Structural Pine Supply & Demand Trends

Christine Briggs National Sales & Marketing Manager

2007/ 08 Australian Sawnwood Market, million m3

1.120% 0.1

2%

3.867%

0.611%

Hardwood Production Hardwoood Imports

Softwood Production Softwood Imports

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

-150

-100

-50

-

50

100

150

200

250

('000

m3)

2005 2006 2007 2008

Softwood Market Balance

v

Market Balance Components

*Sources – ABS, ABARE, BIS

Shrapnel & PSA Estimates

Softwood Demand Supply Balance

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

('000

m3)

Local Prod Export Imports Demand

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

('000

m3)

2004 2005 2006 2007 2008 2009 2010 2011

Forecast Softwood Demand

OtheruseOtherbuildingMultiunitsA&A

Detached

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.

Avg Floor Area for Total New Houses Approved M2

150

170

190

210

230

250

270

290

310

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Dec-0

7

Year Ended J une

M2

NSW VI C QLD SA WA TAS TOTAL

*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

Number of New Residential Buildings by Number of Storey's

0

500

1000

1500

2000

2500

J ul-1

991

J an-

1992

J ul-1

992

J an-

1993

J ul-1

993

J an-

1994

J ul-1

994

J an-

1995

J ul-1

995

J an-

1996

J ul-1

996

J an-

1997

J ul-1

997

J an-

1998

J ul-1

998

J an-

1999

J ul-1

999

J an-

2000

J ul-2

000

J an-

2001

J ul-2

001

J an-

2002

J ul-2

002

J an-

2003

J ul-2

003

J an-

2004

J ul-2

004

J an-

2005

J ul-2

005

J an-

2006

J ul-2

006

J an-

2007

J ul-2

007

J an-

2008

One storey Two or more storeys Trendline

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 SupplyStructural Framing M3

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Domestic sawmillers worked hard to meet the gap in supply left by the departure of imports over 2006/ 07. 60% of local cut in structural framing = 2.1 million m3 pa

Framing produced now is approx 40,000m3 more compared to 2003.*Source – A3P Sales Stats

Increase in log processed over 2004-2008 = 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!

Softwood Sawmill Cut - 1 million m3 log-in

300,00030%

500,00050%

50,0005%

50,0005%

100,00010%

Structural Chip/ Bark

Merch 12/ 19mm Recovery Boards

Industrial/ Heartwood products

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

6.0m, 30%

5.4m, 25%

5.1m, 3%

4.8m, 12%

2.4/ 2.7m, 12%

<2.4m, 3%

3.0/ 3.6/ 4.2m, 3%

Industry Narrows Grading Split 2007

Merch/ROS 21%

F4 & F5 6%

M10 54%

M12 14%M15 4%

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 TrendsQLD

70mm53%

90mm47%

VIC

70mm16%

90mm84%

NSW

70mm36%

90mm64%

Blue Pine Framing Trend – Now Almost 30% of Domestically Produced Framing

H2F Framing Sales

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

0%

5%

10%

15%

20%

25%

30%

M3 H2F % Framing H2F treated

*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

Material Price I ndex for House Construction

60.0

80.0

100.0

120.0

140.0

160.0

180.0

Sep-8

5

Sep-8

6

Sep-8

7

Sep-8

8

Sep-8

9

Sep-9

0

Sep-9

1

Sep-9

2

Sep-9

3

Sep-9

4

Sep-9

5

Sep-9

6

Sep-9

7

Sep-9

8

Sep-9

9

Sep-0

0

Sep-0

1

Sep-0

2

Sep-0

3

Sep-0

4

Sep-0

5

Sep-0

6

Sep-0

7

Structural timber ; Clay bricks ; Cement ; Steel beams and sections

*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

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Q3 20

05Q4

2005

Q1 20

06Q2

2006

Q3 20

06Q4

2006

Q1 20

07Q2

2007

Q3 20

07Q4

2007

Q1 20

08Curre

nt Q

Europe South America North America New Zealand Other Total

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

Framing Price Indicies

0.5

0.7

0.9

1.1

1.3

1.5

1.7

Feb-

06

Apr-0

6

Jul-0

6

Sep-0

6

Nov-0

6

Feb-

07

Apr-0

7

Jul-0

7

Sep-0

7

Nov-0

7

Jan-

08

Mar

-08

May

-08

Index

J apan UK Aust (USD) Aust (AUD) US UK (EUR)

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

-150

-100

-50

-

50

100

150

200

250

('000

m3)

2005 2006 2007 2008 2009 2010 2011

Softwood Market Balance

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