Globalisation of forest products markets Marc Boutin Quebec Lumber Manufacturers ’ Association October 2, 2001QLMA

QLMA Factors which are driving extraterritorial trade of forest products Emerging economies with commensurate rising consumer demand The information technology revolution Investor preference for « pure play » companies that focus on fewer products on a larger scale

QLMA Factors which are driving extraterritorial trade of forest products (cont ’d) Switch to lower cost fiber from forest plantation regimes Increased capital mobility, continued integration of the world economy and, investor portfolios seeking more global diversification Improving transportation logistics

QLMA Factors which are driving extraterritorial trade of forest products (cont ’d) Larger buying groups, especially home center chains and retailers, sourcing wood products (primary, secondary and finished goods) on a global scale Labor shortages in developed economies favoring a shift to abundant, lower cost, labor in developing regions

QLMA Factors which are driving industry consolidation Higher capitalization of companies Synergies and economics of scale Better opportunities to manage trade International / regional diversification Lower average cost structure Forest companies are small compared with other manufacturing sectors

QLMA Forest Products Industry Top 5 global forest products companies –around 20% of global sales versus –40% in the oil industry –50% in the steel industry –60% in the automotive industry Source CIBC World Markets

QLMA Why growth? Securing available fibre Only way to gain market share Economic imperative - it is often cheaper to buy rather than build (the pulp paper industry is very capital intensive) New facilities tend to be subjected to higher environmental standards

QLMA Why growth? (cont ’d) Acquisition of know-how and human capital Less impact on supply-demand equilibrium Customer base is increasingly global and also growth driven Establishes a framework for future growth

QLMA World ’s biggest paper and paperboard producers capacity, m tonnes Extracted from The Economist September 15th 2001

QLMA Trade of Forest Products Recent cyclic and structural events Break up of the USSR Environmental and sustainability constraints Upswing of the U.S. housing market since 1992 Asian financial crisis of 1997 Events of September 11, 2001

QLMA Global Forest Resource (1990) (Million ha) Source Wood Markets 2000 Edition. The Solid Wood Products Outlook

QLMA Standing Timber (1990) Source Wood Markets 2000 Edition. The Solid Wood Products Outlook Billion m 3

QLMA Change in Forest Area ( )

QLMA World Distribution of standing timber (%) Source Wood Markets 2000 Edition. The Solid Wood Products Outlook

QLMA Southern Hemisphere Pine Plantations ( )

QLMA Industrial Roundwood Production by Continent (x 000 m 3 ) Source Wood Markets 2000 Edition. The Solid Wood Products Outlook

QLMA The six largest softwood industrial roundwood producing countries (000 m 3 ) Source Wood Markets 2000 Edition. The Solid Wood Products Outlook

QLMA Forest harvest in the United States by region (in million m 3 ) Source Wood Markets 2000 Edition. The Solid Wood Products Outlook

QLMA Forest capacity and actual harvest - Canada (Millions m 3 ) Source Wood Markets 2000 Edition. The Solid Wood Products Outlook

QLMA The imperative to develop new products and markets World demand should not change significantly over the coming decade. Strong demand is expected in Asia, mainly from Japan and increasingly from China Demand will be stronger for wood based panels and paper products

QLMA The imperative to develop new products and markets (cont ’d) Large scale producing countries will maintain their relative market share, although export distribution will be significantly realigned Significant growth is anticipated from countries which hold large plantation resources in the Southern hemisphere

QLMA The imperative to develop new products and markets (cont ’d) Size and quality of roundwood changing Environmental pressures come into play New source of supply will be from high yield plantations but fiber quality will pose its own set of problems

QLMA The imperative to develop new products and markets (cont ’d) A movement towards trade in value-added wood products is evolving in many countries. There are growing constraints in the export of unprocessed goods Forestry management practices and inputs could allow for increases in future harvest

QLMA The imperative to develop new products and markets (cont ’d) Increasing pressure towards certification Securing fiber supply, technological efficiency, certification of products and/or of systems, and value-added will be the future focus of industry

QLMAConclusion Output of forest products increasing in most producing regions: Europe, North America, South America and Australia/New Zealand Strong incentive for all producers to stimulate demand on a global scale: supply of wood products exceeds demand at a growing rate Industry and customer consolidation to continue: fewer manufacturers, bigger production units, larger customers