A Global Solidwood Trade Perspective

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A Global Solidwood Trade Perspective

• NAWLA 110th Annual Meeting
• Dennis A. Neilson, DANA Ltd.New Zealand

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Topics covered

• The changing nature of the USA wood trade
• Southern hemisphere import trends
• European import trends why now?
• Russia and China
• Currencies
• Plantation Eucalypts
• Conclusion

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US lumber supplies are still dominated by North
American suppliers
Prediction Taylor, 2002
(3.3)
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But the industry is dynamic. For example, the US
solidwood trading balance has changed from a net
trading surplus of 500 million in 1989 to a net
deficit estimated at 9.3 billion in 2002.
Source L.C. Irland, 2002
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And in fact the USA is now the worlds largest
lumber importer
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But it is now only a relatively minor exporter
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In the last 30 years, solidwood trading
boundaries have expanded

• Restricted-regional in the 1970s
• e.g. imports from Canada and Mexico
• Regional in the 1980s
• e.g. imports from Chile
• Global from the mid-1990s
• e.g. imports from New Zealand, Europe, Africa

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There are many motivations for overseas solidwood
suppliers to target the USA

• The USA is a huge wood usurer
• Increasing Southern Hemisphere plantation
  resources are outstripping small domestic markets
  (but see later exception)
  
• Europe has some special circumstances - see
  later
  
• Traditional markets are decreasing e.g. Japan for
  all suppliers, Germany for the Scandinavians, and
  Australia for New Zealand
  
• For some products, e.g. Ponderosa pine, USA
  supply has reduced
  
• The strong US has meant that US market prices
  can produce good home country returns at "cheap"
  US prices.
  
• In summary it is a "no brainer" - suppliers have
  no choice
  

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So, where to from here - a confusing path perhaps?
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Non-Canadian supplier waves - first Mexico,
then Southern Hemisphere, and more recently Europe
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Canada

• It still dominates imports, but the future is
  clouded over the trade war.
  
• We will leave this to the experts there appears
  to be plenty of them

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• But the BC people seem to be getting serious
  about improving the market image of their lumber
  
  
• see new
• E 120 campaign

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Southern hemisphere imports have levelled off a
little recently low US prices, supply and Asia
- Australia competition ?
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But they have resulted in a huge shift in
industrial grade lumber sourcing in the US
Source Flynn, 2002
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While NZ and Chile should continue to offer more,
be cautious of Brazil pine supply past about 2005
Harvest
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Imports from Europe are increasing rapidly (from
a very low base)
Imports could increase from 900 MMBF in 2001 to
1,500 MMBF by 2003 ( 66)
(Taylor - Feb 2001)
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indeed, early 2002 data show that there is very
rapid acceleration in imports
Source WWPA
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Why Europe all of a sudden ?
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1. Harvest is much less than growth. There is
potential for more production
Possible lumber production from Europe
Possible lumber production from
European Russia -Belarus - Ukraine
Source Nilsson, 2000
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Incidentally, this is no different than in the
USA - except that Europeans seem to want to use
their wood commercially
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• This may be exacerbated by accelerated harvesting
  from ex-East European countries, as they reduce
  harvest age from 100 years , down to 70-80 years
  (or lower)
• Example of pressure The Polish Forest Service
  profit in 1999 and in 2000 was US 30-35 million,
  but in 2001, the loss was US 200 million
  
• Note USA harvest age is now already 30-50 years
  in PNW and less in the South
  

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• Some trees in Europe are not too bad
• These are 140 year old Scots pine in Lithuania
• April 2002

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• . including lots of
• pruned Douglas fir in
• Germany and France
• which will start to
• mature in the next 10 years

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2. Demand in Europe is generally falling, both in
absolute terms (German housing start example
here) .
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and in market share (German window market
trends here)
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3. Many West, and East European countries have
very modern, large, subsidised, efficient
sawmilling integrated industries .. example

• Wismar, East Germany
• 1.5 MMCM sawmill
• (50 more than largest US sawmill)
• 300,000 m3 OSB plant
• 360,000 m3 MDF plant
• Most logs from Russia?
• All 1999-2002

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4. The Japanese import lumber pipeline is
getting full, and the market is stagnant to
falling
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5. Huge differences in labour rates are forcing
(and will force) manufacturing to cheaper
countries - 2000 rates are shown below
Source The Economist
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Example - Oak furniture for export to USA
Ljublijana, Slovenia April 2002
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What about China and Russia ?
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After a decade of false starts, China has rapidly
become one the worlds largest importers of
sawlogs
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New Zealands log exports to China are booming
A recent Chinese timberlands buyer in NZ has a
new 28-lathe plywood mill in Shanghai and uses 2.
0 MMCM of logs per year This is two times the usa
ge of the largest US sawmill
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But imports are still a minor component of total
Chinese demand and domestic supplies are
reducing rapidly .. where to?
16 to 25 MMCM
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Unrecorded lumber enters the USA via processed
product and furniture imports (see graph below).
Lumber here is from Russia, Europe, and New
Zealand, as well as from China.
Source ITTO, 2001
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How to figure out the direction of the Russian
resource?

• I cannot forecast to you the action of Russia.
  It is a riddle, wrapped up in a mystery, inside
  an enigma. But perhaps there is a key. That key
  is the Russian national interest
• (Winston Churchill, 1939)
• Has anything changed by 2002 ?

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• Russias annual harvest
• levels fell dramatically
• from the late 1980s,
• and have not yet
• recovered.
• But log
• exports from the
• Russian Far East have
• increased by 240
• since 1998

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And, at least on the surface, allowable harvest
levels are much more than is being cut
Source Flynn, 2002
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US solidwood imports have grown recently, from a
small base, but lumber imports are still very
modest
USA imports of solidwood products from Russia
Percent by value, 2001
Source Flynn, 2002
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Exchange rates are critical to business .
but how to predict them???
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They can weaken and so make importers more
competitive ...
The Brazilian and South African currencies
had more than halved from Jan 1998 to Feb. 2002
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but the relationships can quickly change, as
they have in the last few months
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This change can stiffen the resolve of exporters
to force up prices . e.g. Radiata pine
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South Africa now has the potential to be a
significant lumber, moulding and millwork
exporter - over time

• South Africa has the 5th largest overseas
  plantation pine resource (after Chile, NZ, Brazil
  and Australia)
  
• It has the largest mature pruned log inventory
• Its government pine forests are being privatised
• A new JV between a S.A. Company and a US fund
  (Global Forest Products) may expand into lumber
  export markets, with a large supply of clear
  wood

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Fast grown plantation eucalyptus lumber a
future source ?? Experimental production has
just started (mostly Brazil), but millwork is
already being shipped to Europe.
The best Lyptus lumber grade
The worst Lyptus grades
Aracruz
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Example ...Brazil plantation eucalypt - laminated
window headers for German market
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This is expected to spread to other countries as
huge new plantations reach maturity in the next
decade
Chile eucs
Uruguay eucs
Argentina (eucs pine)
Australia (eucs)
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So,what are some overseas companies doing to
better access the USA market?

• Forming JVs with US companies (and vice -versa)
• Thames Sawmilling , Fletcher Forests, American
  Mouldings, Snavely
  
• Building specialist facilities offshore
• FFS, Brightwood, American Mouldings, Forest
  Products Group
  
• Managing US offices
• FSS Forests, Arauco, Terranova
• Gaining US grading permits
• Gaining FSC certification
• FFS, Pan Pac, CHH (IP) to come but Not Chile
  companies?
  

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And some US manufacturers are adapting to
changing conditions e.g. Millwork Case Study

• 1950-1990
• US lumber, US remanufacturing and millwork
  plants
  
• 1990-1994
• US Chile Lumber, US remanufacturing , US
  millwork
  
• 1994-1996
• US Chile NZ Lumber, US millwork plant
• 2000-2002
• Import Chile millwork and distribute
• 2002
• Import Chile and S.E. Asia millwork (made from NZ
  lumber)
  

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Additional industrial wood suppliers in future
may/will include

• Canada (of course nowhere else to go?)
• More from Chile and New Zealand - new players
• China (by processing imported logs and lumber)
• S.E. Asia (Vietnam - Malaysia - Philippines -
  ditto above)
  
• West and East Europe (several countries)
• Russia (direct and indirect via China and
  Europe)
  
• Baltic States
• South Africa
• And, possibly substitute plantation hardwood from
  all over

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Conclusion

• The USA has changed from being a net solidwood
  exporter, to being a major net importer since
  about 1990
  
• Trade in solidwood is now global
• Trade patterns are fluid and constantly changing
• Exchange rates and labour costs are playing an
  increasing role in determining trade flows
  
• There will be new entrants to the mix, and
  changes (including reductions) from existing
  players
  
• Processed product (furniture, millwork)
  importance may increase