Pallet Lumber: Supply Issues and Outlook Western Pallet Association Don Haid Markets and Economic Research January 22, 2006

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 1 Forward-Looking Statement Information in this presentation is derived principally from publicly available information, forest products and building industry publications and websites, data compiled by market research firms, and similar sources. Although we believe that this information is reliable, we have not independently verified any of this information and we cannot assure you that it is accurate. This presentation also contains forecasts regarding future economic conditions, demand, commodity prices and similar matters. The accuracy of such forecasts is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the effect of general economic conditions, including the level of interest rates, housing starts and exchange rates; the relative strength of various U.S. and global business segments; energy prices; raw material prices; transportation disruptions; the effect of governmental actions; natural disasters; and the outbreak of terrorism, war and other hostilities.

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 2 Agenda l Introduction l Supply Issues Timber perspective Lumber manufacturing perspective l Demand Issues Macro outlook Linkages to framing lumber and industrial production l Outlook Major take-aways

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 3 There is no supply shortage in North America Offshore Exports Canadian Timber Canadian Timber U.S. Public Timber U.S. Public Timber U.S. Private Timber U.S. Private Timber Sourced by: U.S. Sawmills Canadian Sawmills Offshore Sawmills Supplied by: U.S. Lumber Exports (39 BBF) (20 BBF)(2.5 BBF) U.S. Trend Lumber Demand (61 BBF*) *2004

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 4 Canadian output has stepped up to meet demand

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 5 BC Harvest: Huge potential increase over midterm but…

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 6 Western harvest stable

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 7 But output now surpasses early 1990’s

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 8 Total lumber supplies may be adequate but low grade proportion trending lower over time

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 9 The Pallet Industry (30,000 ft view) l More than 3,000 new pallet manufacturers l Consumed 6.5 BBF of lumber per year, of which: 4.4 BBF was Hardwood and 2.1 BBF was Softwood l 91% of pallets are wood (5% plastic, 2% metal 2% fiber based) Source: Pallet and Container Research Lab, Dept of Wood Science & Forest Products, Virginia Tech

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 10 Lumber Production: Framing grades dominate sawmill output

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 11 The Role of Lumber Manufacturing Economics l The joint product problem l Manufacturing seeks the highest possible return for its output l Technological change is constantly increasing the recovery of higher grade material from logs

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 12 The Role of Lumber Manufacturing Economics l The joint product problem l Manufacturing seeks the highest possible return for its output l Technological change is constantly increasing the recovery of higher grade material from logs and reducing residuals l Mills are getting fewer and bigger

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 13 Trend to fewer, larger, high efficiency mills

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 14 Regional shifts, but total US production stable to increasing

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 15 Changes in production of hardwood lumber have been driven by change in industrial manufacturing l Domestic furniture manufacturing has seen a steady decline as off-shore imports climb l Sector is a significant user of high grade hardwood lumber

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 16 Consumption continues to grow but domestic manufacturing is shrinking

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 17 Growth is being met by imports

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 18 Result has been lower lumber use by domestic furniture industry

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 19 And explains most of the decline in hardwood lumber production

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 20 Changes in the production of hardwood lumber have been driven by change in industrial manufacturing l Domestic furniture manufacturing has seen a steady decline as off-shore imports climb l Sector is a significant user of high grade hardwood lumber l Lower overall hardwood lumber production reduces supply of available pallet lumber

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 21 Pallet consumption forced to adjust to shifting production/consumption pattern

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 22 Supply Summary l Harvestable timber supply not a problem l Softwood driven by framing lumber l In hardwoods ― Changes in furniture industry and increased competition from other segments impact pallet supply

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 23 Demand Issues: Macro Outlook l Housing drivers have peaked

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 24 Inflation Now Firmly Above “Deflation” Level

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 25 Approaching Early 1980s Experience

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 26 Expect Fed to continue to increase rates

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 27 Rising rates moves housing off of peak levels

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 28 Has been a major boost to repair and remodeling

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 29 Demand Issues: Macro Outlook l Housing drivers at peak levels l Lumber market driven by housing and repair and remodel segments

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 30 Single family and repair and remodel are biggest demand components

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 31 Capacity has grown to meet peak demand

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 32 Demand Issues: Macro Outlook l Housing drivers at peak levels l Lumber market driven by housing and repair and remodel segments l Industrial production and pallet demand

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 33 Industrial Production provides an indicator of pallet demand

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 34 Look at Component Sectors with products which move on pallets

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 35 Durable goods growth strongest, and continues in 2006

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 36 Nondurables: Declining growth until 2005

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 37 Nondurables: growing around 1% in 2006

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 38 Industrial production outlook: Steady around 4%

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 39 Outlook / Major take aways l Timber is not constraining lumber supply over long term l Changes in other industrial lumber sectors impacting pallet and low grade supply l Demand for housing at a peak, lumber demand slowing in 2006, improving availability of industrial lumber l Industrial production growth continues, favoring pallet makers

January 2006 Supply Issues and Outlook t:\prsntatn\wood\2004\pallet assoc 40 What Questions Do You Have?