The Forest Products Industry: Past, Present and Future

Bob Smith

Virginia Loggers Association

2017 Annual Meeting Today’s Discussion

The Past The Present The Future “No single industry has had a greater impact on the development of the U.S. than the forest products industry.”

 We built the U.S.  We keep the economy going.  We are vital to the economy of the US.  (4 to 6% of GDP)  You are vital to your local economy. And the forest products industry depends on YOU! The Past Still the Past In1621 a ship called the Fortune carried a load of logs and lumber to England from North America. Timber was one of our first exports.

(From Andrews) Pine Tree - 1772

The Pine Tree was an act of resistance to British royal authority undertaken by American colonists in in 1772, placing it among the disputes between Crown and colonists that culminated in the .[1]

Their rebellion against the crown, which preceded the by 19 months, helped set the stage for the Revolution.

http://www.wnd.com/2016/07/the-pine-tree-riot-kicked-off-the- revolution/#k67hOaR2DI3WC2Rk.99 Some of the first sawmills in Jamestown, 1625. Wood Frame Homes still exceed 90% of new home construction

TODAY  Average size > 2200 Sq.ft.  >13,000 bf of framing lumber.  > 6200 sq.ft. of panels.  >2000 sq. ft. of siding.  Approx. 15 cabinets.  Approx. 15 windows.  > 2000 sq.ft. of flooring.  2500 LF of moulding  Approx. 10 doors.

Medium = $310,000 The wood pole brought communication and electricity to rural America

 1837 – Samuel Morse invents the telegraph.  1876 – Alexander Graham Bell invents the telephone.  1933 the TVA was established.  1935 the REA was established. The mining industry depended upon wood timbers.

 Coal mining began in 1786.  Iron ore and Copper found in Great Lakes region in 1844.  Gold discovered in the West in 1848. Promontory, Utah May 10th, 1889

The Union Pacific and the Central Pacific Railroads Join.

Wood ties connected our country! We built our inland and coastal waterways. The first cars were over 50% wood At the beginning of the 20th Century, Ford Motor Company was one of the largest timber owners in . Timber bridges made travel possible The First Airplanes were Wood

 THE ORIGINAL WRIGHT BROTHERS AEROPLANE THE WORLD'S FIRST POWER- DRIVEN, HEAVIER-THAN-AIR MACHINE IN WHICH MAN MADE FREE, CONTROLLED, AND SUSTAINED FLIGHT INVENTED AND BUILT BY WILBUR AND ORVILLE WRIGHT FLOWN BY THEM AT KITTY HAWK, DECEMBER 17, 1903 And Wood Pallets move the World!

Since the beginning of time, wood has been used as a packaging material. Wood boxes were found in the tombs of pharaohs in Egypt.

NWPCA This was all done before . .

 The endangered species act.  The radical environmental movement.  Third party certification. AND ......

 We have more forest land now than we had at the time of the “War of Northern Aggression.”

1850 - 720 million acres 2016- 740 million acres The wood products industry keeps the U.S. economy going.

According to the American Forest and Paper Association (AF&PA), the U.S. forest products industry employs about one million workers and accounts for approximately six percent of the total U.S. manufacturing GDP, placing it roughly on par with the automotive and plastics industry. The forest products industry is among the top ten manufacturing sector employers in 48 states and generates over $200 billion a year in sales and about $54 billion in annual payroll.

AFPA USDA Report Shows Growing Biobased Products Industry Contributes $393 Billion and 4.2 Million Jobs to American Economy

 "When USDA released the first-ever Economic Impact Analysis of the U.S. Biobased Products Industry last year, we were thrilled to see what a positive impact this sector was having on our economy, and this updated analysis shows that the sector is not just holding strong, but growing," Vilsack said. "America has an appetite for everyday products-including plastic bottles, textiles, cleanings supplies and more-made from renewable sources, and that demand is fueling millions of jobs, bringing manufacturing back to our rural communities, and reducing our nation's carbon footprint. As this sector is strengthening, so is the economy in rural America, where this year the unemployment rate dropped below six percent for the first time since 2007. USDA is proud to see such strong returns on our investment into the biobased products industry." The Present 70% OF STRUCTURAL SOFTWOOD PRODUCTS AND 50% OR MORE OF GRADE HARDWOOD PRODUCTS ARE CONSUMED IN RESIDENTIAL CONSTRUCTION ( NEW PLUS REMODELING) Total Housing Starts

2,000 SAAR = Seasonally adjusted annual rate; in thousands Total starts 57-year average: 1,443 mm units 1,750 SF starts 57-year average: 1,025 mm units MF starts 52-year average: 420 m units 1,500

1,250

Total December Starts: 1,226 mm units 1,000 795

750

500

417 250

14 0

SF Starts 2-4 MF Starts ≥5 MF Starts

Source: http://www.census.gov/construction/nrc/pdf/newresconst.pdf; 1/19/17 Hardwood Markets 12 Consumption of Hardwood Lumber by Major US Markets and Total Supply of Hardwood Lumber

11 Consumption 10 Supply

9

8

Billion Board Feet Board Billion 7

6

5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

©2017 Hardwood Market Report From HMR - 2016 Board Road/Mat Timbers Railway Ties 4.3% 2016 12.9%

Pallets Flooring 38.9% 8.6%

Cabinets 5.1%

Millwork 5.1%

Furniture Exports 5.3% 19.7%

Export = 19.7% of the volume of all Eastern US hardwood © 2017 Hardwood Market Report consumption and 45.0% of all grade lumber usage. Estimates of Consumption of US Hardwoods

% Change % Change 2008 2009 2010 2011 2012 2013 2014 2015 2016 2015 2008

Pallets 3.5 3.0 3.2 3.26 3.27 3.643 3.685 3.589 3.265 -9.0% -6.7%

Furniture 0.7 0.3 0.35 0.29 0.30 0.427 0.439 0.471 0.442 -6.2% -36.9%

Exports 0.9 0.8 1.07 1.2 1.32 1.462 1.653 1.492 1.655 10.9% 83.9%

Millwork 0.7 0.4 0.43 0.24 0.26 0.387 0.394 0.406 0.428 5.4% -38.9%

Cabinets 1.2 0.7 0.4 0.34 0.36 0.392 0.407 0.412 0.431 4.6% -64.1%

Flooring 0.8 0.5 0.59 0.51 0.55 0.753 0.712 0.664 0.725 9.2% -9.4%

Railway Ties 0.94 0.89 0.89 0.98 1.04 1.114 1.032 1.08 1.082 0.2% 14.7%

Board Road/Mat Timbers 0.286 0.175 0.198 0.243 0.267 0.424 0.413 0.365 0.357 -2.2% 24.8%

Total Estimated Consumption 9.03 6.77 7.13 7.06 7.37 8.60 8.735 8.479 8.385 -1.1% -7.1% © 2017 Hardwood Market Report US Domestic Consumption of Hardwood Lumber 1.4

Flooring Furniture 1.2 Cabinets Moulding/Millwork

1.0

0.8

0.6 Billion Board Feet Board Billion

0.4

0.2

©2017 Hardwood Market Report 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Softwood Markets Softwood Lumber Markets U.S. Lumber Domestic Consumption by end-use. BBF (Annual rate) Per Capita Wood Consumption

1.4

1.2 1

0.8 0.6 0.4 0.2 0 China World OECD USA

In cubic meters per capita Source: China Timber Import Export Co/Hardwoodmarkets.com 2008 U.S. Pulpwood Demand

Pine Pulpwood Demand Hardwood Pulpwood Demand

https://blog.forest2market.com/demand-for-pulpwood-historical-and-future It is a Global Economy “Middle Class” Outside the U.S. Expected to Double By 2020 – Approaching 1 Billion Households Worldwide commodity consumption will be impacted

Foreign households w/real PPP incomes greater than $20,000 a year (in millions of households)

1000

800 Middle class in developing countries projected to increase 138% by 2020 vs. just 15% in developed countries in 2009 600 Developing countries 400

200 Developed countries (ex US)

0 1990 1994 1998 2002 2006 2010 2014 2018

39 Source: Global Insight’s Global Consumer Markets data as analyzed by OGA From Mike Snow at AHEC “Middle Class” in Developing Countries Could Reach 616 Million Households By 2020, Up 138% From 2009 Levels 25% of households in these countries are middle class. By 2020, this could increase to 49% and the impact on food consumption will be large

Developing countries with fastest growing “middle class”

China 234 India 60 Brazil 12 Indonesia 9 Russia 8 Egypt 7 Thailand 6 Mexico 5 Turkey 4 Vietnam 3 Philippines 3 2009 levels Proj gains by 2020 Iran 2 Poland 2 Nigeria 1

0 25 50 75 100 125 150 175 200 225 250 275 300 325 350 Households with real PPP incomes greater than $20,000 (in millions)

40 Source: Global Insight’s Global Consumer Markets data as analyzed by OGA From Mike Snow at AHEC U.S. hardwood lumber exports, top 5 destinations - 2015

50% European Union-27 45% Canada China 40% Vietnam Mexico 35%

30%

25%

Source: USDA FAS 20% Graph: Hardwood Market Report

15%

10%

5%

0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Courtesy of the Hardwood Market Report 2015 Softwood Export Council 2016 Softwood Export Council 2016 The Future

The future ain’t what it used to be”! (Yogi Berra). New Markets

 Cross laminated timber and mass timber construction. What is Cross Laminated Timber?

 Cross: each layer is “crossed” or runs 90 degrees to previous layer  Laminated: Each layer is typically 2x (1.5 inches rough, 1.375 dressed) and bonded with adhesive  Timber: Creates a large section of wood usually used as panel Virginia Tech’s Connection

 Collaboration with Southern Virginia Higher Education Center (SVHEC) to investigate use of SYP for CLT  USDA grant to investigate potential of Low-value hardwood lumber for CLT  Our Approach has been to Collaborate to provide the Wood Material and Engineering Experience to Support our Partners When they are willing to put on the outside, they are more willing to put wood on the inside. Applications of CLT  Recent CLT structures  Integrated Design Building, UM at Amherst, MA  Designed by Leers Weinzapfel Associates (5 LEED Gold projects, 2007 AIA firm of the year, over 65 national and regional design awards)

Heat Treated Wood Recycled Pallets Wood Bioenergy

Wood Pellets http://www.fas.usda.gov/data/money-does-grow-trees-us-forest-product-exports-set-record What is Nanotechnology?

Nanotechnology is science, engineering, and technology conducted at the nanoscale, which is about 1 to 100 nanometers.

Nanoscience and nanotechnology are the study and application of extremely small things and can be used across all the other science fields, such as chemistry, biology, physics, materials science, and engineering.

6th-15th Centuries:Vibrant stained glass windows in European cathedrals owed their rich colors to nanoparticles of gold chloride and other metal oxides and chlorides; gold nanoparticles also acted asphotocatalytic air purifiers.

http://www.nano.gov/nanotech- Physicist Richard Feynman, the father of nanotechnology. 101/what/definition Source: M. Snow, AHEC

Global Green Building Materials Market Will Reach $255B in 2020

NDM Columns (02/24/17) Glenn, Martin 

The global green building materials market had an approximate value of $127.5 billion in 2014 and is expected to total $255 billion in 2020, growing at a combined annual growth rate of about 12 percent between 2015 and 2020, according to a new Zion Research study. The study also calculated the market had a total volume of 5,500 kilo tons in 2014. Green building systems such as LEED, the ICC 700 National Green Building Standard, and Building Research Establishment Environmental Assessment Method are likely to fuel demand for green building projects. North America and Europe are experiencing strong growth in the green buildings market thanks to environmental concerns, increasing awareness about environmental sustainability, and national, state, and municipal edicts and policies implemented in these regions. North America comprised the biggest regional green building materials market in 2014, encompassing a more than 40-percent share in total green building materials volume consumed in that year. The insulation segment made up more than 23 percent of the total volume consumed in 2014, and this trend should be sustained for the duration of the forecast period. Interior finishing should be the fastest growing segment as many green building materials are supplanting conventional materials for interior finishing operations. AHEC LCA Study Deliverables: Compile Life Cycle Inventory data

 Compile data in line with internationally recognised protocols for use in regional databases such as:  European Reference Life Cycle Data System (ELCD)  The US Department of Energy Life-Cycle Inventory (LCI) Database  LCA-National Project in Japan  To cover major exported US hardwood species  From point of extraction through to point of delivery in the EU and Asia

From Mike Snow at AHEC The Future

 “While the 19th century was the steel century, the 20th century was the concrete century, it is quite possible that the 21st century will be looked back as the WOOD century.”  Michael Green So what does it mean for the your business?

 Economic indicators favor increased construction of forest products.  Social indicators favor increased construction of homes.  Mass Timber Construction with CLTs will open multi- story commercial construction that will increase the use of wood.  An increase in the middle class around the world will favor the increased consumption of forest products.  Wood being recognized by decision makers as an environmentally friendly material will favor its increased used. So what does it mean for the your business?

It’s a great time to be in the forest products industry!

Bob Smith Department of Sustainable Biomaterials College of Natural Resources and Environment Virginia Tech 540-231-7679 [email protected]