From the publishers of WOOD MARKETS MONTHLY INTERNATIONAL REPORT,

WOOD MARKETS’ cHINA buLLETIN, and many other strategic industry reports

2017EDITION

The Solid Wood ProducTS ouTlook • 2017 to 2021

A Detailed Analysis of the North American Wood Products Market

cOVERING: Lumber, OSb, Plywood, MDF and Particleboard

FEATuRING: A Five-Year Outlook for Supply, Demand and Prices, including Mill Operating Rates

Prepared and published by

International WOOD MARKETS Group Inc.

L U M B E R

PA N E L B O A R D S

T I M B E R

E N G I N E E R E D W O O D

E C O N O M I C S

M A R K E T S

F O R E C A S T S

Now in its twelvth edition since 1996, WOOD MARKETS 2017 presents an overview of the key issues and trends in wood products manufacturing and trade, with five-year forecasts for lumber, plywood, OSB, MDF and particleboard.

Each year, our consultants are on the ground observing emerging global trends, including:

• FlatteningB.C. Interior production due to the MPB;

• LumberexpansionatSYPmillsintheU.S. South;

• Pacific Northwestproducers:LessAsiaandmoreU.S.markets;

• Eastern Canadian mills recover and increase output;

• Log and lumber exports to China: Will they rebound?;

• Competing mills in the U.S. with currency advantages;

• Impact of potential duties onCanadianlumberexports;and

•Supply/demand balance:ImpactonU.S.-dollarprices.

__________________________________________________________________ WOOD MARKETS 2016 Edition – Solid Wood Products Outlook: 2016 – 2020

____________________________________________________________________________________________________________________________________________

International WOOD MARKETS Group Inc. OSB & Plywood • 2

5.0 OSB Operating Rates & Costs This section addresses the OSB capacity installations in North America

and operating rates in North America. A high level of OSB overcapacity and their start-ups has been a key driver of OSB price trends. Also profiled are some of the trends in OSB operating costs.

5.1 OSB Capacity Changes: Since 2006

Following strong housing starts and record-high prices at various stages in the 2003 to 2005 period, a new wave of OSB mills were planned and built for the period 2005–2008 based on the potential for a quick

payback. A total of 11 projects (expansions and new mills) were launched, with a total additional capacity of 6.5 billion sf. However, the collapse in the housing market that occurred in from 2007 and onward

caused an abrupt shift in the direction of OSB capacity. Of the new greenfield OSB mills projects, the two mills that started up and almost immediately curtailed (LP in Thomasville, AL; and Tolko in

Slave Lake, AB) are now running. Two mills under construction were not finished and were stopped – the Norbord-Ainsworth mill in Grand Prairie, AB and Grant (now GP) in Allendale, SC. – where the GP mill

was finished and restarted in Q1/2013. These three mills (excluding the Grand Prairie mill) represent over 2.3 billion sf of capacity that entered the market in between Q1/2013 and Q1/2014

Three other OSB mills were restarted in 2013 representing another 1.65 billion sf. Collectively, these six mills represent about 4 billion sf of

capacity against a total market increase of 3.5 billion sf of incremental consumption from the start of 2013 until the end of 2014. In combination with other mills, capex projects and capacity creep, too many mills

came on-line relative to demand, which is why prices have eroded to near break-even levels starting in Q4/2014 and lasting until Q3/2015.

Capacity

Company Location (MMsf - Date Notes

3/8" Basis)

Norbord C ordele, G A 550 2006 Q4 New Mill

Martco Oakdale, L A 870 2007 Q1 New Mill

G P  (G rant) A llendale, S C 800 2007 Q1 New Mill

G P  (G rant) E nglehart, ON 800 2010 R eopened

Weyerhaeuser Hudsons  B ay, S K 575 2010 Q4 R eopened

Arbec Miramichi, NB 430 2012 Q4 R eopened

G P  (G rant) C larendon, S C 800 2013 Q1 New Mill

L P Thomasville, AL   700 2013 Q2  New Mill*

Norbord J efferson, TX 450 2013 Q3 R eopened

Ainsworth High L evel, AB 800 2013 Q3 R eopened

L P   D awson C reek, B C 400 2013 Q3 R eopened

Tolko S lave L ake, AB 825 2014 Q1 New Mill*

Total:  2006‐2010 3,595

Total:  2012‐2014 4,405

Total: 2006-2014 8,000

* New mill thatran for a short time, closed and later reopened

S ource: C ompany R eports , WOOD  MAR K E TS

US  & C anada OS B  C apac ity Additions  & Announced Re‐openings : To 2014

Sample pages from WOOD MARKETS 2016:

Our ForecastsWOOD MARKETS’ forecasts aretied to our intimate and up-to-date knowledge of regional and global log, lumber, and panel market trends, as well as other factors (including competitiveness and economics) that drive supply and demand. Our unique insights and accuracy in forecasting key trends continue to set us apart from our desk-bound or model-driven competitors.

__________________________________________________________________ WOOD MARKETS 2016 Edition – Solid Wood Products Outlook: 2016 – 2020

__________________________________________________________________________________________________________________________________________

International WOOD MARKETS Group Inc. Softwood Lumber • 3

7.4 2x4 SYP R/L Lumber Prices

The U.S. South mills are situated closest to the largest homebuilding markets in the U.S. (50+% of new housing starts) and as a result, U.S. South lumber companies have shown considerable resiliency during the market downturn. Since 2009, SYP log prices have remained at very low levels, allowing sawmills to capture almost all of the upside from the lumber price increases. Southern yellow pine lumber (using the benchmark SYP R/L West in our analysis) does see some seasonal volatility with the inventories at pressure-treaters, but price spreads between SYP and W-SPF had maintained a fairly consistent spread of US$45-$50/Mbf – in favor of SYP. However, this spread was much wider in 2014 (US$78/Mbf) and was a whopping US$99/Mbf in 2015. Going forward, a higher spread of US$50-65/Mbf is forecast, especially with the new concentration of companies that own SYP sawmills. The structural strength rating review for structural SYP dimension lumber has not created any major dislocations to the market or in the supply base. While smaller diameter, younger SYP trees that are now being harvested and processed in sawmills could have lower ratings from visual strength grading for #2&Btr and MSR lumber. The new strength grading rules have penalized visually graded lumber in favor of MSR graded lumber. In response, more mills have installed MSR machine grading capability to offset any reduce #2&Btr grade outturns that would be obtained from visual grading rules. Based on the expected market outlook and relative to competition with other competing species, the SYP price forecast is as follows:

• In 2015, SYP West R/L prices averaged US$375/Mbf compared to US$276/Mbf for W-SPF (+US$99/Mbf spread).

• SYP prices in 2016 are forecast to average US$360/Mbf, or at lower spread to SPF ($81) than in 2015, and increasing to US$375/Mbf in 2017 before slowing in 2018.

• A rebound in SYP prices in 2019 to US$392/Mbf and US$415/Mbf in 2020 is forecast.

SYP SPF SPF Random

West Western Eastern Lengths

2x4 KD 2x4 KD 2x4 KD Framing

#2 & Btr* #2 & Btr* #2 & Btr* Lumber

R/L R/L R/L Composite

US$/Mbf US$/Mbf US$/Mbf US$/Mbf

FOB FOB** Great Lakes**

1995 364 252 335 343

1996 422 353 436 407

1997 453 354 444 423

1998 395 288 378 354

1999 413 343 439 408

2000 344 295 349 329

2001 330 286 344 318

2002 307 269 331 304

2003 330 277 340 311

2004 388 397 460 404

2005 423 353 419 387

2006 330 296 368 326

2007 279 250 329 282

2008 296 220 304 252

2009 242 181 270 222

2010 303 255 340 284

2011 279 255 344 272

2012 348 299 395 322

2013 413 355 450 383

2014 427 349 443 383

2015 375 276 376 330

2016 360 279 376 323

2017 375 309 404 352

2018 363 305 395 344

2019 392 340 428 375

2020 415 365 457 401

S ource: R andom L engths  (Used with permiss ion granted)

F orecast: WOOD  Markets

Note: * P re‐2000 ‐ S td & B tr; 2015 ‐ E stimate; 2016+ = F orecast

** Prices include duties and export taxes (2002 & on)

SPF & SYP & R/L Composite Annual Historical Prices & Forecast - US$/Mbf

__________________________________________________________________ WOOD MARKETS 2016 Edition – Solid Wood Products Outlook: 2016 – 2020

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International WOOD MARKETS Group Inc. Softwood Lumber • 2

4.8 Canada Lumber Production: Outlook

Canadian lumber production peaked in 2004 and will not reach this level of production again for many decades. In fact, the Canadian lumber industry will be hard-pressed to achieve 30

billion bf, let alone the previous high of 35 billion bf due to timber supply constraints in the three major producing provinces.

Reduced Canadian lumber production capacity is tied to timber supply constraints, i.e., cutbacks on public lands in Quebec and Ontario and the MPB epidemic in B.C. and as well as in Alberta. The full impact of the MPB problem will be felt after 2016; by 2020, the B.C. Interior’s

lumber output is expected to fall to 10 billion bf. Consequently, the market share of Canadian lumber in the U.S. will drop over the forecast period and beyond.

The trends in Canadian lumber production are summarized below:

• Canada’s softwood lumber production peaked at 35.2 billion

bf in 2004 and plummeted to 19.4 billion bf by 2009 — a total decline of 15.8 billion bf (-45%).

• From its trough in 2009, lumber production recovered by a total of 24.7% to reach 24.2 billion bf in 2014.

• Lumber production is expected to grow to 25.6 billion bf in 2015 as North American housing and lumber markets recover. Canadian lumber production is forecast to reach 26.7

billion bf in 2020 — an annual increase of about 1.6% from 2014 – very small!

• Gains in production will occur in all regions until 2016, after

which B.C. production permanently declines. Between 2017 and 2020, Canadian lumber production will remain relatively flat near 25.7 billion bf and will be constrained to increase exports to the U.S. to offset any demand growth there. This

should pave the way for growing lumber imports from Europe, potentially at higher lumber prices. The potential of any North America “super-cycle” scenario (with record prices

and volatility) is becoming more unlikely, but it is still possible from the supply constraints - the earliest would be 2019 if demand can grow at least as forecast.

Total

Year Coast Interior Total Alberta Sask/Man Ontario Quebec Atlantic Total Canada

2000 3,483 10,390 13,873 2,987 622 3,508 7,859 2,267 17,243 31,116

2001 3,364 10,726 14,090 2,908 557 3,433 7,679 2,119 16,695 30,785

2002 2,654 12,436 15,090 3,035 694 3,784 7,958 2,372 17,842 32,932

2003 2,515 12,942 15,457 3,101 674 3,736 8,064 2,211 17,786 33,243

2004 2,662 14,199 16,862 3,339 748 3,502 8,412 2,366 18,366 35,228

2005 2,504 14,881 17,386 3,118 635 3,655 7,530 2,230 17,168 34,554

2006 2,397 14,988 17,385 3,029 425 3,625 6,838 2,089 16,005 33,390

2007 1,653 13,951 15,604 3,188 385 3,131 5,825 1,885 14,413 30,017

2008 1,365 10,718 12,083 3,007 240 2,263 5,063 1,330 11,903 23,986

2009 1,066 8,957 10,023 2,827 77 1,453 4,004 1,038 9,401 19,423

2010 1,173 10,208 11,381 3,198 82 1,399 4,554 1,332 10,564 21,945

2011 1,404 10,944 12,348 3,100 112 1,293 4,301 1,343 10,149 22,497

2012 1,332 10,977 12,308 3,258 250 991 4,461 1,313 10,273 22,581

2013 1,260 11,173 12,432 3,475 320 1,137 4,715 1,412 11,059 23,491

2014 1,363 11,123 12,485 3,655 289 1,381 4,852 1,564 11,740 24,226

2015 1,348 11,412 12,760 3,832 425 1,767 5,242 1,587 12,853 25,612

2016 1,371 11,503 12,875 3,995 493 2,032 5,439 1,635 13,593 26,468

2017 1,412 11,140 12,552 4,095 541 2,174 5,602 1,671 14,083 26,635

2018 1,441 10,731 12,172 4,217 575 2,261 5,728 1,709 14,491 26,663

2019 1,536 10,345 11,881 4,291 591 2,334 5,857 1,743 14,817 26,698

2020 1,586 9,995 11,581 4,388 602 2,409 5,951 1,775 15,125 26,706

ANNUAL CHANGE

2015 -1.1% 2.6% 2.2% 4.9% 47.0% 27.9% 8.1% 1.5% 9.5% 5.7%

2016 1.8% 0.8% 0.9% 4.2% 16.1% 15.0% 3.8% 3.0% 5.8% 3.3%

2017 3.0% -3.2% -2.5% 2.5% 9.7% 7.0% 3.0% 2.3% 3.6% 0.6%

2018 2.0% -3.7% -3.0% 3.0% 6.3% 4.0% 2.3% 2.3% 2.9% 0.1%

2019 6.6% -3.6% -2.4% 1.8% 2.8% 3.3% 2.2% 2.0% 2.3% 0.1%

2020 3.3% -3.4% -2.5% 2.3% 1.8% 3.2% 1.6% 1.8% 2.1% 0.0%Note: 2015 - Estimate; 2016 & beyond - Forecast

Canada Softwood Lumber Production

BC East of the Rockies

Million bf

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

80828490929496980002040608101214161820

Mil

lio

n b

f

Source:

Stats. Canada

Forecast:

WOOD

Markets

Canada Softwood Lumber Production

Atlantic

Quebec

Ontario

Sask/Man

Alberta

BC Interior

BC Coast

2017EDITION

All the information you need in a concise, easy-to-read package

TAblE Of

Section 1: ExEcuTIvE SuMMARyAfocusedoverviewofforecasts,issuesandtrendsforbusyexecutives.

Section 2: GlObAl/NORTh AMERIcAN EcONOMIcSAcritiqueofkeyNorthAmericanandselectedglobaleconomicforecasts,aswellastrendsimpactinginternationalwoodproductstradeoverthenextfiveyears,including:

• Keydemanddriversand“wildcards”impactingtherecoveryoftheU.S.economy.

• ThecontinuinginfluenceofChinaandtheotheremerging“BRIC”economies.

• Globaleconomicandcurrencytrendsimpactinginternationalwoodmarkets.

Section 3: GlObAl TRENDS by PRODucTGlobalsupply/demandtrendsforthemajorcommoditywoodproductswillbeprofiled,including:

• Production,export,importandconsumptiontrendsbymajorcountryfortimber/logs,lumberand commodity panel products to profile the top countries.

Section 4: SOfTWOOD luMbERThismajorchapterfeaturesanalysisonarangeofNorthAmericansoftwoodlumbermarketand industry issues to profile the pace of the recovery, including:

• Five-yearforecastsofproduction,import,exportandconsumptiontrendsfortheU.S.andCanada,includingmilloperatingratesandscenariosaftertheSLA.

• Majorexportmarkets(includingChinaandJapan)andoffshoresupplierstoNorthAmerica.

• CanadianlumberexportstotheU.S.,includinghowmuchisactuallyavailableandtheimpactofpotentialexportdutiestotheU.S.onCanadianlumber.

• Five-yearpriceforecastsforadozenkeylumberproductsintheU.S.andoffshore.

Section 5: OSb & PlyWOODThedynamicsofU.S.softwoodplywoodandOSBoperatingcapacityversusdemand:

• Five-yearforecastsofproduction,import,exportandconsumptiontrendsfor theU.S.andCanada,includingmilloperatingratesandFXimpacts.

• OffshoreexportstotheU.S.andexport-markettrendsforOSBandplywoodinkeymarkets.

• Five-yearpriceforecastsforkeyOSBandplywoodproducts.

Section 6: MDf & PARTIclEbOARDAlookatthecurrentchallengesfornon-structuralpanelproducers,including:

• AreviewofMDFandparticleboardcapacityandoperatingratesinNorthAmerica.

• Supply/demandanalysesforMDFandparticleboardintheU.S.andCanada.

• Five-yearpriceforecastsforkeyMDFandparticleboardproducts.

Section 7: GlOSSARy Of TERMS & cONvERSIONS

WOOD MARKETS 2017 includes selected extracts from our other publications, including the following:

• WoodMarketsMonthlyInternationalReport• BCMountainPineBeetle•Outlookto2032• U.S.MouldingMarket&Supply•Outlook• Russia2016Forest&MillIndustryTour• China2016SupplyChainConference• Vancouver2016GlobalConference

• GlobalTimber/LumberCostBenchmarking:BiennialReportandBiannualRegionalQuarterlyProfilesReport

• ChinaBulletin

…ADDRESSED IN WOOD Markets ’17

Will China rebound to impact world

wood demand and prices?

Where will the U.S. get its lumber if

export duties cause Canada’s exports

to decline and they are redirected to

China or elsewhere in Asia?

What will increase faster in price: raw materials or lumber

products?

How will the strong US dollar impact U.S. imports and

prices?

How realistic is it for U.S. housing

starts to increase by more than

100,000 units/year?

Key QuestiOns

DECEmBEr 9, 2016releaSe daTe:

cONTENTS

2017EDITION

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