northwest hardwoods insights into china’s hardwood lumber ... · 3 nwh business presentation...

1NWH Business Presentation

Western Hardwood AssociationWorld Forestry Center – Portland, OregonAugust 10, 2016

Northwest Hardwoods Insights into China’s Hardwood Lumber Demand

Presented By: T.J. Rosengarth - President & CEO ofNorthwest Hardwoods


Northwest Hardwoods Insights into China’s Hardwood Demand

Topics

Brief Overview of Northwest Hardwoods

Global Demand / Chinese Market Overview

NWH’s View of China’s Hardwood Lumber Demand

Conclusions


Northwest Hardwoods Company Overview

Company Highlights

Headquarters: Tacoma, Washington$800MM in Sales (8% NA market share)

30 locations – 1900 EmployeesSales: Domestic 55% / Export 45%

Sawmills - 670MMbfKilns - 400MMbf

1980 Purchased by Weyerhaeuser

2011 – Purchased by AIP

1969

1969 Pioneered Alder Lumber

1975 P ioneered Proprietary Grades

2016

2014 – Purchased by Littlejohn

Executed ElevenAcquisitions 2011-2016

1995 Established Sales Offices in China/ Japan


WesternRegion

AppalachianRegion

GlacialRegionQuiet Valley, OR

Coos Bay, OR

Kinsale, VA

Garibaldi, OR

Eugene, OR

Mt. Vernon, WACentralia, WA

Longview, WA

Tuscumbia, AL

Onalaska, WI

Elkhart, IN

Dorchester, WI

Lewiston, MI

Grand Rapids, MI

Titusville, PA

Hopwood, PA

Dailey, WV

Mill Creek, WV

Hacker Valley, WV

Currie, NC

Los Angeles, CA

Beachwood, OH

Marlinton, WV

Endeavor, PA

Buena Vista, VAFairfield, VA

Loudonville, OH

Marienville, PA

Marion, NC

Hamden, OH

Ridgway, PA

Houston, TX

Ft. Worth, TX

San Antonio, TX

Savannah, GASawmill

Exotic Imports

Sales Office

Inventory

Remanufacturing

Concentration Yard

Key

Erie, PA

Beaverton, OR

Offices

Tacoma, WA

Northwest Hardwoods Company Overview – Operating Locations


African Mahogany

BubingaAsh

“From Alder to Zebrawood

There’s Power in Choice”

Basswood

Hickory

Poplar

White OakMeranti

OSB & Comp. Parts

Chinese Plywood

Ipe

Makore

Jatoba

Sapele

Alder

Walnut

Red Oak

Hard Maple

Cherry

82%North American

Hardwood Lumber

20 Species

3%Tropical

Hardwood Lumber

50 Species

16%Imported HardwoodPanels / Components

One-Stop Shop for all Your Hardwoods Needs


Product Offering

Soft Maple

Pacific Maple

Russian Birch



= NWH Sales Offices

NWH SALES & PROCUREMENT OFFICES IN ASIA(21 employees)

= Hardwood PlywoodExport Points

= DistributionWarehousesChina

69%

Netherlands1%

Malaysia0%

Italy1%

Taiwan5%

Indonesia2%

Thailand2%

Korea3%

Vietnam3%

Japan8% Other

6%

2015 KD Lumber Sales by Channel ($)NWH 2015 KD Export Sales

China – 70%


Global Demand / Chinese Market Overview


Global Demand for Wood Products

Forecast Global Demand for Wood Products

0

200

400

600

800

1,000

1,200

1,400

1,60020

16

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

2044

2046

2048

2050

Mill

ion

Cubi

c M

eter

s

Global Outlook for Timber Production

Hardwood Softwood

Note: Forecast assumes UN outlook on population growth and per capita timber consumption remains stable at 2014 levels

US would have to double production of timber over the next 30 years to meet anticipated global demand.


Global Sources of Hardwood Timber

9

Source: 2012-2013 UNECE Forest Products Market Review 2012-2013, FAO 2010 Country Reports, International Tropical Timber Organization 2012 Annual Review and Assessment, industry commentary

Brazil Poor infrastructure for

certainty of supply Legality still quite mixed Limited certification Wide range of species

United States Wide range of species Affordable Highly preferred worldwide FSC/PEFC Certified 99% legal

Canada Too far North for significant volumes

and diversity of hardwood species Tight grain / small diameter

China Lacking internal production Log export restrictions from Russia Logs from China’s plantations are largely

softwood / poor hardwood

Russia Legality uncertain Limited certification Infrastructure prohibits meaningful

exports Primary hardwood species is Birch

Australia Australian production & export of

hardwood lumber has declined 2008-2012

Recent reduction in forest area

Malaysia Legality uncertain Limited certification & species Sustainability issues - forests conversion to

agriculture Rising domestic demand for housing

Indonesia Government policy constrains

resource availability Forest area has declined from

1990-2010 by about 20%

North America is uniquely positioned as global source for rising worldw ide use of hardwood lumber

Central Africa• Legality still quite uncertain• Limited certification• Corrupt governments and hugely deficient

infrastructure

20%20%

40%


Global Demand for Wood Products

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

2004 2010 2020E

Domestic Natural Forest Timber SupplyDomestic Plantation Timber ProductionDomestic Timber ProductionTotal Timber Demand

Domestic Supply Deficit of ~40,000

MMBF

Domestic Supply

Deficit of ~65,000 MMBF

Domestic Supply

Deficit of ~70,000 MMBF

China Wood Supply Deficit

China’s forest coverage ratio is 22% *(global average is 31%)

Productivity of Chinese Forests are poor

50% of China’s timber is imported

China has initiated logging bans

Chinese plantations of Eucalyptus don’t substitute for North American hardwood or softwood

(Equal to Canada’s total wood production in 2014)


Chinese Market Overview

2005 2016

China Before & After



0%

2%

4%

6%

8%

10%

12%

14%

16%

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24

China: Real GDP Growth Rate

China’s economy is stepping down to sustainable levels



During 2010 to 2013 China’s housing exceeded demand by 40%

0

200

400

600

800

1,000

1,200

1,400

1,600

2004 2006 2008 2010 2012 2014

Mill

ion

Squa

re M

eter

s

China: Residential Housing Starts and Sales

Starts

Sales



Urbanization will continue to drop but it is still massive

0

20

40

60

80

100

120

1986-90 1991-95 1996-00 2001-05 2006-10 2011-15 2016-20 2021-25 2026-30

Mill

ion

New

Urb

an R

esid

ents

China: Increase in Urban Residents170MM people

in 9 years!



China will remain the “big dog” in driving export demand



The Dramatic Rise in China’s Standard of Living



China’s Shift to Internal Consumption of Furniture$6 $7 $8 $9 $8 $8 $9 $9 $1

1

$12

$14

$15

$17

$18

$20$6 $7 $9 $1

3 $21

$27 $3

3 $40 $4

6 $51 $5

6 $61 $6

6 $71 $7

7

$11

$14 $1

7 $22 $2

9 $35 $4

2 $49 $5

7 $63 $7

0 $76 $8

3 $90 $9

6

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14E '15E '16E '17E '18E

$US

in B

illio

ns

Exports Internal ConsumptionInternal Consumption vs Export moved from 50-50 in 2005 to 80-20 in 2015


NWH’s Recent Efforts to Better Understand China

Objective: Meet with Builders/Designers to understand current markets - Economy and building activity- Hardwood demand

Met with 5 of our major customers Visited 3 housing developments Interviewed 6 major developers and interior design firms Visited retail furniture outlets

Note: Simply NWH views based on ourdiscussions and experience in China



Market Dynamics

- Everyone still quite positive despite the Housing Bust.

- Average laborer wages still rising. Now at $600-700/month

- Tier 1 (large) cities still growing at frantic pace.- Tier II cities: 50% rapid growth / 50% over built.- Tier III cities and below – generally over built.

- Major developers moving towards in-house designers / architects.- General contractor specifies and sources materials (not the Developer).- Residential Consumers are “takers” – little influence on design / content.- Pre fit of housing is heavily encouraged by government.- Mid to high end development forced to subsidize low end residential.



Typical Residential Development(Shanghai, Beijing, Etc.)



Interior of US Home3500 – 5000 square feet / $.80MM to $1.5MM



Interior of Chinese Home1600 – 2400 square feet / $3.0MM to $6.5MM

“China Consumer Preferences Are Not The Same as the US”


Kitchen





Bedroom





BathRoom





LivingRoom





MasterBedroom


US definition of luxury is different than theirs Very little hardwood on fit-out

They pay cash up front for big ticket items. Often use family money – not credit

On-line purchasing is taking off.

Not uncommon to spend up to $300K for furnishings on high end home.

Real hardwood is heavily preferred for furniture – thus the strong growth.



E-commerce transactions were over 500 billion in 2010 (CNNIC) 3.2% of total retail sales and growing at 30% a year.

B2C in furniture and interior decoration was USD$1.2 billion in 2013 Growing 15% a year.

OEM’s desire to shift towards online sales still has it’s challenges

Retail is still traditional with many small shops

Difficult for smaller companies to establish brand identity and trust online

Larger producers however are growing B2C rapidly: A-Zenith, OPPIEN, Kuka Sofa, etc.

Business to Customer (B2C) - Online


Chinese economy is slowing but still a major force for us.

Don’t have their own wood to support the demand. North America will be the supplier.

“Standard of living change” is THE major driver for hardwood demand, not the houses themselves. Taking place elsewhere as well.

Easy to misunderstand the market. Information isn’t always reliable. Time on the ground allows you to really understand.

On-line purchasing (B2C) will represent a dynamic market changeto take advantage of.

Conclusions


Questions?????


Appendix


Chinese Market Overview – 10 years of Dynamic Change

-46%

-38%-35%

-31%

-20%-18%

-4%

-50%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

RussianRuble

Brazilian Real NZ Dollar AustralianDollar

Euro CanadianDollar

Chinese RMB

Loss in Value Against the US Dollar Since July 2014

The Ruble and Real Are Suddenly Much More Competitive


Appendix II



Unlikely the boom will be repeated due to tighter government controls

0

100

200

300

400

500

600

700

800

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Mill

ion

Boa

rd F

eet

US Exports of Hardwood Lumber to China

1999 - 2006US Furniture

Manufacturing Shift to

2006 - 2009US Housing

Bust and Worldwide Economic Turmoil

2010-2014China’s

Housing Boom

2009 - 2015+ 242.1%

Source: USDA FAS Graph:HMR Executive®

2015 & BeyondChina's Growing

Middle/Upper Class

Consuming US Hardwoods

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

Billi

ons

($U

SD)

World’s Top 10 Hardwood Lumber Exporters 2011-2015

20112012201320142015

Source: Global Trade Atlas

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

Billi

ons

($U

SD)

World's 10 Largest Hardwood Lumber Importers 2011-2015

2011

2012

2013

2014

2015


$-

$100

$200

$300

$400

$500

$600

Mill

ions

($U

SD)

World Hardwood Lumber Importers (Without China) 2011-2015

2011

2012

2013

2014

2015


northwest hardwoods insights into china’s hardwood lumber ... · 3 nwh business presentation...

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