March 9, 2009 Forest Research, LLC 1

Global Forest Products Industry:

Overview and Trends

NERCOFE Workshop

March 9, 2009

Don MacKay, Ph.D, CFAForest Research, LLC

March 9, 2009 Forest Research, LLC 2

Overview

Focus on the BIG picture!

March 9, 2009 Forest Research, LLC 3

Overview

Snapshot of global industry

Recent trends

–Mostly bad

–Bright spots

Segments

– Lumber and pulp

–Wood energy

–Biofuels and chemicals

March 9, 2009 Forest Research, LLC 4

Forest Area as a

Percent of World Total

Source: FAO

0% 5% 10% 15% 20% 25% 30% 35% 40%

Russian Federation

Brazil

Canada

USA

China

Australia

Dem. Rep. of the Congo

Indonesia

Peru

India

Rest of World

March 9, 2009 Forest Research, LLC 5

Private Forest Land

Source: FAO

0% 5% 10% 15% 20% 25% 30% 35% 40%

USA

Australia

Canada

Sweden

Finland

Japan

Chile

France

Spain

Peru

Rest of World

March 9, 2009 Forest Research, LLC 6

Plantation Forest Area

Source: FAO

0% 5% 10% 15% 20% 25% 30%

China

USA

Russian Federation

Brazil

Sudan

Indonesia

Chile

Thailand

France

Turkey

Rest of World

March 9, 2009 Forest Research, LLC 7

TypeAfrica

and

Oceania

5%

Asia

48%

Europe

32%

S.

America

4%

N. and

C.

America

11%

Other

Softwoods

25%

Pines

28%Other

Hardwoods

42%

Eucalyptus

5%

Location

Global Timber Plantations

Source: Carle and Holmgren 2008

March 9, 2009 Forest Research, LLC 8

Segments

Lumber and pulp

Wood as fuel

Biofuels and chemicals

March 9, 2009 Forest Research, LLC 9

Global

Industrial Roundwood Production

Source: FAO

0% 5% 10% 15% 20% 25% 30%

USA

Canada

Russian Federation

Brazil

China

Sweden

Germany

Finland

Chile

France

Rest of World

March 9, 2009 Forest Research, LLC 10

Global

Sawnwood Production

Source: FAO

0% 5% 10% 15% 20% 25% 30% 35%

USA

Canada

Germany

Brazil

Russian Federation

Sweden

India

Japan

Finland

Austria

Rest of World

March 9, 2009 Forest Research, LLC 11

Lumber and Housing Starts

Source: Forest Research Group

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1/1/1995 1/1/1997 1/1/1999 1/1/2001 1/1/2003 1/1/2005 1/1/2007 1/1/2009

Lum

be

r P

rod

uct

ion

(M

MB

F)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

Ho

usi

ng

Star

ts, S

eas

on

ally

Ad

just

ed

(th

ou

san

ds)

North American Softwood Lumber Production US Housing Starts

March 9, 2009 Forest Research, LLC 12

Lumber

Battered by the world economic slowdown

–Housing construction down

–Repair and remodeling down

– Inventory build up

–Weak 2009

–Now at bottom of cycle?

–Solid wood price recovery in 2010?

March 9, 2009 Forest Research, LLC 13

Global

Wood-based Panels

Source: FAO

0% 5% 10% 15% 20% 25% 30%

China

USA

Canada

Germany

Brazil

Russian Federation

Malaysia

Poland

France

Italy

Rest of World

March 9, 2009 Forest Research, LLC 14

Global Wood Pulp

Source: FAO

0% 5% 10% 15% 20% 25% 30% 35%

USA

Canada

Finland

Sweden

Brazil

Japan

Russian Federation

Indonesia

China

Chile

Rest of World

March 9, 2009 Forest Research, LLC 15

Pulp

Economic slowdown has weakened markets

Worldwide demand declined 9% in 2008

Inventories increased to record levels

Prices are down

2009 weak, upside risk China demand growth

March 9, 2009 Forest Research, LLC 16

Wood Energy In some industrialized countries, 50% of

wood demand is for wood energy!

In developing countries, may be 90%

US, Canada, Finland, Sweden are largest users of wood for industrial bioenergy

–Residues, black liquor

Plantations will be a big factor

–Roughly 10% of planted wood is for bioenergy

Wood pellet stoves more efficient

March 9, 2009 Forest Research, LLC 17

Liquid Biofuels and Chemicals

First generation

–Biofuels, such as ethanol, from food-related biomass

–Oilseed based biodiesel

Second generation

–Non-food sources

Agricultural residues

Woody biomass

March 9, 2009 Forest Research, LLC 18

Fuels and Chemicals

Worldwide investment in biofuels and chemicals

– Industry

Old Town Fuel and Fiber

Weyerhaeuser/Chevron

– US federal funding

– Other countries

China

Type of trees preferred varies

– Hardwoods may be preferred

March 9, 2009 Forest Research, LLC 19

Bright Spots!

May be at bottom of cycle

US large timberland owners– NCREIF 2008 return roughly

+7.3%

– Fourth quarter roughly +2.7%

Wood energy– Growth of wood pellets in US and

Europe

Biofuels and chemicals– Worldwide investment

March 9, 2009 Forest Research, LLC 20

Summary It’s a global industry

Global markets will recover, but may be after 2009

Forests will increasingly be used to produce wood energy and fuels

Technological changes continue–Biofuels and chemicals

–Biotechnological changes

March 9, 2009 Forest Research, LLC 21

Global Forest Products Industry:

Overview and Trends

NERCOFE Workshop

March 9, 2009

Don MacKay, Ph.D., CFAForest Research, LLC

Acknowledgements: Jack Lutz