Global Wood Products Industry Sector - Overview and Trends

Global Wood Products Industry Sector - Overview and Trends

Global Wood Products Industry Sector- Overview and TrendsEWPAA Annual Conference17 April, 2012Dr George Goroyias, PrincipalHead of Pöyry Management Consulting’s Asia Pacific Wood ProductsMr. Rudolf Rensburg, PrincipalHead of Pöyry Management Consulting’s Asia Pacific Forest and LandMr. Doug Parsonson, DirectorVice President Pöyry Management Consulting Asia Pacific

INTRODUCTION: POYRY FOREST & WOOD PRODUCTS – APAC100 Assignments per annumCORPORATE FINANCE &INVESTMENT ANALYSISMARKET STRATEGIESRESOURCE MANAGEMENTPERFORMANCEIMPROVEMENT• World class project management for both the public and private sector• 500 forest assignments globally every year, of which 100 in Asia Pacific• 170 performance improvement cases (last five years) across the forest value chainwith total implemented savings of USD400-500 million• Procurement due diligences for more than 20 million tonnes of wood• M&A advisory services more than 50 mandates globally over the last 10 yearsSource: Pöyry Management Consulting2

WHERE WE ARE TODAY? – GLOBAL UNCERTAINTY REMAINS Western Markets– From a Global boom in wood products investment activity driven by cheap finance and theview that property was a robust investment to the 2008 recession– Overcapacity, price competition, low margins– Tough market to attract capital– Consolidation and rationalisation painful process but brings results e.g. kraft US Asia (China)– Significant growth in capacity (some ill advised) driven by booming infra– Demand has been there to support what has been built– What happens with the infra spend the years to come?– Housing market has been “cooled”– Furniture exports have relocated– Will domestic demand fill the gap? Australia– We still believe in the strength of property investment -Are we different?– We have been planning our businesses based on a flat line assumption going forward– Will this still be the case?– RBA rates slowed down new build and quieted the market– Risks are the ageing asset base and the lack of reinvestment– The increasing competitiveness of outside Australia markets– Where from here?Source: Pöyry Management ConsultingPÖYRY POWERPOINT TEMPLATE 305.07.2010

WOOD PRODUCTS INDUSTRY GLOBAL TRENDS Turning point The end of investment boom? Europe and NA industry struggles Growing, demand in Asia, Latin America, Russia Asia mismatch of demand vs fibre supply – Where are the new Investment Hot Spots? Globally a fragmented industry Time to question our industry fundamentals Biomass and biofuels game changers via fibre competition Global wood products profitability erosion Tough to attract new capital Need for turnaround, region/market rationalization New operating models needed Technology development and product development halt Macroeconomic uncertainty Industry is not capturing its maximum performance potentialSource: Pöyry Management Consulting4

AGENDA• Global Trends• How to plan the future under uncertainty?• What is industry’s improvement potential?5

Global Trends6

PANELS – GLOBALTotal 2010 volumes: 261 million m 3 EuropeNorthAmericaRest ofAsiaChinaLatinAmericaProductionConsumptionSource: Pöyry Management ConsultingRest ofthe World*Europe includes Turkey and RussiaCOPYRIGHT©PÖYRY

SURFACING MATERIALS– GLOBALTotal 2010 volumes: 12.5 billion m 2North AmericaEuropeMiddle EastAsiaSouth AmericaSource: Pöyry Management ConsultingPaper foils (Pre/Post/LBWP)Laminates (CPL/HPL/Compact)Low Pressure Melamine (flooring/furniture)Liquid coatings (paints/lacquers)Thermoplastic foils (2D/3D)Decorative veneer (rotary cut/sliced)COPYRIGHT©PÖYRY 8

INDUSTRY CONSOLIDATIONA Global sector of EUR 500 billion, but still fragmentedEuropeFragmentedModeratelyconsolidatedConsolidatedSouth AmericaFragmentedModeratelyconsolidatedConsolidatedPBMDFPlywoodMelamine ImpregnatorsLaminatesLaminate FlooringPaper FoilsDecor PrintersVeneerThermoplasticsLiquid CoatingsPBMDFPlywoodMelamine ImpregnatorsLaminatesLaminate FlooringPaper FoilsDecor PrintersVeneerThermoplasticsLiquid CoatingsNorth AmericaFragmentedModeratelyconsolidatedConsolidatedAsia Pacific(excl. China)FragmentedModeratelyconsolidatedConsolidatedPBMDFPlywoodMelamine ImpregnatorsLaminatesLaminate FlooringPaper FoilsDecor PrintersVeneerThermoplasticsLiquid CoatingsPBMDFPlywoodMelamine ImpregnatorsLaminatesLaminate FlooringPaper FoilsDecor PrintersVeneerThermoplasticsLiquid CoatingsNote: Herfindahl-Hirschman IndexSource: Pöyry Management Consulting9

INDUSTRY PROFITABILITYROCEDecor Printers86LaminateflooringVeneerPaper Foils Liquid coatingsLaminatesImpregnation420PanelsThermoplastic FoilsFurniture20 %15 %10 %5 %Source: Pöyry Management ConsultingCOPYRIGHT©PÖYRY10

GLOBAL MILL COST– PB180160140Other fixed costs USD / m3120Personnel USD / m3100Other variable USD / m380Chemicals USD / m360Energy USD / m34020Wood (net) USD / m30ROMANIA850000FRANCE260000CANADA600000US 230000BRAZIL750000CHILE120000USD/m 3Source: Pöyry Management Consulting11

2020 CAPACITY RATIONALIZATION900800Western European PB and MDF Assets700600500400300ContiMultiSingle/Other200100What is the role?0-10 0 10 20 30 40 50 60 70-100Source: Pöyry Management Consulting13

2020 CAPACITY RATIONALIZATION900800North American PB and MDF Assets700600500400ContiMultiSingle/Other300200For how long?10000 10 20 30 40 50Source: Pöyry Management Consulting14

2020 VALUE CHAIN OPTIMIZATION850750Oceania PB and MDF Assets650550450350ContiMultiSingle/Other25015050-500 10 20 30 40 50 60Source: Pöyry Management Consulting15

ANNOUNCED INVESTMENTS 2012 - 2014Focus is on developing economies!Million m 314PB and MDFMillion m 314PLY and OSB12121010886644220ASIA & LAEE(TURKEY ANDRUSSIA)0ASIA & LARUSSIA RussiaSource: Pöyry Management Consulting16

SOFTWOOD – GLOBALTotal 2010 volumes: 260 million m³NorthAmericaEuropeRest ofAsiaChinaLatinAmericaProductionConsumptionSource: Pöyry Management ConsultingRest ofthe World*Europe includes Turkey and RussiaCOPYRIGHT©PÖYRY

AUSTRALIA SOFTWOOD LUMBER IMPORT BY COUNTRY VS. AUD10% of Estonia’s production, 20% of a leading player’s productionWill Romania be the next?900Thousand m 3AUD/USD1.280070060050040030020010010. StatesGermanyEstoniaCanadaCzech RepublicNew ZealandAUD/USD01995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110Source: WTA, Oanda18

IS EASTERN EUROPE SO COMPETITIVE TO REACH AUSTRALIA?Cumulative production curveSource: Pöyry Management Consulting19

2020 SUSTAINABILITY TARGETS DRIVE CHANGERenewable Energy & Carbon ManagementSustainabilityGoals andObjectivesLife Cycle & Waste ManagementProduct Design & ProcurementLogistics & Supply chainSource: Pöyry Management Consulting20

2020 FIBRE SHORTAGESupply deficit Stable supply Increasing supplyEquatorSource: Pöyry Management Consulting21

2020 PELLET DEMAND PEAKFrom 15 million t/a 45 million t/a by 2020.WesternEuropeRussiaChinaJapan &KoreaMillion tonnes201020152020Source: Pöyry Management ConsultingSource: Pöyry multiclient study,Wood Pellets – Becoming A Global CommodityReleased on April 20, 2011

2020 WOOD COST PRESSUREBiomass Price Forecast100GBP / odt(delivered, real 2009)Long-term sustainable importprice for woodchipsCeiling for domestic biomassprices8060402002009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029YearWoodchips Pulpwood Harvesting residues Wastewood Low quality wastewoodSource: Pöyry Management Consulting23

FIBRE- AUSTRALIA SUPPLY• Softwood- limited upside supply potential in the foreseeable future• Implications• Hard to justify business case for industry reinvestment• Cannibalisation?• Improved value realisationSource: Pöyry Management ConsultingPÖYRY POWERPOINT TEMPLATE 2405.07.2010

FIBRE- AUSTRALIA SUPPLY• Hardwood- significant oversupply of chip fibre• Limited areas planted for hardwood sawnwood• Implications• Intense competition for export market share resulting in lower prices• Limited existing markets for alternative uses• Fragmented resource, estimated 40-50% unlikely to be replantedSource: Pöyry Management ConsultingPÖYRY POWERPOINT TEMPLATE 2505.07.2010

FIBRE- AUSTRALIA SUPPLY• Strategic Industry Options (Softwood and Hardwood)• Need for a new industry master plan to secure the future ofcommercial forests, processing and value adding sectors• Industry must take the lead and lobby for support• Lessons can be learned from other industries e.g. automotiveindustry• Government in 2008 planned to spend AUD 6.2 billion overthe period 2009 to 2021 as part of the New Car Plan for aGreener Future policy initiative, i.e. an average of AUD 519million/yr.Source: Pöyry Management ConsultingPÖYRY POWERPOINT TEMPLATE 2605.07.2010

FIBRE- REGIONAL SUPPLY• China and Russia are the drivers of change• Strong China drive to secure resources with export potential; highpaying capability• Russia supply-infrastructure limitations and rising costs. Future ofexport levies?• Native fibre supply increases expected from Africa and SouthAmerica• Informal and formal plantation development increasing in SE Asiacountries such as Indonesia, Thailand and Indo-China region.• Pöyry expects Pacific Rim fibre supply and demand balance totighten towards 2020• Wood costs to rise, impacting competitiveness of regionalprocessing and value adding industry, creating uncertainty on howthe industry structure will evolveSource: Pöyry Management ConsultingPÖYRY POWERPOINT TEMPLATE 2705.07.2010

SUMMING UP• Global uncertainty• Struggling Europe• Sluggish recovery in North America• Asian dominance• Ageing Oceania• Bioenergy a fibre game changer• Fibre shortage and wood cost increases a realityHow to plan the future under uncertain conditions?What is industry’s improvement potential?Source: Pöyry Management Consulting28

How to plan the future under uncertainconditions?What is industry’s improvementpotential?29

FORECASTS VS BUSINESS CYCLE SCENARIOS (BCA)GDP Scenario*Construction OutputFurniture Demand and ProductionSubstitutionIndustry FeedbackDemand/Capacity PricePanelsSoftwoodSurfacesChemicalsCompanyBusinessAssetSource: Pöyry Management Consulting30

GLOBAL ECONOMIC DEVELOPMENTBrazil, Russia, India and China80%Cumulative growth70%IMF April 2010 - Global Economic Growth Forecast60%50%40%30%20%10%0%2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Source: The Global Panel Surfacing Business Report, Pöyry 201031

GLOBAL PANEL DEMANDDemand will grow by 70 million m 3 by 2015?300250Million m 3Total wood-based panel demand developmentPre-crisis peakForecast20015010050020002001Source: The Global Panel Surfacing Business Report, Pöyry 20102002200320042005200620072008200920102011Particleboard MDF/HDF Plywood201220132014201532

ECONOMIC INDICATORS – EUROPEVolatility indicates uncertainty. Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2012 2012-0.02-0.02-0.03-0.03-0.04Diffusion Index variableSource: Conference Board33

ECONOMIC INDICATORS – USUS encouraging signs of recovery. China’s growth slowest of last 3 yearsin last quarter but the index in China continues increasing… Jul Aug Sep Oct Nov Dec Jan Feb2011 2011 2011 2011 2011 2011 2011 2012 2012-0.4-0.6-0.8Diffusion Index 50-60%Source: Conference Board34

MANAGING UNCERTAINTYAnnual Change (Real 2010)8.0%6.0%4.0%2.0%0.0%-2.0%-4.0%-6.0%-8.0%-10.0%-12.0%-14.0%Western Europe Panel Demand DevelopmentIMF/OECDJanuary 2012IMF April 2010Source: IMF, OECD, Pöyry Management Consulting36

INDUSTRY’s PERFORMANCE IMPROVEMENT POTENTIAL170 PI projects conclude the oppportunity is significant:5% - 12% of revenue in wood products14%Wood / Panel ProductsPaper / Tissue Products12%% Annual Turnover10%8%6%4%2%0%1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Source: Pöyry Management ConsultingIdentifiedCaptured37

PERFORMANCE IMPROVEMENT CASEScope• Product: Wood-based panel producerObjective• Provide an independent view of the key manufacturingKPIs (Key Performance Indicators) and typical operatinglevels for these.• Compare these KPIs against client’s processes/KPIs atselected site(s).• Benchmarking process in the manufacturing, financial andcost competitiveness areas of selected targets againstcompetitorsMethod• Defining the current state of the operations• Process Capability Analysis• Benchmarking & gap analysis to determine best practices• Identifying cost savings & operational improvement areasResults• 3 .8 – 5.3 million EUR were identified as manufacturing savingsfrom 2 production lines (PB & MDF); 31 million EUR in workingcapital reduction and 40-50 million EUR for organisationalrestructuring.• Alignment of restructuring actions with business cyclescenarios.Source: Pöyry Management Consulting38

END SLIDE.THANK YOU!CONTACT:Dr George GoroyiasPrincipal, Head of Asia-Pacific Wood 3 9863 3700Mr Rudolf RensburgPrincipal, Asia-Pacific Head of Land and 3 9863 370039

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