US Hardwood Market TrendsPrepared for OFA

February 28, 2018

Presented by David CaldwellHMR

Memphis, Tennessee USA

Voice: (901)767-9126 Email: david@hmr.com

US Hardwood Market TrendsPrepared for OFA

February 28, 2018

Presented by David CaldwellHMR

Memphis, Tennessee USA

Voice: (901)767-9126 Email: david@hmr.com

US Economic Activity GDP increased at an annual rate of 2.5% in 2017 and is projected to grow 2.7% in 2018 and 2.5% in 2019.

US Economic Activity GDP increased at an annual rate of 2.5% in 2017 and is projected to grow 2.7% in 2018 and 2.5% in 2019.

Consumer Confidence is near a 17 year high.

US Economic Activity GDP increased at an annual rate of 2.5% in 2017 and is projected to grow 2.7% in 2018 and 2.5% in 2019.

Consumer Confidence is near a 17 year high.

Unemployment is 4.1%.

0

500

1,000

1,500

2,000

2,500

Thou

sand

Uni

tsUS Housing Start Cycles

Total Starts Single-Family Starts

Prior to 2015, the longest up or down trend for total starts in a cycle had been 5 years.

2017 is the eigth consecutive year of total housing start

gains.

Source: US Census BureauGraph: HMR

2017 is the sixthconsecutive year of single-family start increases.

* Annualized

250

450

650

850

1,050

1,250

1,450

1,650

1,850

2009 2010 2011 2012 2013 2014 2015 2016 2017 *2018

Thou

sand

Uni

ts

US Housing Startswith Projections Through 2018

Sources: US Census Bureau and NAHB Graph: HMR

*Forecast

Housing starts rose 118.5% from 2009 to 2017 and are projected to

grow 3.7% in 2018

1,434,700 units (average since 1959)

300

400

500

600

700

800

900

1,000

1,100

2009 2010 2011 2012 2013 2014 2015 2016 2017 *2018

Thou

sand

Uni

ts

US Single-Family Housing Startswith Projections through 2018

Sources: US Census Bureau and NAHB Graph: HMR

Single-family housing starts increased 90.9% from 2009 to 2017 and are expected to rise

7.2% in 2018.

*Forecast

1,018,700 units (average since 1959)

Pallets

Furniture

Exports

Millwork

Cabinets

Flooring

Railway TiesBoard Road/Mat

Timbers2017

© 2018 HMR

4.4%

35.6%

5.2%

22.2%

5.6%

5.6%

9.2%

12.4%

Grade Lumber Consumption 2017

Domestic Markets53.0%

Exports to China24.9%

Exports to Rest of World22.1%

Sources: Various Industry and Government Sources and HMR Graph: HMR

200

300

400

500

600

700

800

Furniture Moulding/Millwork Cabinets Flooring

Mill

ion

Boa

rd F

eet

Consumtion of Hardwood Lumber by US Domestic Grade Markets

2016 2017

Source: Private, Government, and HMRGraph: HMR

-2.5%+10.5% +7.0%

+2.5%

0%

10%

20%

30%

40%

50%

60%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 *2017

Percentage of Total US Hardwood Lumber Exports(Volume)

European Union-28CanadaChinaVietnamMexico

Source: USDA FASGraph: HMR

* Y-T-D

0

200

400

600

800

1000

1200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 *2017

Million Bo

ard Feet

US Exports of Hardwood Lumber to China

1999 - 2006US Furniture Manufacturing Shift to

China and US Housing Boom2006 - 2009

US Housing Bust and Worldwide Economic

Turmoil

China's Growing Middle and Upper Classes

Consuming US Hardwoods

1999 - 2006+ 759.5%

2009 - 2017+ 400.5%

Source: USDA FAS Graph: HMR

2017 Hardwood Consumption

Grade LumberPallet Lumber/Cants, Ties, Board Road/Mat Timbers, and Other Industrial Products

53.0%47.0%

© 2018 HMR

Industrial Products: 4.485B Bd. Ft.Grade Lumber: 3.976B Bd. Ft.Total: 8.461B Bd. Ft.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bill

ion

Boa

rd F

eet

Consumption Estimates

Pallets Railway Ties Board Road/Mat Timbers

Sources: RTA and Hardwood Market Report                               Graph: HMR 

2009 2010 2011 2012 2013 2014 2015 2016 2017

Pallets 3.0 3.2 3.26 3.27 3.643 3.685 3.589 3.265 3.063

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

2009 2010 2011 2012 2013 2014 2015 2016 2017

Bill

ion

Boa

rd F

eet

© 2018 HMR

2009 to 2017 + 2.1%2016 to 2017 - 6.2%

Railway 2009 2010 2011 2012 2013 2014 2015 2016 2017Ties 0.89 0.89 0.98 1.04 1.11 1.03 1.08 1.09 1.05

0.50

0.60

0.70

0.80

0.90

1.00

1.10

2009 2010 2011 2012 2013 2014 2015 2016 2017

Bill

ion

Boa

rd F

eet

2009 to 2017 +19.1%2016 to 2017 - 3.4%

Source: Railway Tie Association Graph: HMR

Board Road/Mat 2009 2010 2011 2012 2013 2014 2015 2016 2017

Timbers 0.175 0.198 0.243 0.267 0.424 0.413 0.365 0.357 0.368

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

0.400

0.450

2009 2010 2011 2012 2013 2014 2015 2016 2017

Bill

ion

Boa

rd F

eet

© 2018 HMR

2016 to 2017 + 3.1%

3.7

3.8

3.9

4

4.1

4.2

4.3

4.4

4.5

4.6

Industrial Grade

Bill

ion

Boa

rd F

eet

Variance in Consumption of US Hardwoods fromMid-Year to Year-End 2017

Mid-Year 2017

Year-End 2017

© 2018 HMR

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

Mill

ion

Boa

rd F

eet

Eastern US Hardwood Production

Production Peaked in 1999 at an est. 12,619,000,000 board feet

1960 est. 7,672,500,000

board feet

1975 est. 7,157,500,000

board feet

Sources: US Census Bureau, US Forest Service, and HMR

Graph: HMR

© 2018 HMR

2017 production was 8,308,037,400.

Estimated 57 year average is

9,386,688,000 board feet.

What are the challenges to the long-term success of US hardwood Sawmills?

Log Exports

300,000,000

320,000,000

340,000,000

360,000,000

380,000,000

400,000,000

420,000,000

440,000,000

460,000,000

480,000,000

500,000,000

520,000,000

540,000,000

560,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Boa

rd F

eet

US Hardwood Log Exports

Source: USDA FASGraph: HMR

2007

Ash Birch Cherry Beech Tropical Paulownia Western Red Alder

Other Temperate20.2%

Maple16.6%

Red Oak12.4%

White Oak15.6%

Poplar9.1%

Walnut

US Exports of Hardwood Logs to World Markets

Source: USDA FASGraph: HMR

2017

Birch Poplar Cherry Beech Tropical Paulownia Western Red Alder

US Exports of Hardwood Logs to World Markets

Maple17.6%

Red Oak28.9%Ash

12.6%

White Oak9.9%

Walnut

Other Temperate8.3%

Source: USDA FASGraph: HMR

What are the challenges to the long-term success of US hardwood Sawmills?

Log Exports

Too many eggs in one basket

What are the challenges to the long-term success of US hardwood Sawmills?

Log Exports

Too many eggs in one basket

Wood By-Products

What are the challenges to the long-term success of US hardwood Sawmills?

Log Exports

Too many eggs in one basket

Wood By-Products

Labor

Positives:• We have an abundant supply of hardwood

timber owned by private landowners willing to sell it for the right price.

• We have ample sawmill capacity to supply the industry’s current needs and outlets for total production.

• We have a very stable supply and demand balance.

• And a very resilient hardwood sawmill industry.

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 *2017

US Hardwood Log ExportsExcluding Canada

Red Oak Ash White Oak Walnut

Source: USDA Foreign Agricultural ServiceGraph: HMR Executive®

* Annualized

0

75,000

150,000

225,000

300,000

375,000

450,000

1953 1977 1987 1997 2007 Most RecentData

Mill

ion

Cub

ic F

eet

Net Volume of Hardwood Growing Stock onUS Timberland

Privately Held

Total Public

44.5%

18.0%

12.0%

13.5%5.7%

41.6%

17.5%

11.4%9.4%

5.4%

59.7% 20.6% 14.7% 31.4% 6.9%

Percent Change in Growing Stock Volumes on Public, Private, and Total US Timberland

Source: USDA Forest Service Graph: Hardwood Market Report