Pacific Northwest Woodchip Market
May 2008
Pacific Northwest Woodchip Market
The Northwest Being Discussed…
Washington
W. Montana
Oregon
Idaho
No. California
Boise | Building a New BoiseNet
Page 2
Pacific Northwest Woodchip Market
Who are the players in the Pulp & Paper sector?
How much of what do they consume?
What does the fiber balance look like?
Boise | Building a New BoiseNet
Page 3
Pacific Northwest Woodchip Market
NW Softwood Chip Demand: 2008 Estimate - MBDU/Year
Puget Sound
Inland
Kimberly Clark – Everett
250
Boise – Wallula
510
Nippon – Port Angeles
60
Inland – Spokane
100
Port Townsend – P.T.
400
Ponderay – USK
180
Simpson – Tacoma
540
Potlatch - Lewiston
720
Evergreen – Cosmopolis
300
Smurfit – Missoula
620
Export to B.C.
740 *
Export to B.C.
250 *
Import From B.C.
( 100)
Import From B.C.
2,190
Lower Columbia River
Blue Heron – Oregon City
( 40)
2,340
Willamette Valley / No. Calif.
70
Evergreen - Samoa
480
Boise – St. Helens
300
GP – Toledo
500
GP – Camas
210
Pope & Talbot
180
GP - Wauna
300
International Paper - Albany
360
Longview Fiber
940
International Paper - Springfield
500
SP News – Newberg
180
Export to Japan
620
Weyco/Norpac – Longview
1,170
2,640
3,170
* Estimate
Boise | Building a New BoiseNet
Page 4
Pacific Northwest Woodchip Market
NW Hardwood & Sawdust Demand: 2008 Estimate – MBDU/Year
Puget Sound
Hardwood (Chips & Sawdust)
Sawdust (Softwood)
Kimberly Clark
70
--
Port Townsend
--
40
70
40
20
--
Boise
260
--
GP – Camas
180
50
GP – Wauna
110
150
Longview Fiber
90
30
Weyerhaeuser
50
--
710
230
100
--
Pope & Talbot
--
180
Export to Japan
30
--
130
180
Boise
60
80
Potlatch
--
320
60
400
Lower Columbia River
Blue Heron
Willamette Valley
GP – Toledo
Inland
Boise | Building a New BoiseNet
Page 5
Pacific Northwest Woodchip Market
NW Supply/Demand Estimate – 2008 (MMBDU)
Demand
Softwood
Hardwood
Sawdust
NW Pulp Mills (22)
8.9
1.0
0.9
Export (including wood to B.C.)
1.6
--
--
Other
0.5
0.1
1.0
11.0
1.1
1.9
Lumber Residuals (14.1 bbf softwood
chips at .39 bdu/msf, sawdust at .13)
5.5
0.4
1.8
Residuals – Plywood/Veneer (3.7 BSF
softwood with .20 bdu/msf 3/8)
0.7
--
0.1
Imports – Canada
0.1
--
--
--
0.2
--
6.3
0.6
1.9
4.7
0.5
--
Supply
Plantation Wood
Net NW Pulpwood Chips Needed
Boise | Building a New BoiseNet
Page 6
Pacific Northwest Woodchip Market
NW Fiber – Principal Woodchip Market Drivers
What are the key drivers of the woodchip market in
this region?
 Housing Starts
 Lumber Production Rates/Product Pricing/Log Costs
 Pulpmill Operating Rates/Pulp & Paper Prices
 Transportation/Diesel Costs
 Pulpwood availability
 Resource constraints
Boise | Building a New BoiseNet
Page 7
Pacific Northwest Woodchip Market
U.S. Housing Starts: Annual Rates
Boise | Building a New BoiseNet
Page 8
Pacific Northwest Woodchip Market
Western Lumber Production 1988 to Date
WWPA Western Lumber Production
Monthly 1988 to Date
450
425
MMBF Per Week
400
375
350
325
300
275
250
225
Source: Random Lengths
200
J-88J-89J-90J-91J-92J-93J-94J-95J-96J-97J-98J-99J-00J-01J-02J-03J-04J-05J-06J-07J-08
Boise | Building a New BoiseNet
Page 9
Pacific Northwest Woodchip Market
Western Lumber Production By Region 1989 to Date
Western Lumber Production
Monthly 1989 to Date
Million Board Feet Per Week
250
Coast trend up 21%
230
Mar 08' 21% below trend line
210
190
170
150
130
110
90
Inland trend down 48%
Mar 08' 21% below trend line
70
Inland
Down
36% 34%
Inland
down
Boise | Building a New BoiseNet
Page 10
Pacific Northwest Woodchip Market
Bone dry units of chips produced per MBF lumber production
Boise | Building a New BoiseNet
Page 11
Pacific Northwest Woodchip Market
Green DF 2X4 Standard & Better: Nominal Sales Price 1988 to Date
Green Douglas Fir 2x4's Std & Better
Sales Price Monthly 1988 to Date
500
450
$ Per MBF
400
350
300
250
200
Source: Random Lengths
Boise | Building a New BoiseNet
J-08
J-07
J-06
J-05
J-04
J-03
J-02
J-01
J-00
J-99
J-98
J-97
J-96
J-95
J-94
J-93
J-92
J-91
J-90
J-89
J-88
150
Page 12
Pacific Northwest Woodchip Market
Green DF 2X4 Lumber Price Portland: 2005 to Date
Lumber Price 2005 to Date
$400
Mar $395
$380
Sep $373
$360
Jan $354
$340
$320
$ Per MBF
$300
Portland Green Douglas Fir 2x4
Note: New trend line down about
$69/MBF per year or $6/MBF per month
over the period of 2005 to date
Jul $344
Jun $301
Jan $318
$280
Feb
$248
Jul $281
$260
Jul $250
$240
Apr $251
$220
Sep $221
$200
Oct
$188
$180
$160
$140
Source: Random Lengths
Sep $213
Mar
$190
Dec
$165
Jan
$159
Jan-05Apr-05Jul-05Oct-05Jan-06Apr-06Jul-06Oct-06Jan-07Apr-07Jul-07Oct-07Jan-08Apr-08
Boise | Building a New BoiseNet
Page 13
Pacific Northwest Woodchip Market
Pulp and Paper Prices Year Over Year (Feb, 2008)
• Pulp prices:
 NBSK up 15%
 NBHK up 18%
• Paper prices:
 Newsprint down 5%
 All uncoated, coated white papers up 2 – 17%
 Liner, medium, kraft, boxboard, etc. up 4 – 12%
Boise | Building a New BoiseNet
Page 14
Pacific Northwest Woodchip Market
Western US Pulp Mill Operating Rates: 2006 to Date
Western US Pulp Mills Operating Rate 2006 To Date
115%
Operating Rate as a percentage of Budgeted Consumption
Includes Softwood, Hardwood and Sawdust
111.1%
110%
108.9%
107.1%
105.3%
105.3%105.0%
104.7%
105%
103.0%
95%
90%
100.7%
100.2%
100%
Ops Budget Levels
2005
2006
2007
2008
102.2%
102.2%
99.7%
98.3%
MBDT/Yr
11,947
12,261
11,502
11,305
97.7%
96.4%
97.1%
98.2% 98.1%
91.6%
90.9%
Year 2005, 2006 & 2007 Ops Rate
Based on 2008 Budgeted
Level of 11,305 MBDT
Down 1.7% from 2007 Budget
97.5%
95.1%
94.8%
94.7%
97.7%
88.1%
Source: FRA Western Division
85%
J
F
M
A
M
J
J
2006
Boise | Building a New BoiseNet
A
S
O
N
D
J
F
M
A
M
J
J
2007
A
S
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
2008
Page 15
Pacific Northwest Woodchip Market
West Coast No. 2 Retail Diesel Price History
West Coast No. 2 Diesel - Retail
$5.50
$5.00
$4.00
$3.50
$3.00
$2.50
$2.00
Boise | Building a New BoiseNet
5/1/2008
3/1/2008
1/1/2008
11/1/2007
9/1/2007
7/1/2007
5/1/2007
3/1/2007
1/1/2007
11/1/2006
9/1/2006
7/1/2006
5/1/2006
3/1/2006
1/1/2006
11/1/2005
9/1/2005
7/1/2005
5/1/2005
3/1/2005
$1.50
1/1/2005
$/gallon
$4.50
Page 16
Pacific Northwest Woodchip Market
A few comments about transportation costs, pulpwood availability, and
resource constraints:
 Companies are having difficulty in managing costs in light of escalating fuel
pricing.
 The Pacific Northwest is not a pulpwood economy … the current scenario is
not sustainable.
 Resource constraints will continue to be an issue for providing economic wood
fiber (particularly hardwood) for the pulp and paper industry.
Boise | Building a New BoiseNet
Page 17
Pacific Northwest Woodchip Market
In light of the fiber balance and the key drivers:
Where have we come from and what do things look like at this
point in time?
Boise | Building a New BoiseNet
Page 18
Pacific Northwest Woodchip Market
Softwood & Hardwood Woodchip Receipts: MBDT per Day 2006 to Date
NW Pulp Mill Receipts
MBDT Per Day
2006 To Date
31
30
29.8
30.0
29.8
30.0
30.0
29.6
29.3
29.2
29
28.9
28
27.9
27.9
28.8
28.7
28.428.5
28.5
28.5
28.0
27.8
27.5
27.6
27.3
27
26.9
26.7
Residual & Whole Log Hardwood & Softwood
Excludes Sawdust
26
26.7
26.4
25
24
24.0
Source: FRA Western Division
23
J
F
M
A
M
J
J
2006
Boise | Building a New BoiseNet
A
S
O
N
D
J
F
M
A
M
J
J
2007
A
S
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
2008
Page 19
Pacific Northwest Woodchip Market
Softwood Receipts: Residuals MBDT per Day 2006 to Date
NW Pulp Mill Softwood Residual Receipts
2006 To Date
22
MBDT Per Day
21.3
21.0
21
20.520.5
20.0
19.8
20
20.4
19.4
19.1
19
18.7
18.5
18.818.918.8
18.4
18.4
18
17.4
18.6
17.3
17
17.1
16.5
16.5
16
15.6
15
15.0
Excludes Sawdust
14
15.8
14.9
13.7
13
Source: FRA Western Division
12
J
F
M
A
M
J
J
2006
Boise | Building a New BoiseNet
A
S
O
N
D
J
F
M
A
M
J
J
2007
A
S
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
2008
Page 20
Pacific Northwest Woodchip Market
Softwood Receipts: Whole Log Chip Percentage 2006 to Date
NW Pulpmills - Softwood WLC % of Softwood Receipts
2006 To Date
45%
42.2%
41.8%
2008
40%
40.0%
37.1%
36.7%
35.7%
35%
2007
28.9%
30.6%
29.2%
30.2%
30%
29.4%
28.1% 27.8%
25%
22.1%
21.6%
20.9%
20.6%
19.9%
20%
25.6%
24.7%
25.3%
23.9%
2006 22.6%
28.2%
26.6% 26.8%
26.2%
19.9%
19.4%
18.5%
Source: FRA Western Division
15%
J
F
M A M
J
J
2006
Boise | Building a New BoiseNet
A
S
O
N
D
J
F
M A M
J
J
2007
A
S
O
N
D
J
F
M A M
J
J
A
S
O
N
D
2008
Page 21
Pacific Northwest Woodchip Market
PNW Pulpwood Price History
PNW Pulpwood Price History
Lower Columbia River
$45.00
Source: Wood Resources International, LLC
$35.00
$30.00
$25.00
SW PW-LCR
Boise | Building a New BoiseNet
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
3Q06
2Q06
1Q06
4Q05
3Q05
2Q05
1Q05
4Q04
3Q04
2Q04
$20.00
1Q04
US$/Green Ton
$40.00
HW PW-LCR
Page 22
Pacific Northwest Woodchip Market
PNW Woodchip Price History
PNW Woodchip Price History
$180.00
$160.00
Source: Wood Resources International, LLC
$140.00
$120.00
$100.00
$80.00
DF-LCR
Boise | Building a New BoiseNet
HW-LCR
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
3Q06
2Q06
1Q06
4Q05
3Q05
2Q05
1Q05
4Q04
3Q04
2Q04
$60.00
1Q04
US$/BDU DELIVERED or FOB VESSEL
Lower Columbia River & Export
EXPORT
Page 23
Pacific Northwest Woodchip Market
Woodchip Inventory and Consumption
1050
2006
1000
2007
2008
950
900
850
800
750
650
600
550
500
450
400
350
300
250
200
150
100
50
Lower Columbia River
Greater Willamette Valley
Boise | Building a New BoiseNet
East of Cascades
Puget Sound
Total Inventory
AP
R
R
MA
FE
B
JA
N
DE
C
NO
V
OC
T
SE
P
AU
G
JU
L
JU
N
Y
MA
AP
R
R
MA
FE
B
JA
N
DE
C
NO
V
OC
T
SE
P
AU
G
JU
L
JU
N
Y
0
MA
Thousand Bone Dry Tons
700
Consumption
Page 24
Pacific Northwest Woodchip Market
NW Fiber – Future Supply/Demand and Cost Drivers
• Housing starts: Doldrums continue with current annual rate of 940K … no end in sight;
oversupply of existing and new homes; Heaven in 2011
• Pulp & Paper: Forecasts show weakening in markets in late 2008 and 2009; operating
rates will not vary widely from current except if major recession is at hand; who will survive
the cost crunch?
• Residual chips: Lumber production rates (housing starts); technology enhancements
create higher recovery rates, lower chip outputs; super-mills; log costs need to align with
product pricing; forest management/timber harvest politics
• Pulpwood availability/cost: Cyclical through the operating season; demands will remain
high through 2009; competition with low value sawlogs; thank God for blowdown
• Diesel cost – who knows? $7.00/gallon?
• Export chip volume: Can the Japanese continue to consume chips at delivered prices in
excess of $240/BDU?; exchange rate impacts?
• Alder supply: Resource dwindles further over time; demand increases; planting programs
• Competing uses: Board plants; pellet mills; cellulosic ethanol; biofuels
• Wood products business adaptations: Mill closures/consolidation of non-integrated mills;
professional sellers
Boise | Building a New BoiseNet
Page 26
Pacific Northwest Woodchip Market
Hardwood Considerations
•
Current chip prices are high … paper margins low … drivers are haul costs, resource availability,
softwood lumber business doldrums, blowdown species distribution
•
Hardwood demand … long term no change

Lumber markets will remain strong over time (product shifts)

Wood chip usage by pulp mills will remain at current levels as mills continue to make valueadded products that demand hardwood content
 No new sawmill residuals in short term … (Independence, OR)
 Whole log chips will comprise +70% of the market
•
Log prices … pulpwood value will remain higher than SW, lumber will vary with market demands
•
Resource constraints will continue

Total growing stock will decline in next decade by +10% mainly in conifer/mixed conifer stands
(mostly in smaller size classes)

Land ownership changes of concern (TIMO’s, REIT’s, etc; conversion to other uses)

Total harvest levels will probably continue at the current levels for the next five to ten years

10+ years - current harvest level not sustainable without intensive management of alder (10-15K
acres planted annually?) … currently disproportionate to conifer stands
Boise | Building a New BoiseNet
Page 27