Hardwood Market Report

Business momentum for U.S. hardwood lumber to carry over into 2018 By Judd Johnson, Managing Editor, Hardwood Market Report

Million Board Feet 1100

1000

900

800

700

600

500

400

300 1999 - 2006 US Furniture Manufacturing Shift to China and US Housing Boom. US Exports to China in 2017 are on Track to Exceed 1Billion Board Feet and Surpass 2016 Volume by 18%.

2009 to Current: China's Growing Middle and Upper Classes Consuming US Hardwoods

2006 - 2009 US Housing Bust and Worldwide Economic Turmoil.

2009-2017 Export volumes pacing at an increase of 400%

200

100

0 1999 2000 2001 2002

1999-2006 Export volumes increased760%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: USDA FAS Graph: HMR 2014 *Projected

2015 2016 *2017

Figure 1: U.S. exports of hardwood lumber to China

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% Percentage Share of Volume

China Rest of world

2005 2006 2007

Source: USDA FAS 2008 2009 2010 2011 2012 2013 2014 2015 2016

Graph: Hardwood Market Report

Figure 2: U.S. exports of hardwood logs to China and the rest of the world

Jan - Oct 2016 Jan - Oct 2017

Business results for 2017 have U.S. suppliers feeling opti misti c about 2018. Exports of hardwood lumber were trekking 13 per cent higher through the fi rst 10 months of 2017 compared to the same period in 2016. The total volume shipped through October was the third highest of any full year (12 months); only 2016 and 2014 were higher. With two months remaining, there is little doubt U.S. hardwood lumber exports will establish a new record in 2017.

To no one’s surprise, China is the dominant force driving increased export acti vity. While total hardwood lumber shipments from the U.S. were up 13 per cent year to date, U.S. shipments to China had increased 18 per cent (see Fig. 1). Exports to China accounted for 54 per cent of the hardwood lumber volume exported by the U.S. worldwide (see Fig. 2). In fact, the 10 month total exported to China in 2017 surpassed the 12 month China record high set in 2016, reaching 2,026,233m3 compared to 2,006,701m3 (see Fig. 3).

U.S. supplier opti mism goes beyond exports. The domesti c U.S. marketplace has grown consistently over the past several years. Much of that growth is closely aligned with economic expansion. Aft er a period of retracti on, markets for key industrial timber products have rebounded and are currently energised.

U.S. DOMESTIC MARKET Separately, the U.S. housing sector has been expanding at an impressive rate. New single family constructi on is projected to increase year over year by 10.7 per cent and 8.6 per cent in 2018 and 2019, respectively; these increases follow a 7.5 per cent increase in 2017. Also in 2017, expenditures on single family housing refurbishing projects surged 20 per cent over 2016 expenditures. Notably, new and refurbishing single family housing constructi on projects are signifi cant to demand for hardwood fl ooring, cabinets, millwork, and furnishings.

2,000,000

1,500,000

1,000,000 China

500,000

0

2005 2006 2007

Source: USDA FAS 2008 2009 2010

Figure 3: U.S. exports of hardwood logs

Not only is demand for U.S. hardwood lumber poised for further growth, U.S. sawmills may have bett er opportunity to respond to any business upturn in 2018. The reason is that demand is showing encouraging signs of improvement for wood waste materials, making them less of an impediment to sawmill producti on and lumber supplies. Indeed, keeping bark, chips, and sawdust

Rest of World

2011 2012 2013 2014 2015 2016

Graph: Hardwood Market Report Jan - Oct 2016 Jan - Oct 2017

moved off site has been a problem for U.S. sawmills the last couple of years – enough to prevent producti on from reaching its potenti al in 2016 and to a lesser extent in 2017.

It is imperati ve that all sectors of the marketplace perform at healthy levels in order to ensure a healthy U.S. hardwood lumber supply base. Such has been the case for most lumber items, and now this includes industrial ti mber products and byproducts from sawmill production. By and large, U.S. hardwood lumber business has been quite stable for most of the past two years, and conditi ons seem favourable for solid results in 2018. ℗

By and large, U.S. hardwood lumber business has been quite stable... B"

conditions seem favourable for solid

results in 2018."