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International Wood Fiber Market Update

Bob FlynnDirector, International Timber

April 13, 2008

FRA Annual Meeting, International Committee

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AgendaPacific Rim Woodchip Market– Demand Trends– Supply Outlook– Price Trends

Changes in Atlantic Region Pulpwood Trade– Nordic Region and the Russian Log Export Tax– Turkey– Major woodchip suppliers in Atlantic region

Wood Pellet and Biomass Trends

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A word from our sponsors:2008 International Pulpwood Trade Review (aka “the woodchip report”), 15th Edition, published February 2008– Details on all suppliers of woodchips to international markets– Volumes by species and by country to all markets– Price trends for benchmark species– Forecast of volumes and prices in Pacific Rim Markets– Complete listing of the woodchip carrier fleet– Outlook for available chip supply– www.risiinfo.com/pulpwood

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Imports of woodchips in the Pacific Rim have been remarkably stable, but reached a record 16.7 million BDMT in 2007

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94 95 96 97 98 99 00 01 02 03 04 05 06 07E

Japan HW Japan SW Other

Annual growth rate = 1.0% since 1995

Million BDMT

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The Pacific Rim woodchip trade is 85% hardwood, and Japanese imports (softwood + hardwood)

represented 85% of the total market in 2007

Japan Softwood15%

Korea3%

Taiwan5%

China7%

Japan Hardwood70%

Percent of Imports by Market, 2007

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Australia is the dominant supplier of hardwood chips to Asian markets (36% in 2007), with the top four supplying countries accounting for 81%

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Austra

lia

S. Afri

caChi

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Viet

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Brazil

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iaUSA

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2007 Shipments – Thousand BDMT

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76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 0701

/08

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an

Average CIF Price of Imported Hardwood Chips in Japan

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Australian woodchip exports are about 45% from plantations and 55% from native hardwood forest

Australia: Hardwood Chip Exports by Destination

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Japan Korea Taiwan China

Albany, Western Australia

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South Africa is rapidly declining as a supply source, will likely be passed by Chile and possibly Vietnam in 2008

Japan: Hardwood Chip Imports from South Africa

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90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07E08P

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Chile’s exports of eucalyptus woodchips continue to expand, but pine chips are now more expensive than in the US South

Chile: Woodchip Exports by Species

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Native Eucalyptus Radiata

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Vietnam is one of the fastest growing woodchip suppliers, with 43 mills producing chips for export

Hue Chipmill in Vietnam owned by Mihaud, which was opened in September 2003. The annual capacity is 100,000 BDMT – 75% Acacia and 25% Eucalyptus camaldulensis

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Japan Korea Taiw an China

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Third International Pulpwood Conference, Oct 19-21, 2008

Conference Location: Singapore

Optional field trip to Vietnam

www.pulpwoodconference.com

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Australia is the #1 supplier of softwood chips (42%), with the top four countries providing 90% of supply

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Australia USA NZ Canada Fiji Brazil Chile Russia

2007 Shipments – Thousand BDMT

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76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 0701

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Average Price of Imported Softwood Chips in Japan

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Australian hardwood chips have gotten very expensive, due to currency changes

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Chile Globulus S Africa Eucalyptus

Vietnam WA Glob

Japan Hardwood Chip Imports, FOB Price Index

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Prices for all three major softwood chip suppliers have moved up sharply in the past 18 months

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USA Canada Australia

Japan Softwood Chip Import FOB Price Index

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Indonesia: Competition with oil palm will restrict expansion of pulpwood plantations

• Some single plantations of oil palm are reportedly more than two million hectares

•Global demand for biofuels is pushing expansion of oil palm to record levels

•Financial returns for pulp plantations are not nearly so attractive

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A crack-down on illegal logging is creating fiber shortages in Indonesia, and disrupting Asian markets

Current battle between police and forestry ministry has forced pulp companies to rely prematurely on 100% acacia plantation fiber –this may delay expansions or even cause slow down in production

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Imports of logs and woodchips in the Nordic countries peaked at 30 MMCM in 2004, but declined 23% by 2007

Nordic Region: Log and Woodchip Imports from Outside, 1997 - 2007E

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E

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Finland Sweden Norway

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Finland has been heavily reliant on imports of logs and woodchips from Russia, but this volume dropped 30% between 2005 and 2007

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Imports from Russia Others

Million Cubic Meters

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Russia’s Log Export Tariff – the end of an era for cheap wood imports?

Rate Minimum Rate Minimum% euros per m3 % euros per m3

May-06 6.5% 4 6.5% 4July-07 20% 10 20% 24April-08 25% 15 25% 24

January-09 80% 50 50% 50

Softwood Logs Hardwood Logs

• Will Russia “compromise” on this export duty??? Why should they?

• EU Tariff Negotiations – many other nations have restrictions limiting or prohibiting log exports (e.g., Canada, USA)

• Companies in Europe and Asia appear to be acting as if the log export duty will be fully implemented, and in many cases have announced new investments in Russia ---- exactly what the Russians intended.

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Prices for Russian pulpwood imports into Finland jumped 96-112% (US$) in 2007--- but price increases began well in advance of export tax increase

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Spruce Pine Birch

Log Export Tariff

US$ per Cubic Meter

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Exchange rates have played a part, but prices have increased sharply (+98%) in Euros as well

0102030405060708090

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00 01 02 03 04 05 06 07

Euros

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Import Price of Hardwood Pulp Logs in Finland (All sources)(CIF, per M3, with bark)

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Domestic prices for pulpwood in the Baltic countries also increased rapidly (local currency) in 2007

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Estonia, Roadside prices for Pulpwood, in EEK/m3

Pine +135%, Spruce +115%, Birch +137%

Lithuania, Roadside prices for pulpwood in LTL/m3

Spruce +79%, Birch +119%

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Russian log exports to Europe have declined by 6.2 MMCM during 2005-2007, while woodchip exports have increased only 0.16 MMCM

Russian Log and Woodchip Exports to Europe, 2005-2007

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Sources of Woodchip Supply for Europe

Only about 7% of pulpwood imports in 2007 were from non-European sources.Most (78% in 2007) pulpwood imports (logs and chips) from non-European sources have been in log form, but this is changing rapidly due to record high ocean freight costs.– Eucalyptus pulplogs from Uruguay to Europe, freight cost:

• Mid-2006 = US$40-50/cubic meter• Late 2007 = US$90-100/cubic meter

– Companies in Finland, Sweden, Norway, Spain, Portugal, and Turkey have now signed contracts with suppliers in Canada, USA, Brazil, Uruguay, and Congo for regular shipments of woodchips in 2008

– Japanese trading company in late 2007: “The border between the Pacific Rim and European woodchip markets is now Chile”

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Pulp Companies Aren’t the Only Ones Importing Woodchips From Overseas Sources

Yildiz Entegre, Turkey: Largest MDF facility (under one roof) in the world

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Turkey’s composite panel industry is expanding rapidly: 23 vessels of woodchips imported in 2007, demand at least 40 shipments in 2008 but transport limited

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MDF Particleboard

Capacity: Cubic Meters per DayChip Imports from:

USA (pine) Canada (maple) Brazil (pine and eucalyptus)

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AMCEL, (sold by IP to NPI/Marubeni early 2007), exports chips to Europe and Japan, but pine runs out in 2009

2007 Shipments

Pine 255,000 BDMT

Eucalyptus 155,000 BDMT

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The majority of woodchip exports from Brazil have been acacia from southern Brazil to Japan only

TANAC Woodchip Export Facility, Rio Grande, Brazil

2007 Shipments

TANAC = 475,000 BDMT

SETA = 215,000 BDMT

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ENCE has imported eucalyptus chips from Uruguay since 2004, primarily for its mill in Huelva, Spain

Montevideo Harbor

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Uruguay Pulpwood Shipments in 2007

Logs = 1.7 million m3

Chips = 0.6 million BDMT

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Fulghum Fibres chip plant in Coronel Chile; Fulghum will build and operate a similar plant in Uruguay for Forestal AtlanticoSur, to supply chips to Södra in Norway. (Start-up mid-2008)

Pulpwood shipments from Uruguay are shifting rapidly to chips: exports of woodchips will increase 60% in 2008 to 1.0 million BDMT. By 2009 almost all exports will be in woodchip rather than pulplog form.

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USA exporting pine chips to Turkey, but not to Europe

Cooper T Smith Chip Loading, Mobile, Alabama

US South Chip Exports 2007Hardwood (Japan) = 225,000 BDMT

Softwood (Turkey) = 144,000 BDMT

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Great Northern Timber, Sheet Harbor, Nova Scotia

2007 Exports

150,000 BDMT Hardwood To Turkey and Northern Europe

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New supplier in Rep. of Congo will begin eucalyptus woodchip exports to Europe in May 2008, from new Andritz chipper

MAG Industries Point Noire, Congo

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Wood pellet imports from overseas sources are also growing rapidly, with the majority coming from Western Canada, at least through 2007

Fibreco Export Dock, Vancouver, Canada

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But wood pellet exports shifting to eastern N America• Largest pellet plant in the world, Green Circle, starting operations in Florida April 2008 (500,000 tonnes)

• Dixie Pellets, in Selma, Alabama (450,000 tonnes) and announced a new plant in Jackson, Alabama (540,000 tonnes)

• Other announced wood pellet projects 2007/2008 in eastern N America total about 1.1 million tonnes

• Total announced new wood pellet capacity in eastern N America equal to roughly four times the volume of 2007 exports to Europe

Green Circle Bio-energy, Cottondale, Florida

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Traditional wood pellet plants operate only on local sawmill residues, but the big new plants will compete for pulpwood

World’s biggest pellet plant, Green Circle Bioenergy, 500,000 tonnes per year

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And finally, “biomass chips” may also be imported for energy production in Europe

Prenergy’s Port Talbot plant in the UK may import 2-3 million tonnes of woodchips;

Other projects like Choren biofuels in Germany may also look to import “hog fuel” from overseas.

Phytosanitary regs?

Vessel availability?

Energy plantations?

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The extent to which European imports of woodchips (for pulp, MDF, or biomass) expand in the next several years largely depends on ocean freight costs

Baltic Dry Index

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Despite a surge in new woodchip carriers, it remains difficult for non-Japanese companies to secure vessels at competitive prices

Woodchip Carrier Fleet Capacity, by Age, Dec. 2007

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The Bottom Line on Global Wood Fiber FlowsPrices for both hardwood and softwood chips are at or near record levels in both Asian and European markets, in US dollar terms.Demand is growing for US fiber exports, whether for pulp, MDF or energy --- partly driven by a low US dollar, but also lack of alternative sources.However, a lack of vessels at affordable prices has limited fiber exports, despite a surge in new woodchip carriers.Phytosanitary regulations in Europe also need to be overcome.Pulp producers in the US South are very competitive in global markets --- due primarily to relative wood costs.Weak housing markets restricting residual softwood supplies

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Questions?Bob FlynnDirector, International Timber, RISIPhone: 1-253-565-4846Email: rflynn@risiinfo.comWeb site: www.risiinfo.com