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Inside This Issue International Trade .................. 2 Exports .................................. 2 Prices ..................................... 7 Supply .................................... 9 Demand ............................... 11 Housing ............................... 12 Timberlands Transactions ..... 16 Openings, Closings, Curtailments ........................ 17 Certification/Environmental .. 17 Bioenergy ............................ 18 Background Reading ............ 18 Resources ............................ 20 References ........................... 20 Timber Trends Campbell Global | November 2014 Highlights • Canada's importance as a destination for sawlogs exported from the US rivals that of Japan • The US and Canada are both looking forward to what the future might look like once the softwood lumber Agreement expires on October 15, 2015 • Wood fiber supply is tightening in British Columbia, Canada: "This year is the first, it is going to hurt" • While net lumber demand by end-users in China has softened, log inventories have been slow to respond, possibly because credit being used to purchase logs is also being used to finance business in other sectors Economics Slowing Real GDP Growth Is Forecast For China, In Contrast To Major Economies Elsewhere By: Bruce P. Glass, PhD, Sr. Forest Economist -2 0 2 4 6 8 10 12 2010 2011 2012 2013 2014 2015 Real GDP growth (percent per year) Actual and Forecast Rates of Real GDP Growth for Selected Countries US Canada Japan China Australia Germany Source: Consensus Forecasts, November 2014

Timber Trends - Campbell Global€¦ · report which shows clear signs of recovery in the sector. Speaking at an industry forum in Melbourne, AFPA Chairman Mr. Greg McCormack said,

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Page 1: Timber Trends - Campbell Global€¦ · report which shows clear signs of recovery in the sector. Speaking at an industry forum in Melbourne, AFPA Chairman Mr. Greg McCormack said,

Inside This IssueInternational Trade ..................2

Exports ..................................2

Prices .....................................7

Supply ....................................9

Demand ............................... 11

Housing ............................... 12

Timberlands Transactions ..... 16

Openings, Closings, Curtailments ........................ 17

Certification/Environmental .. 17

Bioenergy ............................ 18

Background Reading ............ 18

Resources ............................20

References ...........................20

Timber Trends

Campbell Global | November 2014

Highlights•Canada'simportanceasadestinationforsawlogsexportedfromtheUSrivalsthatofJapan

•TheUSandCanadaarebothlookingforwardtowhatthefuturemightlooklikeoncethesoftwoodlumberAgreementexpiresonOctober15,2015

•WoodfibersupplyistighteninginBritishColumbia,Canada:"Thisyearisthefirst,itisgoingtohurt"

•Whilenetlumberdemandbyend-usersinChinahassoftened,loginventorieshavebeenslowtorespond,possiblybecausecreditbeingusedtopurchaselogsisalsobeingusedtofinancebusinessinothersectors

Economics Slowing Real Gdp Growth Is Forecast For China, In Contrast To Major

Economies Elsewhere

By: Bruce P. Glass, PhD, Sr. Forest Economist

-2

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8

10

12

2010 2011 2012 2013 2014 2015

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l Gd

p g

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th (

per

cen

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ear)

Actual and Forecast Rates of Real Gdp Growth for Selected Countries

US Canada Japan China Australia Germany

Source Consensus Forecasts, November 2014

Source: ConsensusForecasts,November2014

Page 2: Timber Trends - Campbell Global€¦ · report which shows clear signs of recovery in the sector. Speaking at an industry forum in Melbourne, AFPA Chairman Mr. Greg McCormack said,

Timber Trends 2

Campbell GlobalNovember 2014

International Trade ExchangeRatesA Strengthening US Economy And declining Commodity prices Are Contributing To An

Appreciating US dollar

Exports Most US Sawlog Exports Are destined For Asia, But Canada Rivals Japan’s Share Of The Trade

Source: FRB

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1.0

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/US

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US dollar Exchange Rates

Canada Euro United Kingdom Australia Japan (RHS)

Source: FRB

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

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US Exports of Softwood Sawlogs by Major destination Country

China Japan Canada Korea Other

Source: USITCSource: USITC

Page 3: Timber Trends - Campbell Global€¦ · report which shows clear signs of recovery in the sector. Speaking at an industry forum in Melbourne, AFPA Chairman Mr. Greg McCormack said,

Timber Trends 3

Campbell GlobalNovember 2014

Log Exports From US West Coast down 22

percent By Volume In 2014Q3 Compared With

Q21

Log exports from Washington, Oregon, northern California, and Alaska totaled 402 million board feet (MMbf) in volume in 2014Q3, a decrease of 22 percent compared with 2014Q2, the US Forest Service’s Pacific Northwest Research Station reported. During this same period, west coast lumber exports decreased 11 percent to 219 MMbf. The total value of third quarter log and lumber exports also decreased compared with 2014Q2, with log exports declining by 24 percent to $296 million and lumber exports declining by 12 percent to $161 million.

Although China’s log and lumber imports dropped in 2014Q3, the country remains the leading market for west coast wood products. “Over 62 percent of west coast logs and 32 percent of west coast lumber were exported to China,” said Xiaoping Zhou, a research economist with the station who conducted the analysis and compiled the data. Other highlights include:

•Compared with the same period last year, 2013Q3, exports of west coast logs and lumber both decreased by 21 percent.

•Total US log exports decreased by 12 percent, while lumber exports decreased 7 percent compared with 2014Q2.

•Total US exports to China decreased by 31 percent for logs and by 17 percent for lumber during 2014Q3.

‘Staggering’ 25.7 percent Growth In Australian

Woodchip Exports Accompany Record Log

Exports2

The Chairman of the Australian Forest Products Association (AFPA) has welcomed the ABARES Australian Forest and Wood Products Statistics report which shows clear signs of recovery in the sector. Speaking at an industry forum in Melbourne, AFPA Chairman Mr. Greg McCormack said, ‘This latest set of ABARES data shows an increase of value of 23.7 percent in Australian wood product exports, a staggering 25.7 per improvement in woodchip exports and a record 2.4 million m3 of log exports. It is also pleasing to see that advanced manufacturing of paper and paperboard exports contribute 33.8 percent of total wood product exports helping to provide a vibrant future for regional towns such as Tumut (NSW), Mt Gambier (SA), Albury (NSW/Vic) and Boyer in Tasmania.’

Southern pine Exports To China On The Rise3

Southern Pine lumber exports to China are expected to reach $54 million this year, a tenfold increase since a promotion program funded by the US Department of Agriculture was put in place, according to buildingonline.com. Meanwhile, Chinese demand for pressure-treated Southern Pine lumber is forecast to reach $15 million this year, an all-time sales record and 245 percent above levels five years ago.

Page 4: Timber Trends - Campbell Global€¦ · report which shows clear signs of recovery in the sector. Speaking at an industry forum in Melbourne, AFPA Chairman Mr. Greg McCormack said,

Timber Trends 4

Campbell GlobalNovember 2014

BC Log Exports To China Are On Track To Match 2013 Volumes

Trade in Wood Products AsiaChina Market Sensitive To Supply Levels4

With 2014Q4 well underway all eyes remain on China where without doubt there is an economic slowdown underway. 2014Q3 is expected by many economists to have achieved about 7.3 percent growth which indicates a definite slowing in the economy. Premier Li Kequaing announced recently that 2014 GDP is unlikely to meet the official 7.5 percent target set at the start of the year. GDP expectations for 2015 are now being forecast at 7.1 percent by leading economists.

The Chinese housing market remains in difficulty and all restrictions put in place to curb pricing over the last 18 months have all but been removed apart from a handful of tier 1 and 2 cites. The National Bureau of Statistics announced that property sales in the first 9 months of the year were down 10.8 percent YoY, the biggest drop in 3 years. There are now the first signs that prices are starting to level out, however commencement of new projects is not expected to recover until the housing price cycle bottoms and starts to recover. In combination with a weak economic background the outlook for the forest product sector in China remains sluggish until the real estate cycle turns, which is expected to be early to mid-2015.

0

500

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1,500

2,000

2,500

3,000

3,500

4,000

Vo

lum

e (t

ho

usa

nd

cu

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Softwood Log Exports from British Columbia by Major destination

Japan South Korea China USA

Sources: BC Stats, RL

Source: BCStats,RandomLengths

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Timber Trends 5

Campbell GlobalNovember 2014

Inventories in China have not fallen enough to allow recent imported prices to cement themselves on the domestic market, which is resulting in buyers being very cautious about prospects over the coming months. This is being exacerbated by continued issues in the banking sector which is seeing trade finance companies struggling to maintain credit limits with the main banks. The traditional practice over Chinese New Year of repaying outstanding loans is going to be problematic this year as many loans are ‘non performing’ with payments from construction companies through to sawmillers/wholesalers seeing significant delays while the real-estate/construction sector remains stagnant. As a consequence the market is going to be very sensitive to supply levels over the balance of the year and into 2015Q1.

LatinAmericaBrazil Lumber Exports In September Up 44

percent YoY, plywood Exports Up 25 percent5

In September 2014 wood products exports (except pulp and paper) increased 22 percent in value terms compared with September 2013, from US$195.7 million to US$238.8 million. Tropical sawnwood export volumes in the same period were up 6.4 percent, from 28,300 m3 in September 2013 to 30,100 m3 in September 2014. In terms of value, exports increased 11.5 percent from US$14.8 million to US$16.5 million over the same period. Pine sawnwood exports increased by 46 percent in value in September 2014 compared with September 2013, from US$15.0 million to US$21.9 million. In terms of volume, exports rose 44 percent, from 64,700 m3 to 93,200 m3 over the same period.

Tropical plywood exports increased 26.5 percent in volume, from 3,400 m3 in September 2013 to 4,300 m3 in September 2014 (but still very low compared with levels 10 years ago). In terms

of value, tropical timber exports climbed 22.7 percent, from US$2.2 million in September 2013 to US$2.7 million in September 2014. Pine plywood exports also increased by 28.9 percent in value in September 2014 in comparison with September 2013, from US$29.4 million to US$37.9 million. Export volumes increased 25 percent, from 81,700 m3 to 102,100 m3 during the same period.

Trade Issues US–CanadianSoftwoodLumberDisputeCanada, US At Loggerheads Again Over

Lumber6

With less than a year to go until the Canada-US Softwood Lumber Agreement expires, lines are being drawn on both sides of the border over the future of lumber trade between the two countries. Canadian producers say they want to extend the agreement, which has brought an uneasy peace to the decades-long lumber war since it was signed in 2006, but their US counterparts say they won’t sign on again.

The US Lumber Coalition, a lobby group representing American lumber companies and timber owners, said it’s not going to renew the agreement when it expires next October. It has expressed its anti-deal position to the US government but it has yet to say publicly what it intends to do. “What should be changed in the agreement? We are not in a position to talk about it at this point,” said Zoltan van Heyningen, executive director of the US Lumber Coalition. “We are not in favor of extending the current agreement because as it is currently structured, we see problems moving forward.”

One of the principal beefs of US producers is that they claim costs–particularly timber costs–have shifted since the agreement was signed yet they

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Timber Trends 6

Campbell GlobalNovember 2014

haven’t seen that show up in BC lumber costs. The US has been complaining since 1982 that Canadian lumber is subsidized through government forest policies. It has filed four trade actions against Canada since then.

Canadian companies say they want to live with the agreement, as flawed as it is, because it has brought peace to an otherwise explosive trade relationship. “The BC forest industry fully supports Canada’s position that the Softwood Lumber Agreement should be renewed ‘as is,’” said James Gorman, president of the BC Lumber Trade Council. “The fact is that the agreement has worked: managed trade has benefited both countries and has provided mechanisms whereby disputes can be resolved.”

The 2006 agreement ended a bitter trade dispute where the US collected $5 billion in duties but returned only $4 billion, despite rulings that favored Canada. It expires on October 15, 2015. The dispute provided a major impetus for developing the Chinese market for BC lumber, but after eight years of growth, BC’s dominance in China is being threatened by Russian imports.

BC Interior exports to the US dropped to 5.4 billion board feet (bbf) in 2013 from 9 bbf in 2007, according to figures from the BC Council of Forest Industries. Market share in the US dropped to 13.7 percent from 17.5 percent over the same time period.

Canada’s Zero-Tax Streak Extended Through November7

There’s exactly one year left before the expiration of the US-Canada Soft wood Lumber Agreement, and the current string of zero-tax months is the longest since the agreement was implemented in 2006. With the rate for the November tax now determined, Canada will see its 13th month in a row with no base tax on lumber shipments to the US. It will also be the 20th month out of the last 23 with zero-tax status.

Under terms of the agreement, there are no tax and quota restrictions on Canadian shipments to the US as long as the four-week average of the Random Lengths Framing Lumber Composite Price is higher than $355 Mbf. The four-week average to determine the November rate was $386/Mbf.

200

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420

440

460

480

No

min

al lu

mb

er p

rice

($/

Mb

f)

Week ending Friday ...

Random Lengths Framing Lumber Composite price Compared with duty/Quota Trigger prices

Framing Lumber Composite Price 5% duty threshold

10% duty threshold 15% duty threshold

Source: Random LengthsSource: RandomLengths

Page 7: Timber Trends - Campbell Global€¦ · report which shows clear signs of recovery in the sector. Speaking at an industry forum in Melbourne, AFPA Chairman Mr. Greg McCormack said,

Timber Trends 7

Campbell GlobalNovember 2014

Prices NorthAmericanLumberWestern Commodity Lumber prices Are diverging From Southern prices

Logs PacificNorthwestCoastalLogValuesThe Spread Between douglas-Fir And Whitewood Log prices Continues Its Widening Trend

Source: RandomLengths,BLS

0

100

200

300

400

500

600

700

800

2013

$/M

bf

Key Softwood Lumber Real price indicators for the US West Coast (douglas-fir, dF), the US South (Southern Yellow pine, SYp), and Canada (Spruce-pine-Fir, SpF, in Interior British Columbia)

DF 2x4, green Portland, std & btr SYP 2x4, Westside, KD, #2 SPF 2x4, Western, KD, #2 & btr

Source: Random Lengths, BLS

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2013

$/M

bf

Scr

ibn

er lo

ng

log

(f.

o.b

. mill

)

Comparison of US West Coast prices for delivered #2 Sawlogs

Spread Douglas-fir Whitewoods

Source: LogLines, Region 2, Lower Columbia River

USlogexportstoChinabegindramaticexpansion

Source: LogLines,Region2,LowerColumbiaRiver

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Campbell GlobalNovember 2014

USSouthCompared With Other Regions In The US South, delivered pine Sawtimber Typically Trades At A

Higher price In The East South Central Region (AL, MS, & TN)

Costs Energydiesel Fuel, Gasoline prices Trend downward8

The average price of US diesel dropped 1.2 cents to $3.623 per gallon, and gasoline fell below $3 per gallon, the Department of Energy reported November 3, as oil slid below $80 per barrel for the first time in more than two years.

LaborConstruction Firms Having Trouble Finding Workers9

Most construction firms report they are having trouble finding qualified craft workers to fill key spots as the industry recovers from its year-long downturn, according to results of an industrywide survey by the Associated General Contractors of America. Association officials called for new career and technical school programs, as well as other work force measures to offset the labor shortages.

0.00

0.50

1.00

1.50

2.00

2.50

Rat

io

Ratio of delivered Log price to Stumpage in US South by Region: pine Sawtimber

Atlantic East South Central West South Central

Source: TMS, BLS

Source: TMS,BLS

Page 9: Timber Trends - Campbell Global€¦ · report which shows clear signs of recovery in the sector. Speaking at an industry forum in Melbourne, AFPA Chairman Mr. Greg McCormack said,

Timber Trends 9

Campbell GlobalNovember 2014

SubstituteMaterialsVersusWoodSustainable Origin Of Cellulosic Fibers And

Traceability In The Supply Chain10

The futures of textiles are forests. With the demand for textile fibers expected to increase by more than 75 percent by 2030, the annual per capital consumption of cellulosic fiber (fiber originating from plant and plant-based material such as cotton, bamboo and trees) is expected to increase by 45 percent in the next 20 years, especially as their inherent properties, such as moisture management and breathability, cannot be met adequately by synthetic fibers.

Cotton production capacities, however, are no longer expandable, especially given competing land use needs in light of a growing population. Replacement of cotton by Man-made cellulose (MMC) fibers, especially pulp -based fibers, is also necessary from an ecological perspective. Cotton production consumes substantial amounts of water and requires high-grade arable land, often competing with food production. Life cycle assessments have identified cotton as the least preferred choice of cellulosic fiber due to its high eco-toxicity impacts, eutrophication, water use, land use, and relatively low land-use efficiencies.

The natural origin of MMC fibers from sustainably sourced wood contributes to a sustainable future. Traceability of sustainably sourced MMC fibers in the apparel sector is required to avoid the risk of MMC fibers originating from unsustainable sources, especially due to the difficulty of tracing fibers through long and often complex supply chains. The benefit of tree-based MMC fibers are further elevated if the fibers originate from certified forests, such as those certified by PEFC, the Programme for the Endorsement of Forest Certification, as this provides assurances of sustainability and already provides with Chain of Custody certification a traceability mechanism.

Supply USLumberProductionUS Lumber Output Through August Up 4.7

percent11

US lumber production through August totaled 21.054 bbf, up 4.7 percent from January-August 2013, according to the Western Wood Products Association. Through August, production in the West was up 4.2 percent compared with a year ago. Production in the South was up 5.1 percent in the same period. Nationwide, August production totaled 2.622 bbf, down 6.6 percent from July but 1.1 percent ahead of the August 2013 pace.

Western Lumber Output Through September

Ahead Of Last Year12

Western lumber production through September totaled 10.653 bbf, up 4.5 percent from the first nine months of 2013, according to the Western Wood Products Association. Through nine months this year, production in the Coast region was up 5.0 percent, and the Inland region was up 5.3 percent. Output in the California Redwood region through September was down 10.6 percent. September production across the West totaled 1.192 bbf, up 3.3 percent from August and 6.9 percent ahead of the September 2013 total.

CanadianLumberSupply May Not Meet demand For BC Lumber

Exports13

British Columbia’s forest sector is going to lead growth in the province’s exports next year to feed burgeoning new-home construction in the US, but lumber makers will also start running up against constraints in timber supplies, according to Export Development Canada. The value of BC’s export trade in lumber and wood products, worth $11.6 billion in 2013, will increase 11 percent this year and another 12 percent next year as

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Timber Trends 10

Campbell GlobalNovember 2014

American homebuilders continue increasing the number of units they build as part of the US economic recovery, said Peter Hall, EDC’s chief economist. However, Hall added, BC lumber producers are starting to be squeezed by declining timber supplies in the province’s mountain pine beetle-ravaged forests. “In terms of fiber … the intelligence we’re getting from BC companies is that this is the year it is first going to hurt,” Hall said. He added that some mills face bigger constraints in timber supplies than others, but “across the board, in general, there will be a slight decline in what we can produce.”

The bright side for lumber producers such as Canfor Corp. and West Fraser Timber Co. Ltd. is that any declines in volume will be offset by higher prices, because Hall sees no let up in US housing construction. “The difficulties (US homebuilders) are having is finding the construction workers they need, and a stream of supplies adequate for the activity that’s going on,” Hall said. US contractors are building homes at a pace to equal about one million new units in 2014, which is short of the 1.4 million per year the economy could use to house America’s growing population. On the down side, mill-dependent communities can expect more consolidation, such as the swap of timber supplies Canfor and West Fraser executed in late 2013 that resulted in two mill closures.

“There’s not enough fiber to go around,” said Keta Kosman, analyst and publisher of the industry newsletter Madison’s Lumber Reporter. “Ten years ago that wasn’t true, but given the pine beetle, there are too many operators in the same area (in some locations).” She added that most mills that are operating now aren’t running at full capacity. The overall industry is operating at 85 percent. Kosman expects more of the timber-supply constraints to emerge over the next two years.

Canadian Lumber production dipped In

August14

Lumber production by Canadian sawmills declined 5.4 percent from July to 2.0 bbf in August, according to Statistics Canada. Compared with August 2013, lumber production increased 0.7 percent. Sawmills shipped 2.1 bbf of lumber in August, down 6.3 percent from July.

Logs USSouthHow Forest Inventory Relates To Wood Supply15

The need to distinguish total forest inventory from commercially-available inventory is crucial to accurately understand current and future supply. Insight into the volume of commercially-available inventory is gained through the analysis of forest inventory (supply) and the percentage of harvest removals per age class.

Consider, for example, an analysis of total forest volume by age class for a hypothetical wood supply region. The graph one the next page shows approximately one-third of the total timber volume (supply) in the wood basin is mature timber 50 years or older. Based on this information, one might conclude that an abundant supply exists in this age class.

Further investigation into harvest removals reveals only two percent of timber in the 50+ age class is harvested each year. These removals account for nine percent of the annual harvest. Meanwhile, other age classes account for much less timber volume but have higher removal rates and yield more timber.

Why is so little of the total supply in the 50+ age class not made available to the market? Harvest constraints such as wet terrain are one obstacle.

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Timber Trends 11

Campbell GlobalNovember 2014

It is difficult to operate harvesting equipment near river bottoms and swamps, so most trees in these low ground areas typically grow to maturity (50 years or older). These trees are never harvested and eventually die naturally. Although data may show this inventory as available, this does not necessarily mean it is available commercially.

Ownership objectives also dictate timber harvests. Wood fiber is sold by both small, individual landowners and large organizations, each with a wide variety of ownership objectives that affect harvest timing and harvest type. Wood feedstock availability is closely tied to these ownership objectives.

The pine sawtimber market is one such example. When pine sawtimber commands a premium price per ton, corporate owners–TIMOs and REITs specifically–manage their timber to produce this higher value material and maximize return on timberland investments.

Unlike corporate owners, NIPF landowners are more flexible with respect to the timing and strategy of their timber harvests. Because private landowners harvest their trees just once or twice during their lifetime–typically to fund an expense such as a child’s college education or their own retirement—they may delay timber harvests until they perceive prices are “high”.

Demand After Recession, Home-Remodeling Is On The Rise16

Like other subsectors of home construction, spending on improvements took a hit in the recession. So far in this expansion, apartment-building has been the lead construction performer because of a consumer shift to renting rather than owning. But remodeling spending has also climbed back, thanks to the usual upkeep and maintenance, as well as the decision of some homeowners to upgrade or expand their current residences rather than move. Home Depot’s Chief executive Craig Menear said, “As home value appreciation has happened, customers are certainly more willing to invest in their homes.”

Inflation-adjusted spending on home improvements has slipped a bit in 2014, but in the third quarter it stood just 10 percent below the subsector’s peak in 2005. In contrast, investment in new single-family homes is still a large 62 percent off its high of the boom years. Indeed, real spending on improvements is currently running about even with spending on single-family homes. During the housing boom, investment in new single-family housing outpaced home improvements by a ratio of more than 2.5:1.

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Campbell GlobalNovember 2014

The outlook for home-improvement spending remains solid. Many homeowners are going ahead with plans for a new kitchen or finishing the basement. The NAHB’s remodeling market index returned to its record of 57 in the third quarter, and the future market index rose to a high 58. Readings on backlog and amount of work committed for the next three months increased, suggesting remodeling will contribute further to economic growth in coming months.

Housing USOctober Housing Starts dip17

US housing starts were at a seasonally adjusted annual rate of 1,009,000 units in October, 2.8 percent below the revised September estimate but 7.8 percent above the October 2013 rate of 936,000 units, according to the Census Bureau. Single-family starts in October were at a SAAR of 696,000 units, 4.2 percent higher than the revised September figure. Housing units authorized by building permits in October were at a SAAR of 1,080,000 units, 4.8 percent higher than the revised September rate and 1.2 percent higher than the October 2013 estimate.

US Millennials Represent 60 percent Of First-Time Homebuyers18

Realtors from across the country gathered to discuss the effects changing homebuyer demographics on the housing market at the Center for Real Estate Studies forum. Adult Millennials, those aged 18 to 33, were a popular topic of discussion.

In 2014, Millennials saw 60 percent better job growth than the US overall and a drop in unemployment to 6 percent. This growth, along with improved economic opportunities, should encourage Millennials to form households and buy homes in the coming years. “Millennials are the largest generation of people

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Campbell GlobalNovember 2014

in the US and represent 60 percent of first-time homebuyers,” said Jonathan Smoke, chief economist for realtor.com. “They are also more likely than any other group to purchase a home in the next year.”

Tightened inventory, difficulty receiving credit and lower than average salaries have kept many of these buyers out of the market, but most economists see that as a temporary setback. “It’s not that young people don’t want to purchase homes, it’s that they are delaying the purchase,” said Lisa A. Sturtevant, vice president of research for the National Housing Conference. “Many of the reasons Millennials are not forming households or making purchases are economic, so as the economy improves, we should see this group become more of a force in the housing market.”

Smoke said it’s a misperception that Millennials are not already participating in the market. “They represented 37 percent of home shoppers this summer, and over the next 5 years this generation will make up two-thirds of household formations,” he said. “Between June and September 2014, over half of adults aged 21-34 visited real estate websites or mobile apps. And this is the cusp–get ready for the Millennial wave to drive the housing market for decades.”

Existing-Home Sales To Fall In 2014, Before

Rising To 5.3 Million In 2015, 5.4 Million In

201619

Lawrence Yun, chief economist of the National Association of Realtors (NAR), reports existing-home sales this year got off to a slow start, but have recently shown stronger growth behind improvements in inventory, slower price gains and pent-up demand. “The improving job market has consumers feeling more confident, and the rebound in home prices is building household

wealth for homeowners and giving them the ability to sell after waiting the last few years,” said Yun. Existing-home sales this year are expected to fall slightly below 2013 (5.1 million) to 4.9 million, and then are forecast to increase to 5.3 million next year and 5.4 million in 2016. Yun expects the national median existing-home price to rise 4 percent both next year and in 2016.

Yun said renter households have increased by 4 million since 2010 while homeowner households have decreased by 1 million. “The typical homeowner today has a household net worth of around $200,000. Meanwhile, renters aren’t benefitting from the rise in prices and are facing annual increases of their own in the form of higher rents.”

Yun noted positive developments in the labor market this year that should support increased wages, which have barely kept up with the pace of inflation. Job growth is expected to surpass 2.5 million in 2014 and next year. “The economy finally regained the 8.8 million jobs lost during the downturn and we’re starting to see more workers showing a willingness to quit, which usually signals they’re becoming more mobile and confident they can find a higher paying job,” he said. “Rising wages and the current pace of rising rents would likely persuade the Federal Reserve to raise short-term interest rates, which have hovered near zero for six years.”

Yun expects inflationary pressure to force the Fed to raise short-term rates in the first half of 2015. Mortgage interest rates are projected to increase to slightly below 5 percent next year and reach 6 percent in 2016. “The impact of rising interest rates on affordability will be minimal as long as job creation keeps pace,” he said. “Furthermore, if the credit box slowly begins to open up, that will also mitigate the impact of rising rates.”

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Campbell GlobalNovember 2014

NAHB Forecasts Single Family House

Construction Will Jump 26 percent Next Year To

802,00020

The National Association of Home Builders (NAHB) is forecasting 991,000 total housing starts in 2014, up 6.6 percent from 930,000 units last year. Single-family production is expected to rise 2.5 percent this year to 637,000 units, increase an additional 26 percent next year to 802,000 and reach 1.1 million in 2016.

Setting the 2000-2003 period as a benchmark for normal housing activity when single-family production averaged 1.3 million units annually, single-family starts are expected to steadily rise from 48 percent of what is considered a typical market in 2014Q3 to 90 percent of normal by 2016Q4. The association is projecting multifamily starts to increase 15 percent in 2014 to 356,000 units and hold steady next year.

NAHB is forecasting that residential remodeling will post a 3.4 percent decline in 2014 over last year, due in large part to slow activity in the first quarter caused by an unusual harsh winter throughout much of the nation. Residential remodeling activity is expected to rise 2.7 percent in 2015 and an additional 1.3 percent in 2016.

Hidden Households And Their Future Housing

Activity21

As you may remember from your science classes back in grade school, the world is full of potential energy. Potential energy is stored and ready to be released–a ball sitting atop a hill poised to roll down or an arrow waiting in a drawn bow. We think the housing market has potential energy of its own too. Currently there are thousands of potential households hidden within existing households–potential home buying energy waiting to be released into the housing market of the future.

For multiple decades, rent prices have outpaced income growth. The rising expense of housing has led to greater rates of household compression, or families and individuals doubling up, combining their incomes to be better able to afford a shared home. Due to doubling, thousands of potential households are tucked away, hidden inside the homes of existing households.

In 2000, the average number of adults per household was 1.75. By 2012, this number had steadily increased to 1.83. If the number of adults per household instead remained constant over that period, we would have 5.4 million extra households on top of the existing 116 million households. These extra households are a source of potential housing energy. The national level of potential housing energy amounts to a 4.7 percent increase in the number of households.

Home price Gains In The US Continue To Slow

In August22

The S&P/Case-Shiller Home Price Indices for August continued to show a deceleration in home price gains. The 10-City Composite gained 5.5 percent year-over-year and the 20-City 5.6 percent, both down from the 6.7 percent reported for July. The National Index gained 5.1 percent annually in August compared with 5.6 percent in July. On a monthly basis, the National Index and Composite Indices showed a slight increase of 0.2 percent for the month of August.

US Sales Of New Single-Family Houses Up 0.2

percent In September From Revised August

Rate23

Sales of new single-family houses in September 2014 were at a seasonally adjusted annual rate of 467,000, according to estimates released by the US Census Bureau. This is 0.2 percent above the revised August rate of 466,000 and 17.0 percent above the September 2013 estimate of 399,000.

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The median sales price of new houses sold in September 2014 was $259,000; the average sales price was $313,200. The seasonally adjusted estimate of new houses for sale at the end of September was 207,000. This represents a supply of 5.3 months at the current sales rate.

delayed Marriage Equals delayed Homeownership24

The housing market is unquestionably fueled by life stage changes, particularly the change of marital status and the addition (and subtraction) of children. These changes significantly affect where consumers want to live and what kind of home and community they will choose. For example:

•Singles are more likely to rent and live in locations that are closer to entertainment and employment, and these areas are seeing more demand today than they have historically.

•Marriage usually ignites the desire to own a home with a variety of locational and housing choices depending on income and family present.

•Cohabitation has certainly been on the rise in recent decades, but homeownership rates for cohabitating couples are much lower than rates for married couples.

•The addition of children makes owning a home almost a necessity, given the need for yards, toys, education, and social circles.

•Children moving out often results in lifestyle changes, including different social circles, home size, and floor plan needs. Locational preferences also begin to shift.

The share of 25–29 year-olds who are married is down by almost 48 percent for men and 43 percent for women from 1970. This single fact is one of the biggest game changers in the housing industry.

NewZealandNZ$100 Billion Construction Boom Forecast For New Zealand25

New Zealand’s Building and Housing Minister Dr. Nick Smith has welcomed the findings of the second National Construction Pipeline report, which confirms building and construction activity in New Zealand is expected to reach unprecedented levels by 2017. “The report released points to the biggest construction boom this country has seen in decades totaling NZ$100 billion over the next three years. It anticipates a minimum 10 percent increase in activity every year to 2017, reaching a value of NZ$35 billion. We are looking at the longest sustained period of growth in construction activity in 40 years,” Dr. Smith said.

The latest findings support similar projections made in the first National Construction Pipeline report released in December last year. It shows slightly greater construction activity this year, and a lower peak in 2017 with the boom peaking slightly later in Christchurch in 2017 and Auckland in 2018. “Growth in

Source: U.S. Census Bureau: 1970 Decennial Census and 2013 American Community Survey; calculations by John Burns Real Estate Consulting, LLC

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construction activity is on the cards for every region in New Zealand. I am particularly encouraged to see the strong forecasts for Auckland and Christchurch,” Dr. Smith said. “Auckland shows the highest level of construction activity, accounting for more than one-third of the upcoming workload in terms of value. This rapid rate of growth is driven by residential building, with the value of this work expected to more than double in value between 2012 and 2017.

“The forecast for Christchurch is further evidence that the post-earthquake rebuild efforts in the city are moving at pace. There are at least six Government projects due to begin in the next six months, with a collective value of nearly NZ$1 billion. There is further good news for Christchurch in that this Government-funded construction activity appears to have wider, positive flow-on effects, with non-earthquake related, non-residential construction also expected to grow.”

The National Construction Pipeline provides national and regional forecasts of activity for residential and non-residential building and construction by central and local government, as well as the private sector. The second National Construction Pipeline report is available at: www.buildingvalue.co.nz/publications

Timberlands Transactions Molpus Acquires 36,283 Acres Of primarily

Southern pine plantation VA26

The Molpus Woodlands Group, LLC, announced the successful purchase of approximately 36,283 acres in Virginia. Located in twenty-three counties surrounding the Richmond, VA, area, the primarily southern pine planation property has been in timber production for decades and is located in a stable timber market and a growing bioenergy market area. The property offers unique recreational opportunities due to its proximity to

major metropolitan areas such as Richmond and Fredericksburg, VA, and Washington, D.C.

Rayonier Acquired 11,000 Acres Of Timberland In

East Texas In 2014Q3; Sold 19,500 Acres Of Non-

Strategic Timberland In Florida27

Rayonier Inc. acquired 11,000 acres in East Texas during 2014Q3, taking its total completed timberland acquisitions this year to 47,000 acres. During the quarter, Rayonier also sold a 19,500-acre non-strategic timberland tract in Gilchrist County, Florida.

ORM Sells 15,000-Acre Green River Tree Farm In

Washington State For US$39M28

Pope Resources’ ORM Timber Fund I LP at the end of September sold its 15,000-acre Green River tree farm in Washington state for US$39 million. The buyer has not been disclosed, and a spokesperson for Poulsbo, Washington-based Pope Resources told Industry Intelligence on November 4 that the land was bought by a private entity.

Catchmark Acquires 21,300 Acres In Louisiana

From Hancock For $1,800/Acre29

CatchMark Timber Trust, Inc. (CTT) announced the purchase of approximately 21,300 acres of timberlands (known as the Beauregard properties) located in Southwest Louisiana from Hancock Natural Resource Group for $38.5 million. The transaction closed on October 30, 2014.

New Forests Acquires 7,000 Hectares Blue Gum

plantation In Australia30

New Forests have announced the acquisition of a 7,000-hectare blue gum plantation estate, which will be managed as part of Limestone Plantations, a hardwood estate previously acquired by New Forests’ Australia New Zealand Forest Fund 2 (ANZFF2). The acquisition includes 28 properties with approximately 5,500 hectares of net planted area located across south-western Victoria.

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FIA Sold 7,800 Acres In Alabama, 10,300 Acres

In South Carolina For US$40M, 15,500 Acres

In Georgia For US$45.6M, And 6,700 Acres In

Oregon For US$23.6M31

Forest Investment Associates (FIA) closed four transactions in 2014Q3, three in the South. FIA sold 7,800 acres in Alabama and 10,300 acres in South Carolina to Resource Management Service for $40 million (about $2,185 per acre). FIA also sold 15,500 acres in Georgia to Rayonier for $45.6 million acres (about $2,930 per acre). FIA also sold 6,700 acres of timberland in Oregon to Lone Rock Timber of Roseburg, Oregon, for $23.6 million (about $3,520 per acre).

Nature Conservancy To purchase Timberland32

Plum Creek Timber Company, Inc. has reached an agreement to sell approximately 165,000 acres of Montana and Washington forestland to The Nature Conservancy for $134 million. It includes lands in the lower Blackfoot Valley near Missoula, MT, and also lands on both sides of Interstate 90 between Snoqualmie Pass and Ellensburg in Kittitas County, WA. The property will be acquired by The Nature Conservancy in two phases, the first closing in 2014Q4 and the second closing by end of 2015Q1.

potlatch purchases 201,000 Acres Of Southern

Timberland33

Potlatch Corp. has agreed to purchase 201,000 acres of timberlands in Alabama and Mississippi from affiliates of Resource Management Service, LLC, for $384 million. The transaction is expected to close late in the fourth quarter and is subject to the satisfaction of customary closing conditions.

Openings, Closings, Curtailments Idaho Stud Mill Up And Running34

Gem Forest Products, a stud mill in Emmett, Idaho, is now up and running. The mill produces Douglas-fir and white fir #2 studs. Annual production is expected to be around 100 MMbf.

port Angeles, Washington, Sawmill To Shut

down35

Green Creek Wood Products LLC will shut down its sawmill in Port Angeles, WA, on November 1, according to the Peninsula Daily News. The company specialized in processing larger logs to produce beams.

Certification/EnvironmentalComprehensive Climate Change Report

Released36

Human influence on the climate system is clear and growing, with impacts observed on all continents. If left unchecked, climate change will increase the likelihood of severe, pervasive and irreversible impacts for people and ecosystems. However, options are available to adapt to climate change and implementing stringent mitigations activities can ensure that the impacts of climate change remain within a manageable range, creating a brighter and more sustainable future. 

These are among the key findings of the Synthesis Report released by the Intergovernmental Panel on Climate Change (IPCC). The Synthesis Report distils and integrates the findings of the IPCC Fifth Assessment Report produced by over 800 scientists and released over the past 13 months–the most comprehensive assessment of climate change ever undertaken. 

The Synthesis Report confirms that climate change is being registered around the world and warming of the climate system is unequivocal.

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Since the 1950s many of the observed changes are unprecedented over decades to millennia. “Our assessment finds that the atmosphere and oceans have warmed, the amount of snow and ice has diminished, sea level has risen and the concentration of carbon dioxide has increased to a level unprecedented in at least the last 800,000 years,” said Thomas Stocker, Co-Chair of IPCC Working Group I. The report expresses with greater certainty than in previous assessments the fact that emissions of greenhouse gases and other anthropogenic drivers have been the dominant cause of observed warming since the mid-20th century.

For full details on these latest reports visit the IPCC website at http://www.ipcc.ch/report/ar5/

Bioenergy Wood pellets Exports From North America To

Europe plateaued during 2014H137

Total shipments of wood pellets from North America to Europe plateaued in 2014 after almost four years of continuous increases. During 2014H1, exports from Canada and the US were just over 1.3 million tons in each of the two quarters. This was down from the all-time-high of almost 1.4 million tons in 2013Q4, according to the North American Wood Fiber Review. Pellet volumes shipped out of Canada to Europe have actually fallen by almost 25 percent from 2013Q4 to 2014Q2, while volumes leaving the ports in the US South rose ten percent during the same time period.

Practically all wood pellets produced in British Columbia since the first major pellet plant was built over 15 years ago have been consumed by energy companies in Europe. However, since late last year, there has been a shift in direction for some of the pellets manufactured in the province; rather than being sent on the 16,000 kilometer long journey to

the United Kingdom or the Netherlands, they are being shipped to markets in Asia, a trip that is only about half as far.

South Korea and Japan together imported about 100,000 tons of pellets from British Columbia in 2014Q2, which accounted for 17 percent of the total exports from the province that quarter. This can be compared with a quarterly average of only 30,000 tons during the period 2010-12. This shift to markets in Asia is likely to continue because demand for biomass is rising in this region. The reduced shipments to Europe from Western Canada can be expected to benefit other supplying regions to Europe, including the US South, Eastern Canada and Northwestern Russia.

There are multiple factors which are likely to increase pellet shipments from the US South to Europe in 2014H2. These factors include continued interest from governments in Europe in shifting from fossil fuels to renewable energy sources, the approaching winter, with its increased demands for fuel to heat homes, and the soaring tensions between Ukraine and Russia, which have implications for energy security for Europe.

Background Reading dynamics Of China’s Log Market Are

Complicated38

China’s log market dynamics are more complicated than they may seem on the surface. Log deliveries and inventories, although major issues, now appear to be avoiding a potential crisis situation ahead of a more balanced situation evolving.

Log inventories at major ocean ports began dropping in mid-2013 until the end of the year, moving from around 2.5 million m3 to some 2.0 million m3. Over this six-month period, log prices rose steadily to record levels, with C&F price increases ranging at 10-15 percent (FOB origin port

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prices would have risen substantially more). With rising prices from a low inventory base, log exports from all over the world to China became a more lucrative business. The core exporting countries (Russia, New Zealand, the US West Coast and the BC Coast) ramped up exports to take advantage of growing buyer demand for logs. However, so did a number of incremental suppliers (Australia, the Ukraine, France, Romania, Lithuania, Belarus, Brazil and even Japan); 2013 exports from many of these suppliers rose by 100-300 percent over 2012 levels.

The same story played out in 2014Q1, resulting in soaring stocks of over 4 million m3. With rising prices, growing inventories, and no let-up in log deliveries, the business continued to be “crazy good” for many exporters. However, price corrections began in early April and C&F log prices plunged by 20 percent rapidly in 2014Q2, to the point where incremental log suppliers suddenly started dropping out of the market to lick their wounds caused by negative export margins (and in some cases massive losses). At the same time, log inventories advanced further to around 4.5 million m3 as the tap continued to flow. The core exporters have stayed in the market at skinny margins due to their lower cost structures, but log shipments have not subsided until recently, and inventory levels started to move below the 4 million m3 threshold only in late September.

From a tour of the major log ports in Qingdao, Lanshan and Tiacang, it seems that outflows from the ports to customers are running at 50-75 percent below normal, meaning that log inventories are not declining and are actually building in some ports. At the same time, projected log deliveries seem to show no slowdown. For example, fifteen log vessels (over 400,000 m3 of logs) were scheduled to arrive at Tiacang port alone over the three-week period from September 15-October 5. With log outflows running well below average, this

implies a further buildup in log inventories at a time when log prices are very low.

Why does this scenario not make any sense on the surface? In some cases, it may be log volumes under contract arriving, or maybe the shutdown costs are still being covered by some lower cost suppliers. In addition, increased log imports may seem to make some sense to traders, as it would mean that further business in log exports is being conducted between buyers and sellers. However, the construction market lumber is off by about 30 percent and the decoration market is steady to higher, resulting in lower net lumber demand in China.

Perhaps there is an alternate question: Is real business being conducted or is there something else going on? It was reported by various sources at the conference that there seems to be a different business dynamic going on in China around log purchases/financing that is creating an unexpected end result. This is being described as a potentially “dangerous game” of commodity trading where 90-day advance payments scheme from letters of credit (LCs) are opened and used to finance other business interests. It was often mentioned that some traders are in the “money game,” with the credit used to purchase one commodity product (logs) being used to finance business in other sectors. Given the outlook for a slow rise in prices, it gives these financial trading companies the option of going about their other business, utilizing another series of 90-day credit periods. It is not known how often these financial companies are using LCs in this way, but it appears to be a real factor, adding more volatility to an already weak log market. Too much of this type of activity can make the log export business in China more dangerous for those who are in the real business of selling logs.

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Campbell GlobalNovember 2014

NCREIF Timberland Index Returns 1.47 percent

For 2014Q3, Best Q3 Return Since 200739

The National Council of Real Estate Investment Fiduciaries (NCREIF) has released 2014Q3 results of the NCREIF Timberland Index. The index returned 1.47 percent for the quarter, which was split between 0.74 percent appreciation and 0.73 percent income. This was up from second quarter’s 1.08 percent total return and 2013Q3’s 1.05 percent total return. This was the best third quarter since 2007 and the second best performing third quarter in the past ten years.

The rolling four-quarter total return was 10.38 percent, split 2.71 percent income and 7.51 percent appreciation. This is an increase from last quarter’s 9.93 percent and the highest rolling four-quarter return since 2008Q3. The rolling four-quarter return a year ago was 9.68 percent. This marks the tenth consecutive increase in the rolling four-quarter

return.

Resources Australian Forestry Stats Booklet Released40

The varied nature of forestry in Australia is highlighted in the 2014 Australia’s forests at a glance 2014 booklet, released by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES). The booklet gives a detailed snapshot of Australia’s forestry and forest products manufacturing sectors. To view Australia’s Forests at a glance 2014 visit the ABARES website at http://www.agriculture.gov.au/abares

References1. USFS via IndustryIntel, 11/19/2014

2. AFPA via IndustryIntel, 11/11/2014

3. Random Lengths, 11/3/2014

4. WoodWeek, 11/12/2014

5. ITTO via IndustryIntel, 11/4/2014

6. Business Vancouver, 11/18/2014

7. Random Lengths, 10/24/2014

8. Random Lengths, 11/5/2014

9. Random Lengths, 10/23/2014

10. UN ECE, 11/18/2014

11. Random Lengths, 11/7/2014

12. Random Lengths, 11/7/2014

13. The Vancouver Sun via Tree Frog News, 11/20/2014

14. Random Lengths, 11/3/2014

15. F2M, 11/3/2014

16. WSJ via Builder Pulse, 11/20/2014

17. Random Lengths, 11/19/2014

18. NAR via IndustryIntel, 11/11/2014

19. NAR via IndustryIntel, 11/7/2014

20. NAHB via RISI, 11/4/2014

21. Zillow via Builder Pulse & IndustryIntel, 11/4/2014

22. S&P via RISI, 10/28/2014

23. DOC via IndustryIntel, 10/24/2014

24. JBREC, 10/22/2014

25. Friday Offcuts, 10/31/2014

26. Press release via IndustryIntel, 11/11/2014

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Timber Trends 21

Campbell GlobalNovember 2014

27. IndustryIntel, 11/11/2014

28. IndustryIntel, 11/4/2014

29. PRNewswire via RISI, 11/3/2014

30. Friday Offcuts. 10/31/2014

31. TMS via IndustryIntel, 10/28/2014

32. Press release via IndustryIntel, 10/24/2014

33. Random Lengths, 10/20/2014

34. Random Lengths, 11/21/2014

35. Random Lengths, 10/31/2014

36. Friday Offcuts, 11/6/2014

37. WRI, 10/23/2014

38. WoodMarkets via IndustryIntel, 11/19/2014

39. Press release via IndustryIntel, 11/6/2014

40. ABARES via Friday Offcuts, 11/6/2014