Forest Industry Trends and Outlook
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Forest Industry Trends and Outlook. Second Butler/Cunningham Conference on Agriculture and the Environment Presented By: Ken Muehlenfeld November 3, 2003. Discussion Topics. Alabama’s Forest Industry Industry Profile Economic Impact Forest Products Business Conditions

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Second butler cunningham conference on agriculture and the environment

Forest Industry Trends and Outlook

Second Butler/Cunningham Conference

on Agriculture and the Environment

Presented By: Ken Muehlenfeld

November 3, 2003


Discussion topics

Discussion Topics

  • Alabama’s Forest Industry

    • Industry Profile

    • Economic Impact

  • Forest Products Business Conditions

    • Economic Conditions

    • Industry Capacity/Production

    • Export/Import Imbalance

  • Forest Products Trends & Outlook

    • Industry Actions

    • Product Outlook

  • Conclusions & Questions


Alabama s forest industry profile

Alabama’s Forest Industry Profile

  • Alabama Pulp & Paper Production

    • 14 pulp & paper operations

    • 2nd largest pulp & paper producing state

  • Alabama Wood Products Production

    • 180+ sawmills & panel plants

    • 6th largest lumber & panel producing state

  • Alabama’s Secondary Wood Production

    • 700+ manufacturing operations

  • Alabama’s Timberland Base

    • 22 million acres

    • 2nd largest timberland base in the U.S.

    • 94% privately owned


Economic impact of ala forest industry

Economic Impact of Ala. Forest Industry

  • $13.2 billion in annual shipments (2001)

    • Pulp & Paper = $8.20 billion

    • Wood Products = $3.75 billion

    • Furniture & Fixtures = $1.19 billion

  • $2.1 billion in annual payroll (2001)

    • 65,000 direct employees

    • 143,000 indirect employees

  • $812 million in exports (2001)

  • $516 million in capital investments (‘92-’01 ave.)


Discussion topics1

Discussion Topics

  • Alabama’s Forest Industry

    • Industry Profile

    • Economic Impact

  • Forest Products Business Conditions

    • Economic Conditions

    • Industry Capacity/Production

    • Export/Import Imbalance

  • Forest Products Outlook

    • Industry Actions

    • Product Outlook

  • Conclusions & Questions


Forest products business conditions

Forest Products Business Conditions

  • Poor Forest Products Market Conditions in Recent Years

    • U.S. and world economic decline

    • Excess capacity and production worldwide

    • Strong dollar has hurt export/import balance

  • Forest Products Markets Have Improved in Last Six Months

    • U.S. economic rebound

    • Capacity reductions in some product areas

    • Weaker dollar


Forest products business conditions1

Forest Products Business Conditions

  • Poor Forest Products Market Conditions in Recent Years

    • U.S. and world economic decline

      • Recession caused by collapse of capital investment

        • Stock market bubble

        • Worsened by Sept. 11 events

        • Global economies simultaneously bad

      • On the whole, a mild recession

        • Service, trade & housing held up well

        • Manufacturing sectors hit hard

      • Recovery has been sluggish, but now gaining momentum

        • Corporate scandals

        • World political turmoil

        • Threat of oil supply disruptions


Forest products business conditions2

Forest Products Business Conditions

  • Poor Forest Products Market Conditions in Recent Years

    • Excess capacity and production worldwide

      • N.A. capacity too high and too quick to expand

        • Only recently has capacity problem been addressed in pulp & paper

        • Solid wood products capacity continues to expand

        • Production levels were too high for demand (price pressure)

        • Operating rates dropped to very low levels


Forest products business conditions3

Forest Products Business Conditions

  • Poor Forest Products Market Conditions in Recent Years

    • Excess capacity and production worldwide

      • Worldwide capacity too high and increasing

        • Other pulp & paper producing regions have advantages in fiber, operating costs & capital costs

          • South America

          • Southeast Asia

          • China

        • Other regions have wood products industries dependent on U.S. market

          • Canada

          • South America


Forest products business conditions4

Forest Products Business Conditions

  • Poor Forest Products Market Conditions in Recent Years

    • Strong dollar has hurt export/import balance

      • U.S. forest products exports down sharply

        • Pulp & paper exports down

        • Lumber & panel exports down

      • U.S. forest products imports up sharply

        • Pulp & paper imports up

          • South America

          • Southeast Asia

          • Europe

        • Lumber & panel imports up

          • Canada

          • South America

          • Europe


Forest products business conditions5

Forest Products Business Conditions

Pulp price up 22% in last year, but still 44% below the 1995 peak.


Forest products business conditions6

Forest Products Business Conditions

Linerboard price down 12% versus year ago, and 33% below 1995 peak.


Forest products business conditions7

Forest Products Business Conditions

Newsprint price up 10% versus year ago, but 26% below 1995 peak.


Forest products business conditions8

Forest Products Business Conditions

Offset printing paper price down 14% versus year ago, and 43% below 1995 peak.


Forest products business conditions9

Forest Products Business Conditions

10/03

Lumber & panel prices rebounding from 10-year lows.


Forest products business conditions10

Forest Products Business Conditions

Housing starts at modern historic highs.


Forest products business conditions11

Forest Products Business Conditions

Mortgage rates at modern historic lows.


Forest products business conditions12

Forest Products Business Conditions

  • Poor Forest Products Market Conditions in Recent Years

    • Strong dollar has hurt export/import balance

Softwood lumber trade deficit is approximately $6 billion.


Forest products business conditions13

Forest Products Business Conditions

Softwood lumber trade deficit is approximately $6 billion.


Forest products business conditions14

Forest Products Business Conditions

Structural panel trade deficit is approximately $1 billion.


Forest products business conditions15

Forest Products Business Conditions

Structural panel trade deficit is approximately $1 billion.


Forest products business conditions16

Forest Products Business Conditions

U.S. lumber supply is up 39% in ten years.


Forest products business conditions17

Forest Products Business Conditions

U.S. structural panel supply is up 57% in ten years.


Forest products business conditions18

Forest Products Business Conditions

  • Soft Timber Market Conditions in Recent Years

    • Reduced demand due to capacity reductions and downtime

    • Reduced competition in some local markets

    • Increasing timber supplies

    • Increased use of recycled fiber

    • Weak pricing

  • Recent Market Strengthening

    • Partly weather related

    • Partly improved demand


  • Forest products business conditions19

    Forest Products Business Conditions

    • U.S. Wood Demand Is Down

      • Pulpwood production in 2001 dropped to a 15-year low

        • Production up slightly in 2002

        • 21 pulp mill closures in last 3 years

      • Sawtimber production was down in 2001, but bounced back somewhat in 2002

        • South’s production up about 3% in 2002

    • Alabama’s Wood Demand Is Down

      • Total roundwood demand in 2001 was 1.08 billion cubic feet

        • Down about 10% from peak

        • About the same level as 1992

        • Improved slightly in 2002


    Alabama timber prices

    Alabama Timber Prices

    Prices up sharply since 1991, except pine pulpwood.


    Discussion topics2

    Discussion Topics

    • Alabama’s Forest Industry

      • Industry Profile

      • Economic Impact

    • Forest Products Business Conditions

      • Economic Conditions

      • Industry Capacity/Production

      • Export/Import Imbalance

    • Forest Products Outlook

      • Industry Actions

      • Product Outlook

    • Conclusions & Questions


    Forest products outlook

    Forest Products Outlook

    Forest Industry Under Pressure


    Forest products outlook1

    Forest Products Outlook

    • Strong Actions Taken by Forest Products Industry

      • Increased merger and acquisition activity

      • Permanent closure of high-cost operations

      • Market-related downtime at production operations

      • Divestiture of timberland assets

      • Increased raw material utilization efficiency


    Forest products outlook2

    Forest Products Outlook

    Consolidation Has Eliminated Many Companies

    Approximately $250 billion in M&A activity since 1990.

    Half of the top 20 companies from 1979 are gone.

    Shareholder’s value maximized by selling in many cases.


    Forest products outlook3

    Forest Products Outlook

    Top 10 Pulp & Paper Companies … Then and Now

    2001

    International Paper (New York)

    Georgia-Pacific (Atlanta)

    Weyerhaeuser (Tacoma)

    Stora Enso (Helsinki)

    Oji (Tokyo)

    Kimberly-Clark (Dallas)

    UPM-Kymmene (Helsinki)

    Smurfit-Stone CC (Chicago)

    Nippon Paper (Tokyo)

    Svenska Cellulosa (Stockholm)

    1979

    International Paper (New York)

    Bowater (London)

    Champion Intl. (New York)

    Weyerhaeuser (Tacoma)

    Georgia-Pacific (Portland, OR)

    Reed International (London)

    Crown Zellerbach (San Fran.)

    Mead (Dayton)

    St. Regis (New York)

    Boise Cascade (Boise, ID)

    Only 3 of the top 10 pulp & paper companies from 1979 remain. U.S. membership in top 10 has declined from 8 to 5.


    Forest products outlook4

    Forest Products Outlook

    • Merger & Acquisition Activity Affecting Alabama Companies

      • Mead & Westvaco

      • Weyerhaeuser & Willamette

      • Bowater & Alliance Forest Products

      • Georgia-Pacific & Fort James

      • Plum Creek & The Timber Company

      • International Paper & Champion International

      • Weyerhaeuser & Trus Joist International

      • Weyerhaeuser & MacMillan Bloedel

      • International Paper & Union Camp

      • Stone Container & Jefferson Smurfit

      • Bowater & Avenor

      • James River & Fort Howard

      • Kimberly-Clark & Scott Paper


    Forest products outlook5

    Forest Products Outlook

    Pulp & Paper Markets

    Shutdowns in North America, 1998 - 2003

    Over the last 5 years, the NA pulp and paper industry has shut down over 250 paper machines and pulp dryers, with a total capacity of nearly 16.0 million metric tons.


    Forest products outlook6

    Forest Products Outlook


    Forest products outlook7

    Forest Products Outlook

    Global Paper & Paperboard Production

    Source: Jaakko Poyry Consulting

    World demand will grow at an average annual rate of 2.6% from 2000-2010. Asia and Latin America will fuel global growth. Europe and N.A. are mature markets.


    Forest products outlook8

    Forest Products Outlook

    Per capita, kg

    World

    North America

    Western Europe

    China

    2000

    54

    325

    207

    30

    2015

    63

    320

    264

    51

    Demand growth %/a

    Eastern Europe

    China

    Asia excl.Japan & China

    Latin America

    Africa

    Average 2.2 %/a

    Oceania

    Western Europe

    Japan

    North America

    N.A. Paper Demand and Production Outlook

    N.A. Production Growth by Grade to 2015

    Global Demand Growth 2000-2015

    Source: Jaakko Poyry Consulting

    U.S. paper production will experience only modest growth in output to 2015.


    Forest products outlook9

    Forest Products Outlook

    U.S. South Pulp Production Outlook

    - million metric tons -

    US South pulp production will remain relatively flat to 2010 with no new significant virgin fiber based capacity additions projected. Production of hardwood pulps will continue to grow somewhat faster than softwood pulps, due to faster growth of grades that use hardwood furnish and increased hardwood component in paper products to improve surface and printing qualities (the smaller hardwood fibers create a more uniform/smooth paper surface).

    - % share of production -

    Source: Jaakko Poyry Consulting


    Forest products outlook10

    Forest Products Outlook

    Lumber & Panel Markets

    • Housing Sector To Remain Strong

      • Demographics are solid

      • Mortgage rates remain low

      • Starts staying strong

  • Repair & Alteration Sector to Improve

    • Consumer confidence to improve

    • Interest rates to remain low

  • Industrial Markets to Strengthen

    • Growth in general economy will expand sector

  • Export/Import Balance is Questionable

    • Weakening dollar should be helpful

    • Further resolution of Canadian lumber issue could be important


  • Forest products outlook11

    Forest Products Outlook

    Timber Markets

    • Pine Sawtimber Markets Should Improve

      • Supplies reasonably stable

      • Demand improving with better lumber & panel markets

  • Hardwood Sawtimber Markets Should Improve

    • Supplies stable at best

    • Growing demand for quality raw material for flooring, furniture & other secondary products

  • Pine Pulpwood Markets Will Remain Weak

    • Supplies will likely overwhelm gains in pulpwood demand

    • Low end of market will suffer

  • Hardwood Pulpwood Markets Should Improve

    • Apparent excess supplies are illusory due to availability issues

    • Increasing demand

    • Imported fiber could cap price increases


  • Discussion topics3

    Discussion Topics

    • Alabama’s Forest Industry

      • Industry Profile

      • Economic Impact

    • Forest Products Business Conditions

      • Economic Conditions

      • Industry Capacity/Production

      • Export/Import Imbalance

    • Forest Products Outlook

      • Industry Actions

      • Product Outlook

    • Conclusions & Questions


    Conclusions

    Conclusions

    • Forest products markets have been hurt by a weak economy, high production, and a very unfavorable import/export balance.

    • The forest industry has taken strong actions through mill closures, market downtime, and consolidation.

    • Market fundamentals for pulp, paper, and especially wood products appear to be improving, but outlook is somewhat guarded due to continuing oversupply issues.

    • The overall outlook for timber markets appears to be improving. Pine pulpwood will continue to lag due to significant excess growth due to age distribution of inventory.

    • Alabama’s forest industry is an important economic engine for the state and remains the state’s largest manufacturing industry.


    Questions

    Questions?

    Ken Muehlenfeld

    Forest Products Development Center

    School of Forestry & Wildlife Sciences

    Auburn University

    (334) 844-1094

    [email protected]


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