2014 Cofi Convention North American Lumber Markets April 3, 2014 Kelowna, British Columbia Contents 1. West Fraser 2. US Housing Starts 3. Fiber and Labour Constraints 4. Transportation 5. Midrise and Tall Wood Buildings 6. Summary 2 West Fraser LUMBER PANELS PULP & PAPER 27 mills 6 mills 5 mills Plywood: 830 MMsf3/8” MDF: 300 MMsf3/4” LVL: 3.2 MMcf NBSK: 590 Mtonnes BCTMP: 650 Mtonnes Newsprint: 135 Mtonnes SPF 3.8 Bfbm SYP 2.0 Bfbm Total 5.8 Bfbm • North America’s largest lumber producer • Largest plywood producer in Canada • Third largest pulp producer in Canada 3 Geographic Diversification 28. Mansfield 28 4 U.S. Housing Pent Up Housing Demand (conventional + mobile) 2.25 2.00 Million Units 1.75 1.50 1.25 1.00 0.75 Production Underlying Demand 0.50 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Significant pent up demand bodes well for long-term recovery 5 Source: FEA, Q4 2013 U.S. Housing U.S. Housing Forecast (2014 & 2015) Single & Multi Family 1,600 1,400 1,200 1,000 '000s 800 600 400 200 0 Mortgage Bankers Wells Fargo NAHB FEA APA RISI Mesirow Financial Royal Bank Average 6 Source: APA, January 2014 Mortgage Foreclosures in “Sand States” Have Plunged Percentage 3 2 Mortgage Foreclosures Started: California (NSA, %) Mortgage Foreclosures Started: Arizona (NSA, %) 1 Mortgage Foreclosures Started: Florida (NSA, %) Q1-1996 Q1-1997 Q1-1998 Q1-1999 Q1-2000 Q1-2001 Q1-2002 Q1-2003 Q1-2004 Q1-2005 Q1-2006 Q1-2007 Q1-2008 Q1-2009 Q1-2010 Q1-2011 Q1-2012 Q1-2013 0 7 Source: FEA Canadian Fibre Supply 80 Annual Allowable Cut Forecast 70 60 Million (M3) 50 40 30 20 10 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 BC Interior Quebec Ontario 8 Source: FEA, Q4 2013 Canadian Shipments to China 4,000 Equivalent to 300,000 housing starts * 3,500 3,000 MMfbm 2,500 2,000 1,500 1,000 500 0 2006 2007 2008 2009 2010 2011 2012 2013 * Based on consumption of 11.5 Mfbm per U.S. housing start (average mix of single and multi family) 9 Source: Council of Forest Industries, December 2013 Builders Are Facing Shortages of Labor and Buildable Lots Percent of Builders Reporting Problems: 65.0% 55.0% 53.0% 46.0% 34.0% 30.0% 21.0% 13.0% 2011 Cost/Labor Availability 2012 2013 2014 Cost/Land Availability 10 Source: FEA, NAHB HMI Survey, Jan 2014 Changing Nature of Transportation 11 11 Earth Sciences Building University of British Columbia, Vancouver 12 Mid-Rise in B.C. Projects Buildings 25 45 Completed 15 22 Under Construction 87 137 Preparing plans, working drawing, permitting 27 43 Contemplated, preliminary design 154 247 Total projects active and completed Ontario • Networking with Ministry of Housing • Championed by BILD and Toronto HBA • Competing products – negative media campaign Status Quebec • Wood Charter • RBQ – Mid-Rise Guide available • Fast Track National Code Changes? Source: Canadian Wood Council 13 CWC / FPInnovations / NRC Mid-rise Fire & Acoustic Research 14 Take Home Points • Demand will improve more slowly than previously forecast. • Labour and capital constraints will likely slow the housing recovery. • Fibre supply will tighten as recovery continues • Transportation is a major challenge • Industry needs to collectively address trucking and rail issues • Real recovery is coming but will take time 15
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