Wood Supply Trends in the U.S. South1995-2015

Dave TennyPresident & CEONational Alliance of Forest Owners

Objective and Scope

Overall: Present factual information on the impact of the export wood pellet market on American forests and other forest products industries in the US South.

Three part study:

•Geographic Distribution of Operational and Closed Wood Fiber Consumers: 1995-2015

•Wood Supply and Pricing Trends: 2000-2014

•Market Case Studies: 2006-2015

Study Area

Operating and Closed Mills 2015

Net Mill Openings and Closures 1995-2015

1995-2000 2000-2005 2005-2010 2010-2012 2012-2014 2014-2015 TotalPeriod

Panelboard: Hardboard and MDF 1 -3 -1 0 0 0 -3OSB 4 4 -5 -2 3 0 4Pulp/Paper -3 -7 -3 -1 0 0 -14Pellet-Operating 0 0 6 1 9 0 16Pellet-Construction 3

-20

-15

-10

-5

0

5

10

15

20

Net

Ope

ning

s/Cl

osin

gs (N

umbe

r of F

acili

ties)

30 Miles 65 Miles 100 Miles 100+ MilesOperational 18 7 (39%) 18 (100%) 18 (100%) 18 (100%)

Closed 18 8 (44%) 13 (72%) 16 (89%) 18 (100%)

Total Current Export Pellets

Proximity AnalysisCompetitive Mill Status

Pine Removals - Study Area

Year

US SouthPulpwood Sawtimber Total Pine

Inventory Non-Pellet Mill Removals Removals

% of Inventory

Pellet Mill Removals Removals

% of Inventory

Inventory Removals Removals% of

Inventory

Inventory Removals Removals

(million tons) (million tons) (million tons) (million tons) % of Inventory

2000 1,007.9 96.6 9.6% 2,009.6 98.2 4.9% 3,017.5 194.9 6.5%2001 1,013.3 94.6 9.3% 2,023.3 97.4 4.8% 3,036.6 191.9 6.3%2002 1,025.0 95.9 9.4% 2,057.6 98.0 4.8% 3,082.7 193.9 6.3%2003 1,032.0 97.2 9.4% 2,084.9 98.7 4.7% 3,116.9 195.9 6.3%2004 1,050.0 100.2 9.5% 2,136.2 101.7 4.8% 3,186.2 201.8 6.3%2005 1,054.2 103.1 9.8% 2,189.8 104.6 4.8% 3,244.0 207.7 6.4%2006 1,060.9 106.9 10.1% 2,233.4 98.2 4.4% 3,294.3 205.2 6.2%2007 1,076.2 110.7 10.3% 2,264.9 94.9 4.2% 3,341.1 205.6 6.2%2008 1,083.8 111.8 10.3% 0.1 0.0% 2,295.4 71.2 3.1% 3,379.2 183.1 5.4%2009 1,086.3 109.0 10.0% 0.3 0.0% 2,333.3 60.6 2.6% 3,419.7 169.8 5.0%2010 1,090.8 116.6 10.7% 0.6 0.1% 2,398.3 64.3 2.7% 3,489.0 181.4 5.2%2011 1,110.5 112.8 10.2% 1.7 0.2% 2,477.5 68.3 2.8% 3,588.0 182.8 5.1%2012 1,129.6 114.9 10.2% 2.4 0.2% 2,563.6 71.1 2.8% 3,693.2 188.4 5.1%2013 1,159.3 115.9 10.0% 3.3 0.3% 2,665.8 75.8 2.8% 3,825.2 195.1 5.1%2014 1,178.5 117.7 10.0% 3.7 0.3% 2,772.8 78.1 2.8% 3,951.3 199.5 5.0%

Average 1,077.2 106.9 9.9% 1.7 0.2% 2,300.4 85.4 3.8% 3,377.7 193.1 5.8%Trendline Growth Rate 1.0% 1.7% 0.7% 94.9% 81.3% 2.3% -3.2% -5.4% 1.9% -0.3% -2.2%

Hardwood Removals - Study Area

Year

US SouthPulpwood Sawtimber Total Hardwood

Inventory Non-Pellet Mill Removals Removals

% of Inventory

Pellet Mill Removals Removals

% of Inventory

Inventory Removals Removals% of

Inventory

Inventory Removals Removals

(million tons) (million tons) (million tons) (million tons) % of Inventory

2000 1,286.1 48.9 3.8% 2,113.6 27.5 1.3% 3,399.7 76.3 2.2%2001 1,279.0 47.0 3.7% 2,120.8 27.7 1.3% 3,399.8 74.7 2.2%2002 1,270.8 43.4 3.4% 2,130.0 28.2 1.3% 3,400.8 71.6 2.1%2003 1,255.3 39.8 3.2% 2,139.8 28.7 1.3% 3,395.1 68.5 2.0%2004 1,252.3 40.9 3.3% 2,154.9 28.5 1.3% 3,407.1 69.4 2.0%2005 1,238.2 42.0 3.4% 2,161.7 28.3 1.3% 3,399.9 70.3 2.1%2006 1,232.4 40.9 3.3% 2,181.7 26.8 1.2% 3,414.1 67.7 2.0%2007 1,234.8 39.4 3.2% 2,213.1 25.2 1.1% 3,447.8 64.6 1.9%2008 1,229.3 38.1 3.1% 2,414.6 20.8 0.9% 3,643.9 58.9 1.6%2009 1,229.7 34.1 2.8% 2,431.8 16.5 0.7% 3,661.5 50.6 1.4%2010 1,227.5 36.1 2.9% 0.0 0.0% 2,433.1 16.4 0.7% 3,660.6 52.6 1.4%2011 1,230.8 34.7 2.8% 0.0 0.0% 2,438.6 16.4 0.7% 3,669.4 51.1 1.4%2012 1,224.4 34.6 2.8% 0.5 0.0% 2,431.5 16.3 0.7% 3,655.9 51.5 1.4%2013 1,218.1 33.8 2.8% 1.3 0.1% 2,429.8 15.3 0.6% 3,647.9 50.4 1.4%2014 1,219.9 33.6 2.8% 2.4 0.2% 2,445.6 14.8 0.6% 3,665.4 50.8 1.4%

Average 1,241.9 39.2 3.1% 0.8 0.1% 2,282.7 22.5 1.0% 3,524.6 61.9 1.8%Trendline Growth Rate -0.4% -2.6% -2.2% 117.7% 118.0% 1.3% -5.5% -6.8% 0.7% -3.4% -4.2%

Total Removals - Study Area

Year

US SouthPulpwood Sawtimber Total Pine and Hardwood

Inventory Non-Pellet Mill Removals Removals

% of Inventory

Pellet Mill Removals Removals

% of Inventory

Inventory Removals Removals% of

Inventory

Inventory Removals Removals

(million tons) (million tons) (million tons) (million tons) % of Inventory

2000 2,294.0 145.5 6.3% 4,123.3 125.7 3.0% 6,417.3 271.2 4.2%2001 2,292.3 141.6 6.2% 4,144.1 125.0 3.0% 6,436.4 266.6 4.1%2002 2,295.8 139.3 6.1% 4,187.7 126.2 3.0% 6,483.5 265.5 4.1%2003 2,287.3 137.0 6.0% 4,224.7 127.4 3.0% 6,512.0 264.4 4.1%2004 2,302.3 141.1 6.1% 4,291.1 130.2 3.0% 6,593.4 271.2 4.1%2005 2,292.4 145.2 6.3% 4,351.5 132.9 3.1% 6,643.9 278.1 4.2%2006 2,293.3 147.8 6.4% 4,415.1 125.0 2.8% 6,708.4 272.8 4.1%2007 2,310.9 150.0 6.5% 4,478.0 120.1 2.7% 6,788.9 270.2 4.0%2008 2,313.1 149.9 6.5% 0.1 0.0% 4,709.9 92.0 2.0% 7,023.1 242.0 3.4%2009 2,316.0 143.1 6.2% 0.3 0.0% 4,765.1 77.1 1.6% 7,081.1 220.4 3.1%2010 2,318.2 152.7 6.6% 0.6 0.0% 4,831.4 80.7 1.7% 7,149.7 234.0 3.3%2011 2,341.3 147.5 6.3% 1.8 0.1% 4,916.1 84.7 1.7% 7,257.4 233.9 3.2%2012 2,354.0 149.6 6.4% 2.9 0.1% 4,995.0 87.5 1.8% 7,349.1 239.9 3.3%2013 2,377.5 149.7 6.3% 4.6 0.2% 5,095.6 91.1 1.8% 7,473.1 245.4 3.3%2014 2,398.4 151.3 6.3% 6.0 0.3% 5,218.4 92.9 1.8% 7,616.7 250.2 3.3%

Average 2,319.1 146.1 6.3% 2.3 0.1% 4,583.1 107.9 2.4% 6,902.3 255.1 3.7%Trendline Growth Rate 0.3% 0.5% 0.2% 91.1% 87.2% 1.8% -3.6% -5.4% 1.3% -1.1% -2.4%

Study Area Market Dynamics – Pine

$0

$5

$10

$15

$20

$25

$30

5

25

45

65

85

105

125

145

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

Pulp

woo

d/Re

sidu

al P

rice

($/t

on)

Pulp

woo

d Re

mov

als/

Resi

dual

Sup

ply

(mill

ion

tons

)

Pellet Removals Non-Pellet Removals Residual Supply Deficit

Residual Supply Pulpwood Stumpage Price Residual FOB Sawmill Price

Study Area Market Dynamics – Hardwood

$0

$5

$10

$15

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$30

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30

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

Pulp

woo

d/Re

sidu

al P

rice

($/t

on)

Pulp

woo

d Re

mov

als/

Resi

dual

Sup

ply

(mill

ion

tons

)

Pellet Removals Non-Pellet Removals Residual Supply Deficit

Residual Supply Pulpwood Stumpage Price Residual FOB Sawmill Price

Significant FindingsResidual supply 2007-2014:•21% less than the supply between 2000 and 2006•Pine/hardwood residual prices increased 12.5% and 10.7%

Pine pulpwood consumption and price 2008-2014:•Non-pellet demand increased by 5.8 mm tons (from 111.8 to 117.7 mm tons) •Pellet demand increased by 3.7 mm tons (from 0 to 3.7 mm tons)•Sawtimber inventory increased significantly more than pulpwood•US South average pulpwood prices increased 4.5% annually •Similar price trends in areas with and without export pellet influence

Hardwood pulpwood consumption and price 2010-2014:•Non-pellet demand decreased by 2.5 mm tons (from 36.1 to 33.6 mm tons) •Pellet mill demand has increased by 2.4 mm tons (from 0 to 2.4 mm tons)•Sawtimber inventory increased and pulpwood inventory declined•US South average pulpwood prices increased 7.4% annually•Similar price trends in areas with and without export pellet influence

EU Export Pellet Outlook

• 2014 – 3.6 mm metric tons (40% market share)

• Near-term growth – 7.4 mm metric tons (from existing installed capacity)

• Additional demand – 3.4 mm metric tons (40% market share)

• Total capacity – 10-11 mm metric tons (7 new mills)

• Total Removals – .6% of pulpwood inventory

Case Study – Coastal Georgia

Coastal Georgia – Removals and Prices

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

$0

$2

$4

$6

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Pulp

woo

d Re

mov

als a

s % o

f Inv

ento

ry

Stum

page

Pric

e ($

/ton

)

Annual Precipitation (Indexed) Pulpwood Removals as % of Inventory

Pine Pulpwood Stumpage Avg Precipitation

Trendline (9.6% Annual Growth rate)

Coastal Georgia – Micromarkets Comparison (2010-15)

10%11%11%

9%

6%

3%4%

2%

10%

5%

8%

-3%

1%

0%

-3%

-11%

-8%

1%

9%

11%

8%

-9%

-4%

-2%

-6%

9%

4%

-3%

4%

-1%

-7%

1%

5%

-15%

-10%

-5%

0%

5%

10%

15%

Case

Stu

dy 3

Area

# 2

Area

# 3

Area

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Area

# 5

Area

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Area

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Area

# 1

0Ar

ea #

11

Area

# 1

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ea #

13

Area

# 1

4Ar

ea #

15

Area

# 1

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ea #

17

Area

# 1

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ea #

19

Area

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ea #

22

Area

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ea #

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Area

# 2

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ea #

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Area

# 2

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ea #

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Area

# 2

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ea #

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Area

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ea #

35

Area

# 3

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ea #

37

Tren

dlin

e An

nual

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wth

Rat

e

Case Study 3 Non-Pellet Area

Pellet Influenced Area (All Years) Pellet Influenced Area (Partial Years)

Key Takeaways

• Southern forests are sustainable

• The marketplace is experiencing a post-recession inventory and residual supply correction

• Several factors (e.g. inventory and residual correction, increased post-recession demand, pellets, weather) have affected pulpwood removals and prices

• Price trends are similar in areas with and without pellets

• Pellets will have a relatively minor impact on overall wood supply and prices but may have more significant localized impacts