Structural Pine Supply & Demand Trends Christine Briggs National Sales & Marketing Manager

Outline From feast to famine – our industry has seen significant changes in the availability of structural timber during the last 3 years. Supply & demand issues facing the industry A forward view – will Australia ever be self-sufficient in structural pine supply; predictions of the balance going forward Impact of some key housing and construction trends on grade and end section pine framing demand Partners in the supply channel and PSA’s strategies for cycle management

A Recent Snapshot of Softwood Market Balance in Australia

Market Balance Components *Sources – ABS, ABARE, BIS Shrapnel & PSA Estimates

Softwood Demand Drivers The major segment user of softwood (detached housing) reduced usage of softwood by 75,000m3 in 2005, overall the use of softwood reduced by 125,000m3 that year. *Sources –BIS Shrapnel & PSA Estimates

Bigger Building Trends Aussies are building bigger and bigger… The average Aussie home is now approx 260m2. *Source – BIS Shrapnel

Building Trends In the early 90’s, 2 out of 3 new homes built were single storey. So far this decade, approx 60% of all new homes built are more than 2 storey and in raw number, the single storey homes have halved! *Source – Australian Bureau of Statistics

Log Supply Source: DAFF Softwood log supply increased significantly over the past 15 years For the next 15 – 20 years it is projected to be steady after which modest increases are forecast

Domestic Pine Framing Supply Domestic sawmillers worked hard to meet the gap in supply left by the departure of imports over 2006/ % of local cut in structural framing = 2.1 million m3 pa Framing produced now is approx 40,000m3 more compared to *Source – A3P Sales Stats Increase in log processed over = 3,050,000 m3

Log Recovery Upgrades in processing technology help to further improve recovery. If all Oz sawmillers gained an extra 1% of recovery this could mean approx 20,000m3 increment of framing a year !

Log Length Sawmillers are constrained by the forest and their owners in terms of supply to meet market requirements 30% 4.8m, 30% 5.4m & 40% 6.0m is a typical log mix diet targeted by the forest owners in Australia (some 3.6m) Best match - log lengths to customer framing length demand is below

Local Softwood Grade Trends Demand for M12 is increasing Demand for lower grade (F4 & F5) material is decreasing *Source – A3P Industry Sales Stat’s

Size Trends

Blue Pine Framing Trend – Now Almost 30% of Domestically Produced Framing *Source – A3P Industry Sales Stats

Steel Framing – still not a viable alternative Steel framing market share has remained relatively steady over the last decade nationally at approx 9%. However, steel prices are on the way up as key input material prices rise worldwide. Rising steel costs are a double edge sword for fabricators *Source – ABS

Imports – the new market driver? From a 300,000m3 drop in the peak in last cycle, 2007 saw a volume of imports around 420,000 m3. Our best estimates are that imports will rise by 320,000m3 in 2008 – does this tip us back into a surplus? *Sources – ABS, ABARE, BIS Shrapnel & PSA estimates

World Lumber Prices Australia is now an attractive market for softwood framing imports as: –Domestic timber prices have increased –World timber prices drop and the US market hits an all time low in housing starts *Source – World Wood Markets

Looking beyond 2008… Note key assumptions re imports and dwelling commencements levels to support these scenarios in the coming years. *Sources – ABS, ABARE, BIS Shrapnel & PSA Estimates

What does this mean for Fabricators & Users? Fabricators and users should consider their cycle management approach. Loyalty and consistency of business over the cycle is valued by both suppliers and users alike. Suppliers would look for the ability to hedge up share when demand is slow. Work closely with your customers and suppliers to support growth where possible – e.g. length mix opportunities. Understand your supplier/ sawmillers order management process. Value of mix within pine framing and also mix across product categories Longer notice period on price increases than price decreases – ideally aiming for price consistency