WEYERHAEUSER CO

Our market conditions and the strength of the broader U.S. economy are, and will continue to be, influenced by the trajectory of activity in the U.S. housing and repair and remodel segments, inflation trends and interest rates. The demand for sawlogs within our Timberlands segment is directly affected by domestic production of wood-based building products. The strength of the U.S. housing market, particularly new residential construction, strongly affects demand in our Wood Products segment, as does repair and remodeling activity. Seasonal weather patterns impact the level of construction activity in the U.S., which in turn affects demand for our logs and wood products. Our Timberlands segment, specifically the Western region, is also affected by export demand and trade policy. Japanese housing starts are a key driver of export log demand in Japan. The demand for pulpwood from our Timberlands segment is directly affected by the production of pulp, paper and oriented strand board (OSB)

WEYERHAEUSER COMPANY >2023 ANNUAL REPORT AND FORM 10-K 43 as well as the demand for biofuels, such as wood-burning pellets made from pulpwood. Our Timberlands segment is also influenced by the availability of harvestable timber. In general, Western log markets are highly tensioned by available supply, while Southern log markets have more available supply. However, additional mill capacity being added in the U.S. South has led to tightening of markets in certain geographies. Our Real Estate, Energy and Natural Resources segment is affected by a variety of factors, including the general state of the economy, local real estate market conditions, the level of construction activity in the U.S. and evolution of emerging renewable energy and carbon-related markets.

Over the past year, particularly in the first half of 2023, home sales and building activity slowed due in part to higher mortgage interest rates, reduced affordability and general macroeconomic conditions. In the latter part of 2023, new home sales and construction activity strengthened, supported by near record-low levels of existing inventory. On a seasonally adjusted annual basis, as reported by the U.S. Census Bureau, housing starts for fourth quarter 2023 averaged 1.5 million units, a 6.1 percent increase from third quarter 2023. Single-family starts averaged 1.0 million units in fourth quarter 2023, a 7.7 percent increase from third quarter 2023. Multi-family starts averaged 412 thousand units in fourth quarter 2023, which was a 2.2 percent increase from third quarter 2023. Single-family construction is the primary driver for our business as compared to multi-family due to the amount of wood products used. Sales of newly built, single-family homes averaged a seasonally adjusted annual rate of 652 thousand units for fourth quarter 2023, a decrease of 6.0 percent from third quarter 2023. Over the medium to long-term, we expect a favorable U.S. housing construction market supported by strong demographics in the key homebuying age cohorts, a decade of underbuilding and a historically low housing inventory.

Repair and remodeling expenditures were steady from third quarter 2023 to fourth quarter 2023 according to the Census Bureau Advance Retail Spending report. Do-it-yourself activity has been returning to more normalized levels while professionally contracted activities have benefited from larger projects and increases in home equity levels. Over the longer term, we expect this sector to return to pre-pandemic growth trends with healthy household balance sheets, elevated home equity and an aging U.S. housing stock, with a median age of 43 years.

In U.S. wood product markets, demand for lumber and OSB was influenced by cautious buyer sentiment at the outset of fourth quarter 2023. As the quarter progressed, demand increased in response to strong single-family housing starts and improving macroeconomic conditions. The Random Lengths Framing Lumber Composite price averaged $384/MBF and the OSB Composite averaged $406/MSF in fourth quarter 2023. Over the course of the fourth quarter, composite prices for lumber decreased from $422/MBF to $395/MBF and composite prices for OSB decreased from $454/MSF to $430/MSF.

In Western log markets, Douglas fir sawlog prices decreased 2.8 percent in fourth quarter 2023 compared with third quarter 2023, as reported by Fastmarkets RISI Log Lines based on Weyerhaeuser’s sales mix. Overall, domestic log demand and prices faced downward pressure at the outset of the quarter, as mills adjusted to a softening lumber market and worked through elevated log inventories. As the quarter progressed, lumber markets improved, and log supply decreased seasonally. In the South, delivered sawlog prices decreased 0.5 percent in fourth quarter 2023 compared to third quarter 2023 and declined 3.6 percent from fourth quarter 2022 as reported by TimberMart-South. This was primarily driven by ample log supply, elevated mill inventories and reduced demand for finished goods during the quarter.

Currency exchange rates, available supply from other countries and trade policy affect our export businesses. During fourth quarter 2023, end use demand in export markets was mixed. In Japan, total housing starts decreased 4.7 percent year to date through November compared to the same period in 2022, while the key Post and Beam segment saw a 6.2 percent decrease. Lumber imports to Japan from Europe were more balanced than in previous quarters, providing support for logs. China’s weaker end use demand for logs and lumber was offset by lower competitive supply, leading to stable pricing for logs from the West.

Interest rates affect our business primarily through their impact on mortgage rates and housing affordability, their general impact on the economy and their influence on our capital management activities. Actions by the U.S. Federal Reserve, the overall condition of the economy and fluctuations in financial markets are all factors that influence long-term interest rates. 30-year mortgage rates, which are correlated with long-term interest rates, decreased from 7.3 percent at the end of third quarter 2023 to 6.6 percent at the end of fourth quarter 2023, according to economic data from Freddie Mac. Many builders have been able to offset higher mortgage rates through discounts, mortgage rate buydowns and modifying product offerings such as home sizes and finishes. Higher rates have also locked-in many existing homeowners from selling, reducing inventories of existing homes for sale which has led to increased demand for available new homes.

Increased inflation affects the cost of our operations across each of our business segments, including costs for raw materials, transportation, energy and labor. The Consumer Price Index increased at an annual rate of 3.4 percent as of December 2023, which is markedly down from its peak of over 9.0 percent annual increase in June 2022. While we can offset some of the impacts of inflation through our sales activities, our operational excellence initiatives and our procurement practices, not all of the costs associated with inflation can be fully mitigated or passed on to the consumer.

The condition of the labor market affects all of our businesses as it relates to our ability to attract and retain employees and contractors. The unemployment rate of 3.7 percent in December 2023 remained near historically low levels and decreased 0.1 percent from the end of third quarter 2023.

Governments and businesses across the globe are taking action on climate change and are making significant commitments towards decarbonizing operations and reducing greenhouse gas emissions to net zero. Achieving these commitments will require governments and companies to take major steps to modify operations, invest in low-carbon activities and purchase credits to reduce environmental impacts. We believe we are uniquely positioned to help entities achieve these commitments through natural climate solutions, including forest carbon sequestration, carbon capture and storage and renewable energy activities.

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