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6 lokakuu 2020
Global production and consumption began to recover in the summer, but in Europe and North America, the recovery has been weaker than in China. The strong recovery of general demand and demand for forest products requires that a vaccine becomes available. Demand for graphic papers will decrease sharply this year, and with that exports. Albeit the chemical forest industry is supported by the increased demand for paperboard and tissue. The focus of exports is shifting from printing and writing papers to paperboard, due to this the Finnish paper and paperboard exports will gradually adapt to better meet the global demand.
Demand for sawnwood has recovered since the beginning of the year, but this year exports will decrease sharply from the previous year. Exports of sawnwood are limited by the uncertainty associated with the coronavirus, the increased supply of sawnwood in Europe due to the sawing of damaged wood, and the low price of crude oil. The decrease in wood use and the increase in wood imports have slowed down the harvesting of wood in Finland. Timber trade and harvesting volumes will rise next year if forest industry exports recover. Changes in wood prices are smaller than changes in volume, so this year's slight decline will be followed by a slight increase next year. Gross stumpage earnings of private forest owners vary more sharply due to the combined effect of logging and prices.
|Export market||2020f||2021f||Timber trade||2020f||2021f|
|Paper||quantity||-25%||-10%||Wood consumption of forest industry||-9%||4%|
|Pulp||quantity||-1%||2%||Timber sales, private forests||-11%||10%|
|price||-14%||6%||Wood proce, nominal (2)|
|Plywood||quantity||-11%||8%||Stumpage earnings, private forests (1)||-19%||9%|
1: Standing sales, yearly average price
Production in the world economy collapsed in the spring due to the corona crisis. In the summer, production and consumption have recovered. The strongest growth has been in China and some other Asian countries, where production exceeded the level of production in the early part of the summer. In Europe and North America, on the other hand, the recovery in demand and production has been weaker. In the autumn, cases of the disease have also started to rise again, which will weaken demand again. However, the situation is unlike to be as bad as in spring. Authorities, firms and consumers are better adapted to the disease. However, a strong economic recovery will require the vaccine to be available on the market, which is expected to take place next year. The forecast this time includes an exceptional amount of uncertainty.
The market situation varies greatly from product to product. Demand for paper has fallen sharply, while paperboard exports have remained at last year's level. Until demand starts to grow strongly, international competition will remain tight. Finland's competitive position is weakened by the high amount of damaged wood in the European timber market, especially in Central Europe and Sweden, which has reduced the raw material costs of the forest industry in these areas. This applies to both the mechanical and chemical forest industries of Finland. The strengthening of the euro against the dollar has weakened the competitive position of the Finnish pulp industry to some extent, while the slight strengthening of the Swedish krona evens out a bit the competitive position of the Finnish and Swedish mechanical forest industries.
This year the value of the Finnish forest industry exports, of the products monitored by PTT in the forest sector forecast, will fall by 16 per cent from the previous year. The decline in exports is largely due to the decrease in paper production, but the value of exports of pulp and wood products is also declining, mainly due to lower export prices than in the previous year. The value of paperboard exports will remain almost at the previous year's level. In 2021 the value of forest industry exports will increase by three percent from the current year. Next year the export value of all but paper will increase from this year’s figures, but there is uncertainty about the strength of the recovery. Next year, paperboard will replace paper as the most important export product of the Finnish forest industry in terms of export value. Albeit the recovery of forest industry exports requires the world economy to grow strongly.
Demand for European graphic paper has fallen by an average of 5% a year over the last ten years. The corona epidemic had a strong impact on European paper consumption, and as a result, in January-July this year, demand for European graphic papers fell by more than a fifth from last year. It is still unclear when and to what extent consumption and demand will recover as the corona situation eases.
The most valuable export product of the Finnish pulp and paper industry has traditionally been printing and writing paper. However, the situation is changing: this year, paperboard will rise alongside paper. Printing and writing paper machines have been closed this year and last and more are likely to be closed next year. Instead, a new board machine will start to operate this year. In this way, the Finnish pulp and paper industry adapts to global consumption, where the importance of, for example, paperboards and tissue papers is emphasized.
In the short term, it is impossible to compensate the decrease of consumption and export of graphic papers brought about by Korona with other products. Changes in production do not happen in an instant. In addition, tissue papers, for example, whose demand is rising, especially in Asia, will continue to be produced close to the consumer. In the longer term, the value of exports in the pulp and paper industry is affected by the extent to which ongoing product development leads to the industrial production of wood-fibre-based products in Finland.
The corona epidemic drastically reduced demand for graphic papers in Europe. The decline was driven by corona control measures such as increased telecommuting, school closures, and widespread online news reading. In addition to the decline in demand, Finnish paper exports were reduced this year by a stoppage at the beginning of the year and especially capacity closures. Although there was news in Europe in the late summer that demand for certain grades of paper was increasing, the re-acceleration of the epidemic will weaken consumption in the autumn. For the whole year, paper exports will fall by as much as a quarter from last year.
In Europe, prices for different grades of paper declined during the first half of the year. There are no factors supporting the rise in prices for this year and therefore the export price of paper will fall by about four percent from last year.
This year, two fine paper machines will be closed in Oulu, and it is likely that next year, three newsprint and coated mechanical paper machines will be closed in the Kaipola mill. With these closures, the capacity of Finnish graphic papers would decrease by more than a quarter in 2020. Next year, paper exports will fall by another ten percent. Production of graphic papers will also be reduced elsewhere in Europe, for example in Sweden. This will cut down overcapacity and the export price will fall only slightly next year. However, next year's demand for paper and export prospects will be strongly affected by the recovery of EU economies. Even if economic growth and consumption were to recover to some extent next year, this would primarily affect the export price of paper and not the volume that will be permanently cut by paper capacity closures.
The korona and the changes in consumption caused by it have affected the demand for different board grades in various ways. For example, the demand for food packaging has increased while the so-called demand for luxury packaging has declined. The demand for virgin fiber board produced in Finland is maintained in particular by the fact that its use is required in food and medicine packaging with stricter hygiene requirements.
The situation in Finnish board exports has been good. The decline in exports caused by the stoppage at the beginning of the year had almost caught up by June, compared to last year. Production for the rest of the year is limited by maintenance outages, which were carried over from the beginning of the year to the second half of the year. Full-year exports will remain at last year's level and the average export price will fall only slightly.
With the production of kraftliner starting in Oulu at the end of this year, the export volume of paperboard next year will increase by about nine per cent. In addition, household consumption is expected to pick up next year, leading to a slight increase in export prices.
In 2019, a record 4.5 million tonnes of pulp were exported. This year, the demand for pulp has been reduced by the decline in the consumption of graphic papers and increased by the growth in the demand for paperboards and tissue papers. Overall, Finnish pulp exports have recovered quite well from the stoppage in the beginning of the year, and this year the volume of exports will be only slightly below last year's readings.
The price level of softwood pulp has remained fairly stable in both Europe and China this year. Since the early autumn, prices have been rising slightly. Stocks of softwood pulp in Europe are higher than last year, but the situation will be offset by maintenance outages planned for the rest of the year. Towards the end of the year, the export price of pulp will rise moderately, but about 14 percent drop from last year's average export price will remain.
Demand for pulp produced in Finland will be strengthened in the future, especially by China. The country’s economic growth is recovering, and China is banning imports of waste containing recycled fiber at the end of this year. In the future, the Chinese industry using recycled fiber will have to find new sources of raw materials, such as pulp made from virgin fiber. This will have a positive effect on next year's export prospects for Finnish pulp.
The volume of Finnish sawnwood exports will fall by 13 percent this year. Restrictions imposed in the spring to curb the pandemic reduced construction in all of Finland's important sawnwood exporting countries, which reduced exports. Of the major export destinations, exports increased in January-June only to Saudi Arabia, Estonia, and Israel. Since the spring, demand for sawnwood has slowly recovered. Next year, exports will recover by eight percent, but will be lower than in 2019. However, the recovery requires keeping the disease situation under control. In addition to the corona crisis, the growth of exports will be slowed down by the increased supply of sawnwood in Europe due to the sawing of damaged wood.
Do-it-yourself construction and renovation, which has intensified due to corona, has increased domestic consumption of sawnwood this year. In Finland, construction increased in the second quarter and, according to preliminary data, construction output continued to grow in the summer. However, the number of building permits has started to decline, which anticipates that housing construction will settle at a longer-term level. (see PTT economic forecast). Next year, domestic consumption of sawnwood will start to decline, because of decreasing housing construction.
In the second quarter construction in Finland's most important European export destinations fell the most in the United Kingdom and France. Germany and the Netherlands managed with a relatively little decrease. The Euroconstruct network forecasts that construction volume in Europe will fall by almost 12 per cent this year, only to grow by six per cent next year. Next year, the recovery will be stronger in countries where the decline in construction was stronger in the first half of this year. Nonetheless, the intensity of the recovery depends largely on the development of the corona epidemic.
In Japan, the number of construction starts of timber-framed buildings fell by 15 per cent in January-June and that of timber-framed residential buildings by 14 per cent. However, in January-June, Finnish sawnwood exports to Japan declined moderately. The increased supply of damaged wood in Central Europe was not reflected in exports to Japan, as the country has high quality requirements that the damaged wood does not meet.
In China, the corona epidemic was effectively curbed and construction investment grew by almost two percent in January-June compared to the same period the previous year. As already last year, the competitive situation in the Chinese sawnwood market is tight. The Chinese market in tightened by Russia's strong market position and Central Europe's increased exports of sawnwood to China. Tight competition has kept the price level low. Finland's export price to China fell by 12 percent between January and June.
Export prices for sawnwood will fall this year. The average export price of whitewood will fall by three percent and that of redwood by four percent. The rise in export prices is limited by the uncertainty surrounding the corona situation, the increase in the supply of sawnwood in Europe due to increased sawnwood production, and the low price of crude oil. Next year sawnwood export prices will rise moderately.
Almost 500 million cubic meters of sawnwood were produced worldwide last year, of which almost three quarters were coniferous sawnwood. Last year more than 12 million cubic meters of sawnwood were produced in Finland. Finland's share of total world production was less than three percent. This ongoing year Finnish sawnwood production will decline, because of the industrial action at the beginning of the year, the corona crisis, and the closing of Stora Enso’s Kitee sawmill, which was closed last year.
The weakened ability of sawmills to pay for timber due to the current low export prices of sawnwood may slow down the timber trade towards the end of the year. In addition, buyers and sellers have differing views on wood prices, which is common after a drop in prices from the higher level of the previous years.
Next year sawnwood production will rise from this year’s low quantity. The share of exports in sawnwood production will decrease this year, as domestic demand has held its ground better than the export market. However, the share of exports will grow again next year.
At the turn of the year, the supply of sawnwood was higher than demand. Supply was boosted by increased sawing of storm and insect damaged wood in Central Europe and Sweden. Last year the increased supply sawnwood made of damaged wood intensified competition, especially in the North African and Chinese markets. Export prices fell sharply because of this.
This year damaged wood has been sawn in abundance in Central Europe, and last summer there was extensive insect damage in Central Europe. Relief from these climate-accelerated damages is not forthcoming unless drier and hotter summers than normal are avoided in the coming years. To meet the increased need for sawmilling due to the supply of damaged wood, companies are investing in new capacity. If the investment plans materialize, Europe's sawnwood production capacity will increase by more than three million cubic meters this year and next. This is approximately the same amount produced in Finland in one quarter.
In early March crude oil prices plummeted due to the oil price war between Russia and Saudi Arabia and declining demand. Since then, the price of oil has risen somewhat. It was feared that the low price of oil would significantly weaken exports to oil-dependent countries in North Africa and the Middle East. As of yet this has not been the case, which is probably due in part to the low price level of sawnwood.
Plywood exports will fall 11 percent this year. The decrease is due to the industrial action in January and February and restrictions to curb the corona epidemic. The restrictive measures reduced construction and production in the furniture, automotive and transport industries in Europe. Plywood exports fell by almost a quarter during the first half of the year, but the gap will narrow towards the end of the year. The upcoming year plywood exports will grow eight percent thanks to the weak comparison year of 2020. On the other hand, the recovery in exports will be supported by a recovery in construction activity, furniture manufacturing and in the automotive industry.
The export price of plywood will fall by two percent this year and will rise by the same amount next year. The export price of softwood plywood will fall less this year than hardwood plywood, but next year the price of hardwood plywood will rise slightly more than softwood plywood.
Plywood production will fall ten percent this year, but will recover six percent the next as demand recovers. Plywood production capacity will decline during this forecast period after as UPM closed the Jyväskylä plywood mill last summer. Both softwood and hardwood plywood were produced at the mill.
Source: Finnish Forest Industries Federation, PTT forecast (f)
The industrial action reduced the use of wood in the early part of the year, after which the global economic downturn caused by the corona pandemic has reduced the production of the forest industry and thus the need for wood. More permanent changes in the use of wood in different parts of Finland are caused by changes in industrial production capacity. The use of spruce pulp wood will be reduced by the closure of the Kaipola mill in Jämsä, but the start of board production in Oulu will increase the use of softwood pulpwood by half a million cubic meters. Other planned investments in the sawmill and pulp industries will not have a significant impact on wood use this year and next.
Last year, the forest industry's use of wood fell by just over three per cent to 71 million cubic meters. The decline was greater in the wood products industry than in the pulp industry. This year, the wood use of the pulp industry will also clearly decrease and the wood use of the entire forest industry will shrink by almost a tenth from last year.
The increased use of imported wood further reduces the need for domestic wood. Timber imports will increase by less than a tenth this year, rising to about one-sixth of the forest industry's total raw wood consumption. Imports of birch pulpwood rose by more than ten per cent in January-June from the first half of last year, and imports of wood chips by as much as 26 per cent. Just over a third of wood imports are wood chips, which are largely imported from Finnish-owned and nearby sawmills in the absence of local demand. The Finnish forest industry also has harvesting operations in Russia as part of the timber supply, especially at production facilities close to the border. Birch fiber, which, in addition to wood chips, was excluded from the tariffs imposed by Russia in 2007, covers more than 40 percent of wood imports. Birch fiber is abundant in Russia in the vicinity of the border, while in Finland birch fiber is mainly collected from mixed forest stands for birch pulp production.
Russia has accounted for 76 percent of the volume of imported timber in January-June this year. President Putin’s recent announcement of a ban on timber exports from the beginning of 2022 would not apply to birch pulpwood and wood chips, which cover a total of 87 percent of wood imported from Russia. Imports of coniferous trees from Russia, which are subject to an export ban, collapsed after 2007. Imports of softwood fibers have fallen even lower in January-June this year. The share of softwood logs in wood imports is also small. With its WTO membership, Russia introduced in 2012 tariff quotas with reduced tariffs on exports of pine and spruce to EU countries.
However, the uncertain operating environment in Russia has not attracted a significant increase in conifer imports and the threat of an export ban will further reduce willingness. However, for individual sawmills, an export ban can be very important. At the end of last year, EU phytosanitary legislation also came into force, requiring a phytosanitary certificate for softwood imported from outside Europe. The position of the Baltic countries as import countries for softwood fiber is thus further emphasized. The Baltics accounted for 61 percent of softwood fiber imports in January-June this year.
In Finland, last winter's poor harvest conditions led timber procurement to the load-bearing lands and within reach of the load-bearing roads, while some of the planned felling was left waiting for colder weather. Accumulated stocks have also been unloaded this year. The volume of fellings in January-July was 18 per cent lower than in the corresponding period last year. The rest of the year will smooth out the decline, and this year the total felling volume will fall by 15 percent. The biggest decline is in the harvesting of birch logs and fiber. The amount of wood accumulated from the acquisition of private forests will decrease by almost a quarter. The combined felling volume of the companies and Metsähallitus will decrease less than the felling of private forests, by less than five per cent. Demand, which recovered next year, will increase production and demand for domestic wood as well. Market fellings will increase by about 6 percent to 58 million cubic meters.
Last year, the amount of stumpage sales in private forests decreased by almost a third from the previous year. The volume of trade fell clearly more than felling, so the stocks of stumpage sales accumulated in the forests in 2018 were dismantled. The number of acquisitions fell relatively less, by five per cent.
In the early months of this year, the timber trade nearly collapsed as strikes reduced timber use. By August, the stumpage sale in logs was less than a fifth behind last year. The market for pine logs has been clearly quieter than the market for spruce logs. In the pulp wood market, trade in pine pulpwood in particular has also decreased, but overall the percentage of trade in pulpwood was higher in January-August than in log trade compared to the corresponding period last year. As the timber trade slowed down in the autumn of last year, the total decline in stumpage sales volumes this year is nine percent compared to last year.
There is no similar recovery in procurement transactions, but the volume of timber sales will be just over one-fifth lower than last year. Next year’s trade volumes will rise ten percent from this year’s readings. This year and next, sales will focus more on regeneration fellings than in recent years. Imported wood meets partly the wood needs of the pulp industry.
The program of Prime Minister Sanna Marin's government has set the goal of at least halving the use of peat for energy by 2030. The prevailing view in the peat industry is that driven by the market the use of peat for energy will decrease by a half even faster. The government's goal is that industrial roundwood will not be diverted to energy production as the use of peat decreases. In the current forecast period 2020–2021, the reduction in the use of energy peat may not have a significant impact on the use and price of energy wood, but in the coming years it will, especially if energy wood replaces peat in energy production.
The average annual prices of stumpage sales fell by more than a tenth last year due to lower export prices in the wood products industry. Instead, average annual pulpwood prices remained at the 2019 readings supported by pulp prices. In January – August this year, the average prices of softwood logs have continued to fall by more than five per cent from the corresponding period last year. The fall in the price of pine logs is slightly steeper than with spruce logs. The price of pine pulpwood has also fallen relatively more than that of spruce pulpwood, although the price development of pulpwood has been more moderate than that of log wood.
The average annual price of logs in stumpage sales will fall by more than two percent this year compared to last year. The fall in the price of pine logs is the sharpest, more than four per cent, and the birch logs are more moderate. The development reflects the fall in export prices of sawnwood and the emphasis of exports to cheaper goods. Next year, the average annual prices of conifers will rise moderately from this year’s average price if harvest conditions in the early part of the year are normal for a winter.
This year, the average annual prices of pulpwood will be just over one percent lower than last year. The average annual price of pulpwood will rise slightly next year.
The nominal annual average price of timber, calculated on the basis of volume-weighted average prices of timber grades, will fall by two per cent this year. Next year, the average stumpage price will rise slightly from this year’s average price.
Gross income from private forests fell by 14 per cent from the peak year 2018 last year due to a decrease in the volume of felling and trade and a fall in timber prices. Stumpage earnings from private forests fell to two billion euros. Logs accounted for 67 per cent of private forest stumpage earnings last year, a slight decrease due to a more moderate decline in pulpwood prices and trade volumes.
This year, gross income from private forests will continue to fall by 18 per cent to around € 1.6 billion as wood prices, trade and logging fall. Next year, private forest revenues will rise by nine per cent from the current year as logging increases and wood prices rise slightly.
PTT-forecast – Forest sector, Autumn 2020. Helsinki 2020.
Authors: Matti Valonen, Marjo Maidell, Paula Horne, Janne Huovari and Maurizio Sajeva
Paper and pulp industry: Forest Economist Marjo Maidell, tel. +358 40 164 8139
Wood-product industry: Forest Economist Matti Valonen, tel. +358 40 164 8151
Harvesting and timber trade: Research Director Paula Horne, tel. +358 40 592 6820
Finnish containment measures for corona and impact on economy: Head of Forecasting Janne Huovari, tel. +358 40 164 8141