The Global Timber Market
The 9-year growth-to-harvest average cycle of the paulownia trees and subsequent regeneration from the stump, as opposed to the 20-plus years and subsequent replanting for traditional hardwood plantations, affords a significant competitive advantage to meet market demand and achieve considerable market share.
There is an urgent global need for commercial reforestation programs to replace the rapidly diminishing supply of rainforest timbers, which supply more than 75% of the world’s trade in hardwood logs, over 50% of the trade in sawn hardwood and a significant portion of panels and pulp.
It is widely acknowledged that areas of old-growth forest available for logging are nearing exhaustion, and the associated environmental impact with some traditional forestry methods have far reaching and damaging effects. Comercial Forestry plantations such as those implemented by iPaulownia must become the major source for commercial use timber. At present, hardwood saw log plantations are almost non-existent. Most plantings thus far have focussed on the market for pulpwood. Prices for hardwood have jumped considerably in the last few years as a result of supply constraints.
A recent forecast from Jeremy Grantham is how he sees various asset classes performing over the next 7 years. The following graph forecasts annual real returns over the period.
Grantham’s recommendations are clear: “Long term investors should consider reducing exposure to stocks and bonds, and increasing exposure to emerging-market stocks and timber”.
Global Production and Consumption of Timber
The production and consumption of key wood products and wood energy are expected to rise from the present to 2030, largely following historical trends of 1-2% increases per annum. The primary factors to an on-going increase in demand for timber globally are:
- An increasing population to 7.8 billion in 2020 and 8.2 billion in 2030 (current population 7 billion)
- Global GDP projected to grow from US$16 trillion in 2005 to almost US$100 trillion by 2030
- Rapid growth of developing countries, particularly in Asia
- Environmental policies reducing the amount of old growth forests marked for wood production.
As outlined in the table below, global production is projected to increase dramatically and in-line with consumption requirements. Industrial round wood, derived from growth in demand for end products – sawn wood, wood-based panels and paper and paperboard, is expected to increase by more than 40 percent up to 2030. Industrial round wood will be increasingly likely to come from planted forests in the future as factors outlined above continue to drive overall lumber demand.1
Global production and Consumption of Timber
|Wood based panels||Production||234||388||521|
Source: Food and Agriculture Organization of the United Nations, State of the World’s Forests 2009
While significant markets exist for paulownia timber particularly in China and Japan, the greatest potential for paulownia timber is to replace products currently imported from rainforests around the world including Asia and South America, old growth forests, and other severely depleted hardwood species. Supply of such species has recently dropped dramatically and is expected to become even harder to procure on world markets within the next decade or so due to tightening of logging regulations and the literal near exhaustion of these rainforests. Equally dramatic price rises have accompanied the fall in supply.
1 Food and Agriculture Organization of the United Nations, State of the World’s Forests 2009
From 2005 to 2015 timber saw a mean average increase of 17.83% per annum.
This is calculated from 3 indexed sectors as follows:
Average sales value growth for furniture grade cut lumber = 14.33%
Average sales value growth for pallet grade cut lumber = 19.5%
Average sales value growth for pallet grade cut logs = 19.67%
Average across all sectors = 17.83% per annum.
Timber has averaged at least an increase of 5% per annum over the last 100 years. In fact, timber has outperformed almost every other sector in the last 40 years!
iPaulownia believes it is reasonable to consider a conservative 5% growth per annum from today’s market value for paulownia timber which would set the price up from 450€/m3 to 733€/m3 or an increase of 283€/m3 within the next 10 years. Our Investment Plans show the Internal Rate of Return if paulownia timber prices remained flat at today’s values and what would happen if there was an increase of values at 7% per annum so that you can make your own judgements.
The prospects are excellent from both perspectives which is the reason we propose that you join us on this exciting and aconomically beneficial venture!