Five Trends to Watch in the North American Wood Products Sector

Five Trends to Watch in the North
American Wood Products Sector
PWC Global Forestry Conference
4 May 2016
1
Key Topics
1. Currencies
2. Bearish short-term housing view
3. Bullish long-term housing view
4. US South will become increasingly
important player in lumber sector
5. OSB markets will be capacityconstrained by 2020
1. Currency Shifts Will Continue to Roil
Product Markets
The Canadian Dollar Has Historically
Tracked Real Oil Prices. It Will Eventually
Gravitate Toward Its PPP Level.
$1.10
USD per CAD
2013 USD per Barrel
$160
IMF’s Purchasing-Power-Parity
$140
$1.00
$120
$0.90
$100
$80
$0.80
$60
$40
$0.70
$20
$0.60
$-
Weaker Loonie Has Altered the Cost
Structure of the NA Lumber Sector
Average Variable Cost of Lumber, $US/MBF
350
300
250
200
150
100
50
0
BC
Ontario
Quebec
2013
2014
US South
2015
US West Coast
US Inland
West
The Russian Ruble Turns to Rubble
Russian Rubles per US Dollar
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
2. Robust US Housing Recovery is Not
Imminent
New Single-Family Home Sales
Thousands
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
Household Formation
By Age Group in 2015
Thousands
1000
800
Current Population Survey
600
400
Home Vacancy Survey
200
0
-200
-400
Under 25
25 to 29
30 to 34
35 to 44
45 to 54
55 to 64
Age of Household Head
Source: US Census Bureau
65 to 74
75+
Builders Are Facing Shortages of Labor
and Buildable Lots
Percent of Builders Reporting Problems
71%
53%
76%
61%
55% 58% 59%
46%
34%
30%
21%
13%
Cost/Labor Availability
2011
2012
2013
Cost/Land Availability
2014
Source: NAHB HMI Survey
2015
2016
3. Secular Trends Are Shifting in Favor
of a Robust Medium to Long-Term
Outlook for Wood Products Demand
Here Comes the Baby Boom Echo!
Projected Population by Age Cohort in Millions in 2020
30
25
20
15
10
20.6 20.3 20.7 21
22.1
23.7 23.2
22.1
20.6 20.2 20.6
21.9
21.1
18.2
14.9
10.1
6.5
5
0
6.7
US Has Been Dramatically Underbuilding For
Nearly A Decade
Millions
2.4
2.2
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
Housing Starts
0.4
Underlying Demand
0.2
0.0
Pent-Up Demand
The US Housing Stock Has
Aged Considerably
45
Median Age of Owner-Occupied Housing
40
37
34
35
Years of Age
30
29
27
29
31
30
31
35
32
27
25
Note: 69% of US owner-occupied
homes were built before 1980 and
only 2% were built between 2010
and 2013
20
15
10
5
Source: Census Bureau, 2013 American Housing Survey
0
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
4. The Action in the Lumber Sector Will
Likely Shift to the US South
Canadian Lumber Production Will Not
Add Much To North American Supply
BBF
20
18
16
14
12
10
8
6
British Columbia
Other CA
4
Other CA Peak
BC Peak
2
0
00
02
04
06
08
10
12
14
16
18
20
BC’s Largest Sawmills are Located in Regions
Hardest Hit by the Mountain Pine Beetle Epidemic
Source: BC Ministry of Forest, FEA estimates
North American Newsprint Production Has
Plunged by 55% in the Last Decade
Million Tonnes
18
United States
16
Canada
14
12
10
8
6
4
2
0
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Source: United Nations FAO Database
The Deferred Volume in the South Is Substantial
Growth & Drain, BBF Int’l ¼”
Inventory, BBF Int’l ¼”
50
45
300
290
Sawtimber Inventory
40
280
35
270
30
260
Drain
Growth
25
250
20
240
15
10
5
0
2000
230
Growth
Drain
220
Inventory
210
200
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
5. OSB Sector Facing Looming Supply
Shortage Just a Few Years Down the
Road
Effective OSB Capacity:
Q1 Forecast Vs. Profile without Grand Prairie Expansion
BSF, 3/8-Inch Basis
31
30
Q1 Effective Capacity
29
Effective Capacity Without GP
28
27
26
25
24
23
22
15
16
17
18
19
20
21
22
Thank you!
Questions:
Brendan Lowney
978 496 6334
[email protected]
Additional Slides
Over 75% of BC’s Lumber Capacity
Facing a Major Decline in Pine Log Supply
MMBF
8,000
Capacity, MMBF
40 Mills
7,000
6,000
5,000
41 Mills
4,000
3,000
2,000
24 Mills
22 Mills
1,000
0
0-10%
10-25%
25-50%
50%+
% of Pine Resource Killed by Mountain Pine Beetle
Most “Other” Canadian Provinces Are
Nearing AAC Limits
MMCM, 2015
30
25
20
15
10
5
0
QUE
ON
NL
NS
PEI
AAC
NB
MB
SK
Harvests
*AAC Includes Private Timber Except Ontario, and British Columbia Interior and Coast
AB
YK
Operating Rates of 90% Have
Historically Meant Pricing Around $450
$US2016/MBF
1,100
1,000
900
800
700
600
500
400
300
200
100
Adding It All Up, There Is Not Enough Production In
North America To Meet Demand, So Exports Must
Fall
25
20
15
10
5
0
Change In Consumption Next Five Years
Production
Imports
Change In Consumption Next 10 Years
Decline in Exports