1. Value-Added Wood Industry and Market Trends for Ontario Ian D. Manson, MNR Wood Centre Feb. 23, 2007

2. Industry Organization PRIMARY Harvesting Forestry Nurseries Services SECONDARY CommodityValue-added Lumber Residuals Pulp Newsprint Wood Products Papers $2.8B $4.3B $7.1B $4.0B $5.5B $9.5B $16.6B In 1998 C$

3. What are value-added wood products? TraditionalBioProducts Non-Timber Products & Services furniture cabinets millwork EWPs boards mfd housing converted papers bio-fuels bio-materials bio-chemicals health care personal care foods crafts decorative recreation services TimberBioMassPlants

4. What makes something value-added? Primary Forest Industry Value-Added Wood Industry X6 the more capital (technology) and labour used to process a raw material the more value is created

5. Sub-sector Segmentation Based on $ Revenue: Statistics Canada, ASM

6. Importance to Ontario Source: Statistics Canada, 2002 ASM

7. Importance to Ontario Source: Ministers Council of Forest Sector Competitiveness, Statistics Canada

8. Ontario is a Leader in Value-Added Wood Quebec has grown 51% in VA wood jobs since 1997 vs. Ontario at 31%. Ontario ranks #5 in North America for Value-Added wood jobs, but no industry association Source: Statistics Canada, Dept of Commerce

9. British Columbia - BC WOOD ALBERTA - Dept. of Value-Added Wood QUEBEC - QWEB Great Lake States - Secondary Wood Mfg Association ONTARIO - nothing representing value-added wood … without leadership.

10. Large… and small

11. Source, by % utilization CodeIndustryONTPQBCALTU.SOTHD.K. 321215EWP30.562.20.41.43.02.50 321911Windows/Doors35.015.0000050.0 321919Other Millwork32.713.60048.71.43.5 321920Pallets/Crates31.161.25.10.20.10.61.7 321999Misc. Wood92.05.50.1 0.302.0 337110Cabinets76.823.100000.1 337123Furniture66.213.51.6017.601.1 321992Mfd Housing31.637.222.88.4000 TOTAL38.141.51.70.615.11.41.6 Source: Linking the Forest to the Factory, MNR Lack of Sector Integration

12. Species, by % utilization Softwoods CodeIndustryPwSpPrCeSPFOTHTTL 321215EWP0.715.60.1028.7045.2 321911Windows/Doors70.50.40.10.70.9072.6 321919Other Millwork5.20.72.60.90.2 9.7 321920Pallets/Crates0.98.20.30.179.2088.6 321999Misc. Wood2.89.10.40.844.72.059.7 337110Cabinets2.301.80.1004.1 337123Furniture16.300.1 01.624.4 321992Mfd Housing6.360.306.232.6099.4 TOTAL3.69.10.90.727.60.242.0 Source: Linking the Forest to the Factory, MNR

13. Species, by % utilization Hardwoods Other - cherry, basswood, walnuts, exotics CodeIndustryMhBwPoOrAwOTHTTL 321215EWP0.91.651.50.4 054.9 321911Windows/Doors2.60.53.605.90.514.327.4 321919Other Millwork23.70.415.526.64.819.390.3 321920Pallets/Crates3.42.12.52.01.20.211.4 321999Misc. Wood16.22.310.42.31.96.340.3 337110Cabinets34.315.03.325.00.417.795.9 337123Furniture23.52.13.920.50.824.875.7 321992Mfd Housing0000.600 TOTAL9.81.427.69.71.97.558.0 Source: Linking the Forest to the Factory, MNR

14. Materials, by % utilization Solids CodeIndustry RawLumRetailSpecVeneerMSROTHTTL 321215EWP4.92.618.82.42.746.878.2 321911Windows/Doors1.60.268.30.11.00.471.6 321919Other Millwork84.51.27.10.80.21.094.8 321920Pallets/Crates85.07.03.40.10.40.696.5 321999Misc. Wood28.154.912.80.2 0.496.6 337110Cabinets6.79.318.67.100.942.6 337123Furniture25.49.614.59.004.563.0 321992Mfd Housing0.62.817.40.14.46.331.6 AVERAGE36.53.522.61.61.317.182.6 Source: Linking the Forest to the Factory, MNR

15. Materials, by % utilization Composites CodeIndustry PlywoodParticleChipLaminateOTHTTL 321215EWP0.100021.922.0 321911Windows/Doors9.80.118.50.1 28.6 321919Other Millwork3.51.600.105.2 321920Pallets/Crates3.11.20.200.14.6 321999Misc. Wood2.50.90003.4 337110Cabinets13.422.31.316.53.857.3 337123Furniture13.314.10.28.41.037.0 321992Mfd Housing20.3045.42.8068.5 AVERAGE4.11.33.80.67.817.6 Source: Linking the Forest to the Factory, MNR

16. Benchmarking

17. Ontarios Wood Manufacturing Sector is…. Large Diverse Export focused Technically sophisticated Expensive Rudderless

18. Trends Industrial Markets

19. Top Strategic Industry Issues Source: Canadian Manufacturers Export Association

20. Trends Effecting Value-added Wood Markets 1.developing populations 2.disposable incomes 3.housing starts 4.renovation market 5.greening wave 6.skilled labour shortages 7.Changing consumer tastes 8.Glut of wood world wide 9.U.S. protectionism – commodities

21. Trends in Value-Added Wood Source: Statistics Canada, 2002 ASM

22. Opportunities 1.Manufactured Housing 2.Building components - EWPs 3.Doors, Windows, Moldings, other millwork 4.Furniture 5.Cabinets – Kitchen, bath & storage

23. 1. Manufactured Housing The evolution of residential construction Existing Products Commodity Lumber Emerging Growth EWPs and Bldg components New Technologies Integrated Structural Systems $31 Manufactured Home $95 Hand-Crafted Timber Frame Log home $55 $80 $72 Site built Single Family Std Precut, Panelized Per sq ft Construction Type in 2006, one in seven American homes were manufactured

24. Population = 83 million Construction Sales = $239B EWP/Components = $800m Manufactured Housing = $300m Millwork = $150m Woodbridge Report … Manufactured Housing

25. Manufactured Housing Increasing export focus –e.g. Confederation Log Homes But foreign markets dont like dealing with Ontario companies, because they lack critical mass Strategy to go after traditional domestic stick built market first?

26. 2. EWPs Product Life Cycle Introductory Growth Maturity Decline Stage Stage Stage Stage 2 nd /3 rd Generation EWPs 2 nd Generation Wall Panels Species Segregated Softwood Lumber Composites Custom Orders Installed Sales New Laminate Technologies (fibre polymers) Eastern SPF MSR I-Joists PSL & LSL Eastern SPF FJ Commodity LVL Commodity OSB Glulam Parallam Commodity Eastern SPF framing lumber Variable quality Dimension lumber -Building components account for 14% of total VA sales with 11% CAGR, but last two years growth at 28%, again driven by buoyant housing starts.

27. 3. Millwork -Windows and doors account for 13% of total VA sales, with compound annual growth rate of 7%, but 16% in last 2 years, driven by high Canadian housing starts -However, window and door markets moving rapidly away from wood usage towards vinyl and steel respectively -Other millwork (moldings, stairs, flooring, etc.) = 22% of total, with a CAGR of 15%, and stable at 13% recent growth -Also, many of these products are moving away from solid wood towards FJ, MDF and composites

28. Millwork - Flooring the solid wood flooring market is rapidly giving way to engineered wood flooring one piece of solid wood can provide up to 6 surfaces on an EWF built on an composite substrate, EWF can go straight onto concrete and doesnt move like solid SolidEngineered

29. 4. Furniture –Furniture = 36% of total VA sales with CAGR of 12%, falling to 1% in last two years –Perfect storm for most of industry as retail markets convert to RTA and imports; quality and design still important but becoming more of a niche market –Also large anticipated boom in office furniture

30. 5. Cabinets –Cabinets are a very regional market business unless standardized sizes –Cabinets = 15% of total VA with CAGR of 11% and reasonably strong recent growth = 9% –Cabinet demand will double in 10 years driven by new home construction and home renovations

31. Best Opportunities Capital Investment Market Growth Manufactured Housing Bio-energy Bio-Materials Bio-chemicals EWPs Millwork – Doors/Windows Millwork - Other Nutraceuticals Pharmaceuticals (collection) Cabinets Furniture NTFPs Bios $Thousands $ millions

32. Questions?