- Metsäala
Forest industry adapts to weakening demand – Logging and wood sales decline
Table of Contents
The Finnish forest industry is adapting to the rapid decline in demand witnessed this year. Especially the production and exports of paper and paperboard have been weakened by the decreased demand. The end of the year will not alter the situation significantly. This year pulp exports will rise slightly, because a larger share of production is exported than last year. Demand for sawnwood is reduced by the almost worldwide decline in construction. Weak demand is forcing Finnish sawmills to introduce furloughs this fall and winter, which will cause a sharp drop in Finland’s sawnwood production. As forest industry production diminishes, the demand for wood decreases. The reduction in wood usage is reflected in decreased fellings and wood sales. The rise in wood prices experienced in the beginning of the year has turned to a downward slope during the summer. Nevertheless, the average price of softwood remains significantly higher than in previous years. The forest sector will experience a cautious upturn next year.
The forest sector forecast assumes that during the forecast period of 2023-2024 there will be no significant changes in Russia’s war of aggression against Ukraine.
| Export market | 2023f | 2024f | Timber trade | 2023f | 2024f | |
|---|---|---|---|---|---|---|
| Paper | quantity | -9 % | 6 % | Wood consumption of forest industry | -5 % | 4 % |
| price | -4 % | 3 % | ||||
| Paperboard | quantity | -13 % | 7 % | Roundwood removals | -6 % | 1 % |
| price | -3 % | 2 % | ||||
| Pulp¹ | quantity | 8 % | 10 % | Timber sales, private forests | -6 % | 2 % |
| price | -14 % | 4 % | Wood price, nominal (1) | |||
| Sawnwood | quantity | -9 % | -1 % | log | 6 % | -2 % |
| price | -25 % | 2 % | pulpwood | 27 % | 4 % | |
| Plywood | quantity | -15 % | -2 % | Stumpage earnings, private forests | -1 % | 1 % |
| price | 11 % | -4 % | ||||
| f=forecast | 1 standing sales, yearly average price |
Value of forest industry exports falls sharply
In the current year, the forest industry is adapting to a rapid reduction in demand. Due to reduced demand, the prices of forest industry products have decreased from the previous year. The drop in prices has weakened the profitability of the companies. Driven by higher wood prices and wages the production costs of the forest industry have increased since last year. On the other hand, the decrease in electricity prices has reduced costs, but also the income from electricity sales. The end of European imports of Russian wood and forest industry products continues to affect the European forest industry and forest product markets. After Europe stopped its imports from Russia, Russian forest industry companies have increased their exports to other market areas and tightened competition in them.
In addition to furloughs, reduced demand has already led to the closing of factories or production lines in Finland and elsewhere in Europe. There may be more closures ahead towards the end of the year and next year. Next year, the demand for products from the pulp industry will recover slightly, but the wood products industry faces another year of weak demand.
The total nominal value of the Finland’s exports of forest industry products will decrease this year by 16 percent compared to last year. The export value of all main products will decrease. The value of wood products and paperboard will decrease the most. The value of pulp exports will decrease only slightly. The decrease in the export value of wood products is caused by last year’s high average prices of wood products and the sharp decrease in exports. The primary reason for the decrease in the export value of paperboard is the decrease in its export volume. Next year, the nominal value of forest industry exports will rise again.
The decreasing consumption of graphic papers is leveling off
The decline in consumption and last year’s high paper prices have clearly reduced the demand for graphic papers in Europe. According to Euro-Graph’s statistics, demand in January-July was more than a quarter lower than last year. Among the different paper qualities, the situation is particularly difficult with coated fine paper, the demand for which in the same period was 39 percent lower than last year. In uncoated magazine and fine papers, paper machines have already been closed (e.g. Anjala) in order to adjust the supply closer to the lower demand. Similar production shutdowns have not yet been seen in coated papers. About 60 percent of Finland’s paper exports are coated magazine and fine papers.
Due to low demand, the utilization rates of paper machines have been low, and exports in the first half of the year were only a tenth higher than last year. This is a surprisingly low figure considering the strike that froze UPM’s paper production from January to April 2022. The mood in the paper market is currently expectant: paper stocks have decreased and market participants expect the decline in demand to level off. In Finland, the production and export of paper in the second half of the year does not improve significantly from the beginning of the year, and therefore the total export remains lower than last year. Next year we can expect a slight recovery in demand.
Market prices for different paper grades in Europe have developed fairly steadily in recent months, and a similar development is expected for the rest of the year. The average export price for the whole year is therefore slightly lower than last year.
The exports of paperboard decrease in 2023
The demand for paperboard has turned to a distinct decline for the first time since the increase caused by the corona restrictions. Households have increased the share of services in their consumption at the expense of goods. At the same time, high inflation and economic uncertainties are reducing consumption, for example in Finland, the growth in consumption of convenience meals by households last year was the lowest in ten years. For the same reasons, the e-commerce indices describing e-commerce sales have been declining.
The demand for both cartonboard and containerboard in Europe has been weak and the utilization rates of board machines have clearly decreased since last year. In the first half of the year, the export of paperboard was one-fifth lower than last year, the decline was seen in all different paperboard grades. According to Sweden’s export statistics, the export of certain coated cardboard grades has decreased significantly less than Finland’s figures, so Swedish production currently seems to be benefiting from the weak krona.
Demand is not expected to recover during the rest of the year and production restrictions will continue. The situation of cartonboards is particularly challenging at the moment. Towards the end of the year, however, paperboard production capacity will increase in Kemi and Kuopio. Demand is expected to turn to moderate growth only during the first half of 2024. Due to weak demand, the average export price will still decrease during the rest of the year. We can expect slight price increases for next year.
A larger share of the pulp production exported
Demand for market pulp has decreased due to reduced consumption of end products. At the same time, the supply of hardwood pulp in particular has grown due to the start-up of new production capacities. Pulp stocks in European ports reached an exceptionally high level during the summer. At the same time, the market prices of both softwood and hardwood pulp in Europe have decreased considerably, although the decrease in the market price of hardwood pulp has been greater than that of softwood pulp. The price difference between the two grades has become exceptionally wide. China’s share of exports has increased during the beginning of the year, so despite the question marks of the Chinese economy, there has been demand. In China, the prices of both market pulp grades have also been rising gently.
During the first half of the year, Finnish pulp exports have been more than a quarter higher than last year, when exports were limited by the strike at the beginning of the year. Pulp production, on the other hand, was only 13 percent higher than last year. A larger share of pulp production than before is therefore exported. The main reason behind this is the low utilization rates of paper and paperboard machines. During the rest of the year, production and exports will be reduced by the closing of the Sunila pulp mill (capacity 375,000 tons of bleached softwood pulp per year), where production stopped already in May. On the other hand, Metsä Group’s bioproduct mill in Kemi, which started in September, will increase production and exports in the last months of the year. However, the ramp-up of the production is mainly visible in the statistics next year.
Regarding the demand for pulp, the atmosphere is expectant. Port inventories of pulp in Europe have started to decline slightly in the latest statistics, although stock levels in China are rising. Since August, European market prices for both pulp grades have been stable. The average export price can also be expected to develop fairly steadily for the rest of the year. The turn for increasing softwood pulp price is being held back by relatively cheaper hardwood pulp.
Sawnwood production declines sharply
The almost worldwide decrease in construction has reduced the demand for sawnwood. As a result, sawnwood exports will decrease by ten percent this year. Construction is decreasing particularly briskly in Finland, where construction is downright collapsing. Due to weak demand, a significant part of the sawmills located in Finland will have to introduce furloughs this fall and winter. The duration of the furloughs depends on the sawmill, but they can last for several weeks at worst. This year, Finnish lumber production will contract by ten percent. Most of the decrease in production will occur during the ongoing second half of the year.
Finland’s lumber production capacity will increase further this year and next year due to numerous investments. The companies that have invested will, as far as possible, concentrate their production on their new production lines. The closing of older sawmills is not excluded. For example, MM Kotkamills’, owned by Austrian company Mayr-Melnhof, is thinking of closing its sawmill in Kotka. The very weak demand is already affecting the Finnish sawmills’ operating profit, but in general, the financial sustainability of the sawmills is still good after the upswing during the corona pandemic.
In almost all of the important market areas for Finnish sawmills, construction starts have decreased from the previous year, mainly due to the rise in interest rates. The reduction has been particularly fast in Europe and especially in Germany. In China, the problems of the real estate sector continue, and there will not be a quick turnaround for the better. In Japan, construction starts have also decreased sharply. In the USA, construction starts have decreased from the upswing of the corona era but are still around pre-corona numbers. Egypt’s economic problems, the most acute of which is rapid inflation, are reflected in construction.
In Finland and elsewhere in Europe, Russia’s absence balances the market situation, even though demand is decreasing. On the other hand, the export of Russian sawnwood tightens the competition in the important export markets of Asia, North Africa and the Middle East. The moderately active construction in the USA helps maintain the demand for sawnwood. The position of European producers, such as Germany and Sweden, in the US market will be improved by the continued decline in Canadian production. Swedish sawmills also benefit from the weak exchange rate of the Swedish krona. The improved position of European sawmills in the US market reduces their supply to the European market.
The sawnwood upswing, during which sawnwood export prices skyrocketed, came to an end last year. As a result, the average annual export price of sawn timber will decrease by 25 percent this year from the previous year. Demand will continue to be weak next year. However, the export price of lumber will rise cautiously, due to inflation.
Plywood production will decrease rapidly
Finnish plywood exports will decrease by 15 percent and production by 14 percent this year. Plywood production will decrease slightly less than exports, as the import of plywood from Russia, which ended last year, mitigates the decline in domestic plywood consumption.
The average annual export price of plywood will increase by 11 percent this year. This year the annual export price of hardboard plywood will rise several times more than softwood plywood, because there is a severe shortage of birch plywood all over Europe due to the absence of Russian imports. Birch plywood’s demand is maintained by the fact that it is not easily replaced in demanding applications, such as LNG ships. Despite this, the export of birch plywood will continue to decrease this year, as production is limited by the availability of birch logs. The demand for softwood plywood weakens as a result of the decrease in construction starts, which reduces its export and translates into a decrease in its average export price. As in the first half of this year, plywood manufacturers may have to resort to furloughs in the second half of the current year as well.
| Forest industry production | |||||
|---|---|---|---|---|---|
| Paper | Pulp | Paperboard | Sawnwood | Plywood | |
| m.t. | m.t. | m.t. | m.t. | m.t. | |
| 2019 | 6,0 | 11,6 | 3,7 | 11,4 | 1,1 |
| 2020 | 4,5 | 10,5 | 3,7 | 10,9 | 1,0 |
| 2021 | 4,4 | 11,0 | 4,2 | 11,9 | 1,1 |
| 2022 | 3,1 | 9,4 | 4,2 | 11,2 | 1,1 |
| % | % | % | % | % | |
| 2023f | -9 % | -3 % | -13 % | -10 % | -14 % |
| 2024f | 6 % | 8 % | 7 % | -2 % | -2 % |
| Source: Finnish Forest Industries Federation f=forecast |
The decrease in demand in the end product market reduces the use of wood
In the wood market, the beginning of the year was exceptionally active, and the waning demand in the end product market did not seem to affect the development of trade volumes or prices. As summer approached, the downturn began to be reflected in the wood trade as well.
In January-July of the current year, the import of timber increased by 14 percent compared to the first half of last year. Quantitatively, the increase was about half a million cubic meters. Compared to the average of the previous five years, however, the total import of wood was almost 50 percent lower. As expected, wood imports have increased this year from Sweden, where imports have more than tripled compared to January-July of the previous year. This was primarily the result of increased imports of pine pulpwood. However, quantitatively, the most significant increase has come from the Baltics, especially Estonia and Latvia, where the most imported type of wood was birch pulp wood, which covered more than 40 percent of wood imports from both countries. During the beginning of the year, almost double the amount of wood was imported from the Baltics compared to the beginning of last year, which meant an increase of about one million cubic meters. In addition to imports, exports have also increased this year. The total export of raw wood increased by five percent from the cumulative amount of January to July last year. Compared to the average of the first half of the previous five years, wood exports were 16 percent higher. Almost 1.2 million cubic meters of wood were exported from Finland between January and July of this year, most of which, about 70 percent, went to Sweden.
This year, the forest industry will see a five percent reduction in production, continuing the decline from the previous year. The most significant drop in wood usage, nearly ten percent, is observed in the wood products industry. Next year, wood consumption is expected to increase by approximately four percent to reach about 64 million cubic meters, driven by increased production in the pulp industry.
Harvesting volumes are decreasing in private forests
In January-August of this year, the amount of domestic roundwood harvesting decreased by five percent from a year ago. The most significant decrease was in commercial felling of standing sales in private forests, which decreased by almost eight percent, or just over two million cubic meters, compared to January-August of the previous year. The combined felling volume of the companies and Metsähallitus increased by six percent. The clearest increase in harvest volumes was seen in pine pulpwood, the volume of which was three percent more than a year ago. The biggest decrease was for spruce logs, whose harvest volume decreased by 15 percent. The harvested amounts of hardwood logs and pulpwood also decreased by ten percent.
This year, harvesting will clearly decrease in private forests, and the total removal of wood for forest industry will decrease by six percent compared to last year, to around 60 million cubic meters. The domestic need for harvested wood is reduced by the decrease in wood use in the forest industry and the increase in imports. Next year, the amount of roundwood removals will increase by about one percent as the demand for pulpwood increases.
The slowdown in trading on the wood market will reduce purchase volumes this year
At the start of the year, roundwood sales were brisk, leading to increased trade volumes for both logs and pulpwood. By May, the annual cumulative standing sales were 75 percent higher than in the previous year, and one-third ahead of the average over the past five years.
However, the roundwood market calmed down in the summer and deals have been made at a more leisurely pace since June. In January-August this year, the volume of standing sales was almost a fifth ahead of last year’s. The increase was mainly due to increased sales of pine and birch pulpwood. Standing sales of pine logs and birch pulpwood were a quarter and pine pulpwood over a fifth more than in the period of January – August last year. In timber sales, the change from last year has been more moderate, and the total number of transactions has increased by six percent.
This year, the total number of standing sales of wood will decrease by six percent compared to last year, while the purchase volumes will remain clearly lower than a year ago for the rest of the year. The background is the waning demand for forest industry products. The standing sales trade volume of logs will decrease by about a tenth, while the trade volumes of pulpwood will remain roughly at last year’s level and decrease by about one percent. The pulpwood market is supported by many factors: capacity is increasing in the pulp industry, pulpwood imports are lower than usual, the decline in sawnwood production reduces the availability of woodchips, and the energy industry also uses pulpwood as raw material when necessary.
Next year, the pulp industry will need more wood. Standing sales of logs are affected by the downturn in the sawn timber market, reducing log sale volumes by a few percent. The additional demand for pulpwood increases the total number of standing sales by a couple of percent.
The price of pulpwood will rise this year and next
The prices for different wood types have decreased along with trade volumes after summer. Weighted by sales volume, in January-August of the current year, the average prices of softwood standing prices rose significantly, by about a third compared to a year ago. The strongest price rise was for birch pulpwood, as its average price rose by approximately 40 percent from the average price of January-August last year. Changes in log prices were more moderate. The average prices of softwood logs increased by less than a tenth, but the average price of birch logs was a fifth higher than last year. With the exception of birch logs, the increase in the average standing sales prices of logs and pulpwood was greater for wood from thinnings, than from regeneration harvesting. The nominal purchase prices of softwood rose by almost a third, birch by more than a quarter and hardwood by a little more than a tenth.
The real price of log wood will remain unchanged this year compared to last year, with the annual nominal average price increase being roughly at the level of inflation at around six percent. The price development of pine logs follows inflation, but the average price of spruce logs rises slightly less than inflation. The low supply of birch logs keeps its price development upwards sloping. Next year, the price of logs will decrease by about two percent due to continued weak demand in the lumber market, so the downward change in the real price will be a bit steeper.
This year, the annual average stumpage price of softwood will clearly increase from the previous year, with the price rising by about a quarter. The biggest price increase is for birch pulpwood, the supply of which has decreased after the drop in imports. Next year, the demand for softwood will be increased by the increment in wood use in mass industry, which will raise the nominal price of softwood by four percent.
The nominal annual average stumpage price of wood, calculated on the basis of the average prices weighted by the sales volumes, will rise by approximately eight percent this year. Next year, the average price will decrease slightly, because the sales will focus on pulpwood.
The nominal gross income from private forests grew by almost four percent last year due to the increase in the average price of wood. This year, despite the increase in the average price, the income of private forest owners will decrease by one percent, falling to around 2.4 billion euros as a result of the decrease in harvesting volumes. Next year, gross income is expected to rise again by a little more than one percent, as the number of fellings increases from the current year.
PTT-forecast – Forest sector 2022 autumn. Helsinki 2022. Authors: Matti Valonen, Marjo Maidell, Paula Horne, Maurizio Sajeva and Olli Korhonen
Additional information:
Paper, paperboard, and pulp industry: Forest economist Marjo Maidell, tel. +358 40 164 8169
Wood products industry: Forest economist Matti Valonen, tel. +358 40 164 8151
Harvesting and timber trade: Research director Paula Horne, tel. +358 40 592 6820
e-mail: forename.surname@ptt.fi
