hardwood industry

Hardwood IndustryHardwood IndustryHardwood IndustryHardwood Industry

Three Topics

• Current Reality Check

• Many Reasons for Optimism

• Opportunities for Success

Current Market Reality Check: Current Market Reality Check: It’s Been a Rough 5 YearsIt’s Been a Rough 5 Years

Current Market Reality Check: Current Market Reality Check: It’s Been a Rough 5 YearsIt’s Been a Rough 5 Years

Current Markets

• Lumber Price Recession

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Kiln-Dried

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Current Markets

• Hardwood Lumber Production

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Current Markets

• Wood Manufacturing Employment

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NAICS 321 - Wood ProductsNAICS 327 - Furniture & Related Products

Current Markets

• Until job markets and economic uncertainty improve…housing will remain depressed.

• Until housing markets improve… hardwood industry will remain depressed.

Many Reasons for OptimismMany Reasons for OptimismMany Reasons for OptimismMany Reasons for Optimism

U.S. Still the Leader

• 34% of funds spent on R&D.

• 47% of engineering degrees 25-39 by women.

• 30 Nobel prizes in science and economic in last 20 years. China – just one.

• 72% of oil needs up from 50% 10 years ago.

• 8 of top 10 universities, China-0

Reasons for Optimism

• Housing starts low but stable

• New home sales low but stable

• Sept existing home sales 34% higher than the low point of July 2010

Reasons for Optimism

• Single-Family Permits Trending Up– 6 consecutive months of growth without

any type of stimulus

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Homebuyer Tax Incentives

Reasons for Optimism

• Housing Shortage Coming– We’ve been building at a pace below

the “static demand” for nearly 5 years

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Reasons for Optimism

• Outlook for Growth in Remodeling– Harvard JCHS: “volatile and weak”

remodeling activity through Q1 2012– Remodeling expenditures to increase at an

inflation-adjusted 3.5% annual rate in coming years

– NAHB Q2 2011 RMI was the second highest since Q3 2007

– Remodeling expenditures will reach $131 billion by 2012 – a 13% improvement from 2010, and just 10% shy of 2006 levels.

Reasons for Optimism

• Flooring Market Improving– Mfrs. currently only replacement buying

– But, moving lots of flooring, “satisfied”

– Quick, big bang for remodeling buck

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1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1

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#1 Com

RED OAK

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#1 Com

WHITE OAK

Reasons for Optimism

• Railroad Tie Demand Strong– RTA: Crosstie shipments:

+5.1% in 2011-0.7% in 2012+4.0% in 2013+4.1% in 2014

– American Assoc. of Railroads:Carload volume up 1.7% ytdContainer volume up 5.5% ytd

Reasons for Optimism

• Low KD Inventories

• Barriers to Production Increases– Loggers and log supply

– Credit availability

– Workers

– ~ 50% sawmill capacity reduction (?)

• 1 to 2% demand bump will drive up lumber prices and demand for logs

Reasons for Optimism

• Global Supply Decreasing– ITTO: Hardwood log production down

5%, lumber down 4% since 2006

– China log deficit will reach 180 mil. M3 by 2015

– Indian plants running below capacity

– Widespread sawmill closures in Africa

– Legality movement will reduce wood supplies from some SE Asian countries

Reasons for Optimism

• Exports– China Will Come Back in Spring

– Lumber inventories will be thinned out

– Government announced plans to increase furniture exports 12% annually during next 5 years

– Building furniture manufacturing centers in the North and West China

– Building 10 million low-priced units

Reasons for Optimism

• Mexican Market Strong– 36% of imported American hardwoods

in Red Oak and Poplar

– Manufacturers winning back production from China

– Easy to ship relative to other markets (no phyto certificate required)

Reasons for Optimism

• Some Manufacturing Coming Back to U.S.

– Georgia Chopsticks, Americus, GA

– Lincolnton Furniture, Lincolnton, NC

– Ebonite International, Hopkinsville, KY

– Jasper Home, High Point, NC

– Folio 21, High Point, NC (new)

– Conover Chair, Conover, NC (revived)

Reasons for Optimism

• U.S. Has Largest Supply of Sustainable Temperate Hardwoods in World

– Growing importance of “legal sourcing”

– EU Timber Regulation looks like it will accept U.S. hardwoods as “low risk”

– LCA studies will favor American hardwoods

Opportunities for Success:Opportunities for Success:For SCFAFor SCFA

For LandownersFor LandownersFor ProducersFor Producers

Opportunities for Success:Opportunities for Success:For SCFAFor SCFA

For LandownersFor LandownersFor ProducersFor Producers

Strategies for SCFA

• Pressure Administration to Sell More Timber

– 80% reduction in harvests since late 1980s

– For the health of the industry and the forest

– 16 National Forests in AL,GA,SC,FL, NC.

– 49.8 billion board feet of hardwood saw-timber in 12 surrounding states

Strategies for TFA

• Encourage USFS to Proactively Sell the Hardwood “Sustainability Story”

– Failure to do so was identified as a key barrier to industry success at the 2010 Hardwood Leaders Forum

– Southern FIA in Knoxville

– Director Bill Burkman has indicated some support for doing so

– USDA may be coming around

Strategies for TFA

• USDA’s “National Report on Sustainable Forests—2010”

– Relationship between harvesting and sustainability is positive

– Markets and management keep forests in forests

– Healthy forest industry tied with sustained production of environmental, economic and social benefits

Strategies for TFA

• Push for National Certification (?) – By USDA?

– Markets will increasingly be closed to non-certified wood products

– Australia is currently working on most restrictive illegal logging bill

• Will require verified legal certification• 80% of imported hardwood is White Oak

Strategies for TFA

• Partner with Other Organizations– Key recommendation of HLF

– Find a supporting role

– Focus on doing one thing better than all other organizations

– Be willing to work outside the state on issues that ultimately benefit state’s forests and industry

Strategies for TFA

• Possible Partnerships…..– Hardwood Federation

– NEW Federal Forest Resource Coalition

– United Hardwood Promotion

– Hardwood Check-off

Strategies for Landowners

• Sell Timber– Even at below-desired prices

– Timber prices should fluctuate with markets for wood products

– Holding timber off the market• artificially inflates log prices• drives out of business the companies

you eventually want as buyers• limits long-term market options

Strategies for Landowners

• Certification– Group or individual

– Will give market access advantage at some point

– May give payback in higher timber prices now or down the road

Strategies for Landowners

• Tap into new markets– Bio-fuels/pellets

– Need to replace lost pulp/paper demand

– Offers potential to pay for thinning, intermediate management

– Potential to increase total timber sale revenue

Strategies for Companies

• Expand exports– 50% of #1/Btr lumber produced sold into

foreign markets

– Only grade lumber growth market for next few years

– Getting easier for small companies to directly export

– Assistance available through AHEC and US Dept of Commerce (Trade.gov)

Strategies for Companies

• Give export customers what they want– Fixed widths

– Fixed lengths

– Metric thicknesses

• Half of the world’s consumers of hardwood grade lumber want a product most U.S. companies are unable or unwilling to make!

Strategies for Companies

• Diversify markets– Export markets are fickle

– Forego short-term gains to build broader customer base

– Look to emerging markets• India• Turkey

Strategies for Companies

• Consider Certification– Even if timber supplies and ROI are

lacking

– Noah built the ark when it was still sunny

– Difficult process to navigate under pressure

– LEED is flirting with opening up credits for SFI, PEFC

Strategies for Companies

• Grow online marketing– Reach foreign buyers 24/7

– Increase reach, reduce costs

• Hardwood Review.com– WoodLogics™ buyer/seller tool

– Prospecting database

– Market intelligence, trade data

– Price histories/forecasts

Issues to WatchIssues to WatchIssues to WatchIssues to Watch

Issues to Watch

• Hardwood Check-off– Currently in review by USDA

– Will publish sometime this fall

– 60-day comment period

– Additional USDA revisions

– Industry vote expected in March/April

Issues to Watch

• Lacey Act– Supporting by many in hardwood

industry for jobs and price protection

– Gibson incident has divided industry into two camps:

• Re-open Lacey Act for revisions• Don’t re-open…at least not yet

SummarySummarySummarySummary

Summary

• Markets will remain tough for 1-2 more years, but likely get no worse

• Production is stable, somewhat restricted…good for prices in a supply driven market

• Small demand increases = big impacts

• Long-term demand outlook good, especially export demand

Summary

• Industry is smaller, smarter, more nimble

• Industry is more willing to produce to demand

• Sustainability and size of hardwood resource positions U.S. very well for global growth in years ahead

• Best time to get ready is now!