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Appendix 5n Keyser

Slide 1 Global Timber Trends: ______Implications for the U.S. Forest Products Sector ______

Keith Balter Senior Vice President ______February 2005 ______

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Slide 2 ______Southern Hemisphere Non-Native Plantation Area (Million Hectares) 30 ______Oceania 25 20 ______15 ______10 5 ______0 1990 2000 2010 ______2 ______

Slide 3 ______U.S. Newsprint Consumption (Thousand Tonnes/Quarter) 3,100 ______

3,000

2,900 ______

2,800 2,700 ______2,600 2,500 ______2,400 96 97 98 99 0 1 2 3 4 ______3 ______

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Slide 4 ______Southern Softwood Stumpage Prices ($/Short Ton) $50 ______Sawtimber Chip-n-Saw $40 Pulpwood ______$30

$20 ______

$10 ______

$0 90 91 92 93 94 95 96 97 98 99 0 1 2 3 ______4 ______

Slide 5 ______U.S. Structural Panel Markets Shift to OSB

50 85% ______45 BSF, 3/8-Inch Basis 80% 40 75% 35 70% ______30 65% 25 60% 20 55% ______15 50% Plywood 10 45% OSB 5 OSB Share (R) 40% ______0 35% 95 97 99 1 3 5 7 9 11 13 15 17 19 ______5 ______

Slide 6 ______U.S. Softwood Sawtimber Demand Stays on a Downward Track BBF, Int’l 1/4” ______45 Coast 40 Inland South 35 ______30 25 20 ______15 10 ______5 0 90 92 94 96 98 0 2 4 6 8 10 12 14 16 18 ______6 ______

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Slide 7 ______U.S. Paper & Paperboard and Pulp Production (Million Short Tons) 120 ______110 Paper & Paperboard Pulp 100 ______90

80

70 ______

60 50 ______40 80 82 84 86 88 90 92 94 96 98 0 2 4 6 8 10 12 14 16 18 ______7 ______

Slide 8 ______U.S. Pulpwood Demand Remains Subdued (Million Short Tons) 250 ______200 ______150

100 ______

50 Chip Exports OSB ______Pulp 0 9092949698024681012141618 ______8 ______

Slide 9 ______Industrial Roundwood Production by Region (Million Cubic Meters) ______Share of 1990 2003 Growth Latin America & ______Oceania 142 244 71% Asia 335 361 18% ______Western 242 261 13%

North America 572 569 -2% ______

Total 1,292 1,436 ______9 ______

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23I0075 Slide 10 Speech ______Global Competitiveness of U.S. Forestry and Forest Industry ______

Presentation by ______Doug Parsonson ______

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Slide 11 ______Key Global Trends ______„ Increasingly, global markets for forest products „ Demand is shifting from “developed” to “developing” markets ______„ Product innovation and technology are changing the underlying “value” of different fibers and woods „ Trend prices are declining in key product sectors ______„ Timber supply platforms competing within a globalizing and consolidating industry for markets – and for investments ______

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Slide 12 ______Increasingly Global Markets……

130 3150 1610 ______60 310 110 690 70 1050 30 260 450 80 120 190 ______250 180 180

130 340 30 1100 80 ______60 1100 60 20 170 110 330 ______

2001 Global Trade in Uncoated Freesheet (000 short Tons) Total 12 million short tons ______

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Slide 13 ______Demand Is Shifting Paper & Paperboard Demand Growth Strongest in Emerging Markets ______Emerging Growth Markets Demand growth %/a 5

4 China ______Latin America Asia ex Japan, 3 China Average 2.2 %/a ______2 Traditional Strongholds 1 Japan ______0 0 20406080100 Share of consumption in 2000 (325 million tons), % ______

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Slide 14 ...And Production Growth is Also ______Shifting ...But ....North America & Western Europe still > 50% of the global production in 2015. ______Production and Consumption 2000 Growth of Production 2000 - 2015 North America ______Western Europe

Eastern Europe Japan ______Rest of Asia

Latin America Production Consumption Other regions ______0 20 40 60 80 100 120 012345 Million tons %/a ______

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Slide 15 ______Trend prices Are Declining For Key Products

Real pulp prices have declined on average 1-1.5% p.a. for years

Real 2002 USD/t ______1200

Real ______

600 ______Nominal ______* Market pulp/CIF North Atlantic/North port

0 1970 1974 1978 1982 1986 1990 1994 1998 2002 ______

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Slide 16 ______Future Trends in US Forestry ______in a Global Context ______Roger A. Sedjo* ______Presented to the Global Markets Forum Orlando, February 15-17, 2005 ______

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Slide 17 ______Overview ______General decline in US Competitiveness in resource and manufacturing sectors ______{ Current Situation in the U.S. Forest Industry { Changing Demand Conditions { Exchange Rates ______{ Environment for the US Forest Industry { Rational Response and Recent Industry Behavior ______{ Implications for the US industry ______

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Slide 18 Figure 2: World Industrial ______Roundwood Production 2000.0 ______1500.0 ______1000.0

500.0 Total Production Production Total ______(Millions Meters) Cubic 0.0 ______1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Year Total Coniferous Non-coniferous ______Source: FAO, Rome, selected years ______

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Slide 19 ______Why Stagnate Demand? ______{ More efficient use of raw wood. { Non wood substitutes, e.g., plastic packaging, steel in residential construction ______{ Greater recycling, waste paper. { Aging population in much of wood using industrial world. ______{ Decreased wood production as centrally planned economies move to efficient markets, e.g., Russian production/consumption decline. ______

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Slide 20 ______Supply Factoid ______According to the FAO, in 2000, 34% of the world’s industrial wood came from planted forests. ______

By contrast, ______

In 1950 planted forests made up a ______negligible portion of industrial wood. ______

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Slide 21 Supply Sources: Globally ______{ Global harvest shift from foraging natural forests to a tree cropping mode of wood production, especially in subtropical areas ______{ Massive areas of forest plantations have been established largely in subtropical areas { Tree planting creates opportunities for tree ______improvement but traditional and genetic engineering { Increasing participation of North American ______and European firms in subtropical plantations. ______

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Slide 22 ______Summary and Conclusions ______{ Global demand likely to continue relatively weak while supply sources are growing. { Much of the new supply will come from biologically advantaged intensively managed plantations outside ______the US using genetically improved material. { Implies a continued relative deterioration in the position of the US as a wood producer. { Tax and certification considerations provide additional ______incentives for US firms to divest forestlands in the US. { A long-term weak dollar could help some. { Overall, expect US industry to continue moving ______aggressively offshore while, at the same time, reducing and restructuring its domestic timberland holdings. ______

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Slide 23 ______Assessing market impacts on forest conditions in the US ______South ______David Wear ______USDA Forest Service Southern Research Station ______

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Slide 24 ______Organizing Concept ______„Land use and resource conditions are outcomes of landowner decisions Forest industry 20% influenced byby aa web of ______National economic and social forces. forest 6% „ US South is unusual— predominant private Nonindustrial Other public ______private 5% ownership of forests 69% „ Laboratory for investigating 200 million acres ______sustainability ______

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Slide 25 Urban Growth Scenario ______

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Slide 26 ______Forest Types ______

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Slide 27 ______Subregions of Concern ______™ Southern Appalachians ‹ population growth, fragmentation, ‹ sensitivity to increased air pollution ______‹ rare forest communities at risk. ™ Gulf and Atlantic coastal areas ______‹ wetlands and imperiled species ‹ more intensively managed forests ‹ loss of land to urbanization ______™ The Crescent ‹ highest concentration of forest loss to urban uses ‹ susceptibility to fragmentation. ______

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Slide 28 ______The Appalachian ______Forest as it relates to Industry ______

Mark Barford, CF, CAE ______Certified Forester #1970 President APPALACHIAN ______HARDWOOD MANUFACTURERS, INC. March 29, 2006 ______

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Slide 29 ______HARDWOOD TIMBER INVENTORY Merchantable Timber - Billions of Board Feet ______1953 414 1963 452 ______1977 569 1987 715 ______1997 899 2005 1,000 ______(estimated) (source - USDA Forest Service) ______

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Slide 30 Lumber Production ______By State ______State Volume (MMBF) 1,081 860 ______Virginia 855 West 705 ______North Carolina 692 683 431 ______New York 411 360 ______South Carolina 137 ______

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Slide 31 US Hardwood Lumber Production ______1991 1997 2005 10.6 13.3 ______

11.0 ______Pallets 4.6 4.5 3.6 Furniture 2.0 3.0 1.0 EXPORTS 1.0 1.4 ______1.4 Millwork 1.0 1.3 1.3 ______Cabinets 0.9 1.2 1.5 Flooring 0.5 1.1 1.4 ______RR Ties 0.6 0.8 0.8 ______

Slide 32 ______Markets are Changing ______US furniture has lost about 50% of capacity – and remaining mills are using 50% less lumber! ______Industry has shifted lumber exports to new countries without substantial increase in volume

Markets everywhere have become more ______demanding – length, widths andand color requirements ______Higher demand for lower volume species ______

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Slide 33 ______Hardwood Production Concerns ______‹ Overhead costs ridiculous – Workers Comp. ______‹ Trees less available ‹ Production and employment numbers down ______‹ More logs leaving Appalachia to be processed ______

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Slide 34 ______Forestry in Appalachia ______‹ Forest owned 90% by non-government ‹ TIMO’S largest private landowners ‹ 10 million landowners ______‹ National Forests are essentially CLOSED ‹ Regulations and restrictions making active ______management more difficult ‹ Diseases and insects pose unknown threats ______

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Slide 35 ______Forestry in Appalachia - Harvesting ______‹ Predominately unmanaged cutting – High Grading – little forester involvement ‹ Little to no clear cutting – little Oak or ______Cherry regeneration ‹ Deer browse a significant problem for regeneration ______‹ Logger certification and restrictions make recruiting new forest workers tough… along with better paying competition ______

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Slide 36 ______

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Slide 37 Pulp Capacity ______(Million Tonnes)

40 ______Latin America 35 North America 30 ______25 20 ______15

10

5 ______

0 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 ______

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Slide 38 Production of US Hardwood ______Lumber by Species ______

White Oak - 15% Red Oak - 35% ______Tulipwood - 9%

Soft Maple - 6% ______Hard Maple - 5% ______

Others- 30% Source: US Forest Service ______

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