorter rotations allows greater genetic improvements Environmental regs not as strict (but are a factor) Disadvantages Lower productivity of labor and “social costs” Distance to major markets Problem with fall-down Political uncertaintly and exchange rate volatility Problems with getting paid subsidies for plantations Capital is expensive Fast growth = high growth stresses in wood

17. Drying Eucalyptus – Myths vs. Reality Plantation grown Eucalyptus is difficult and slow to dry without unacceptable defect --- but it is being done. In Brazil, 25mm Eucalyptus may be air-dried for up to 3 months, with kiln times from 12 up to 25 days to dry lumber to 6-12% (depends on amount of air-drying time). 50mm lumber requires substantially more time. Big differences between species, e.g. E. grandis (Brazil, Uruguay) much easier than E. globulus (Chile) Pre-drying (or at least protected air-drying) now becoming more popular to avoid defect. Windsor is promoting a “continuous dry kiln”

18. Key Differences Between Countries - Supply Pine Supply increasing in Chile/New Zealand currently Supply level in Australia/South Africa Supply in Argentina/Uruguay will surge, in another 10 years Brazil – Current supply may not be sustainable Eucalyptus Brazil by far the leader in lumber, flooring, veneer By 2008-10, Uruguay will be the leader in clear wood supply Chile species mix aimed mainly at pulp South Africa--- early leader but has not maintained focus Australia – still mainly old growth and “regrowth”, plantation supply aimed at pulp, sawlogs still in the future Argentina – long history of sawing and peeling, but limited supply of sawlogs

19. Eucalyptus and Pine Composite Panels Pine Radiata pine makes excellent MDF, including “ultra-light” SYP also the base for recent expansion in MDF and particleboard in Brazil and Argentina Caribbean pine in Brazil and Venezuela also used Eucalyptus Long used for hardboard production in Brazil (Eucatex/Duratex) Also long history of use for particleboard, esp. Brazil/Argentina Usage for MDF relatively new, but popular in Thailand, also Masisa making high-density Eucalyptus MDF for laminated flooring. For MDF, mainly used in applications with overlay.