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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 - PowerPoint PPT Presentation
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Forest Industry Trends and Outlook
Second Butler/Cunningham Conference on Agriculture and the Environment
Presented By: Ken MuehlenfeldNovember 3, 2003
2
November 3, 2003Forest Industry Trends & OutlookDiscussion 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
3
November 3, 2003Forest Industry Trends & OutlookAlabama’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
4
November 3, 2003Forest Industry Trends & OutlookEconomic 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.)
5
November 3, 2003Forest Industry Trends & OutlookDiscussion 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
6
November 3, 2003Forest Industry Trends & OutlookForest 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
7
November 3, 2003Forest Industry Trends & OutlookForest 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
8
November 3, 2003Forest Industry Trends & OutlookForest 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
9
November 3, 2003Forest Industry Trends & OutlookForest 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
10
November 3, 2003Forest Industry Trends & OutlookForest 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
11
November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
Pulp price up 22% in last year, but still 44% below the 1995 peak.
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November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
Linerboard price down 12% versus year ago, and 33% below 1995 peak.
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November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
Newsprint price up 10% versus year ago, but 26% below 1995 peak.
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November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
Offset printing paper price down 14% versus year ago, and 43% below 1995 peak.
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November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
Lumber & panel prices rebounding from 10-year lows.
10/03
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November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
Housing starts at modern historic highs.
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November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
Mortgage rates at modern historic lows.
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November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
Softwood lumber trade deficit is approximately $6 billion.
Poor Forest Products Market Conditions in Recent YearsStrong dollar has hurt export/import balance
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November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
Softwood lumber trade deficit is approximately $6 billion.
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November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
Structural panel trade deficit is approximately $1 billion.
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November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
Structural panel trade deficit is approximately $1 billion.
22
November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
U.S. lumber supply is up 39% in ten years.
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November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
U.S. structural panel supply is up 57% in ten years.
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November 3, 2003Forest Industry Trends & OutlookForest 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
25
November 3, 2003Forest Industry Trends & OutlookForest Products Business Conditions
U.S. Wood Demand Is Down
Pulpwood production in 2001 dropped to a 15-year lowProduction 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 feetDown about 10% from peakAbout the same level as 1992Improved slightly in 2002
26
November 3, 2003Forest Industry Trends & OutlookAlabama Timber Prices
Prices up sharply since 1991, except pine pulpwood.
27
November 3, 2003Forest Industry Trends & OutlookDiscussion 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
28
November 3, 2003Forest Industry Trends & OutlookForest Products Outlook
Forest Industry Under Pressure
29
November 3, 2003Forest Industry Trends & OutlookForest 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
30
November 3, 2003Forest Industry Trends & OutlookForest Products Outlook
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.
Consolidation Has Eliminated Many Companies
31
November 3, 2003Forest Industry Trends & OutlookForest Products Outlook
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)
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)
Only 3 of the top 10 pulp & paper companies from 1979 remain. U.S. membership in top 10 has declined from 8 to 5.
Top 10 Pulp & Paper Companies … Then and Now
32
November 3, 2003Forest Industry Trends & OutlookForest 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
33
November 3, 2003Forest Industry Trends & OutlookForest Products Outlook
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.
Shutdowns in North America, 1998 - 2003
Pulp & Paper Markets
34
November 3, 2003Forest Industry Trends & OutlookForest Products Outlook
Southern U.S. Pulp Mill Closures/Downsizing: 1999-2001
Company Location Closure PulpwoodDate Consumption
(000 tons) (000 cords)
Kimberly-Clark Mobile, Al. 4Q, '99 2,950 1,103International Paper Mobile, Al. 4Q, '00 1,660 621International Paper Savannah, Ga. * 3Q, '01 1,300 486International Paper Moss Point, Ms. 3Q, '01 1,200 449Donahue Ind. Sheldon, Tx. 2Q, '00 1,150 430International Paper Camden, Ar. 4Q, '00 1,150 430Florida Coast Paper Port St. Joe, Fl. 4Q, '99 1,100 411Smurfit-Stone Cont. Jacksonville, Fl. 1Q, '99 970 363International Paper Courtland, Al. * 4Q, '00 925 346Pasadena Paper Pasadena, Tx. 1Q, '99 900 336U.S. Alliance Coosa Pines, Al. * 3Q, '01 800 299Smurfit-Stone Cont. Port Wentworth, Ga. * 1Q, '99 500 187TOTAL 14,605 5,460
* Partial shut-down or conversion to recycle
35
November 3, 2003Forest Industry Trends & OutlookForest Products Outlook
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.
Global Paper & Paperboard Production
Source: Jaakko Poyry Consulting
36
November 3, 2003Forest Industry Trends & OutlookForest Products Outlook
U.S. paper production will experience only modest growth in output to 2015.
Global Demand Growth 2000-2015N.A. Production Growth by Grade to 2015
0
1
2
3
4
5
0 20 40 60 80 100Share of consumption in 2000 (325 million tons), %
Eastern Europe
Africa
Asia excl. Japan & China
China
JapanNorth America
Western EuropeOceania
Average 2.2 %/a
Per capita, kg
WorldNorth AmericaWestern EuropeChina
2015
63320264
51
2000
54325207
30
Demand growth %/a
Latin America
N.A. Paper Demand and Production Outlook
Source: Jaakko Poyry Consulting
37
November 3, 2003Forest Industry Trends & OutlookForest Products Outlook
0
5
10
15
20
25
30
35
40
45
50
1991 1995 2001 2005 2010
DissolvingSWD sulphateHWD sulphateUnbl. SulphateSemichemicalMechanicalOther
- million metric tons -
0%
20%
40%
60%
80%
100%
1991 1995 2001 2005 2010
HardwoodSoftwood
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 -
U.S. South Pulp Production Outlook
Source: Jaakko Poyry Consulting
38
November 3, 2003Forest Industry Trends & OutlookForest Products Outlook
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
Lumber & Panel Markets
39
November 3, 2003Forest Industry Trends & OutlookForest Products Outlook
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
Timber Markets
40
November 3, 2003Forest Industry Trends & OutlookDiscussion 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
41
November 3, 2003Forest Industry Trends & OutlookConclusions
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