Metsäala

Forestry forecast - spring 2021

METSÄALAN TUTKIMUSRYHMÄ
21 huhtikuu 2021

  • Forest sector rises from the corona crisis with the aid of stimulus and investments – Paper exports collapse 

    Driven by consumer demand and an overall recovery the global economy will grow rapidly this year. That is if corona vaccinations progress and are also effective against new virus variants. Finnish paper exports will continue the rapid decline that started the previous year due to the closure of Stora Enso’s Veitsiluoto papermill in Kemi, Norhern Finland. On the other hand, paperboard exports will increase due to Stora Enso's investment in Oulu. Market prices for softwood pulp have risen markedly in recent months, and this will also increase pulp exports this year. Exports of sawnwood will increase this year due to the favorable market situation and the weak previous year. The export price of sawnwood is rising, supported by strong demand and low inventories. In the first half of this year, the price will peak close to the previous price peak of 2018, but prices will start to even out during the latter half of the year. As the use of wood increases, the volumes of timber harvesting and trade will increase both this year and the next. In the beginning of this year wood prices will rise sharply in comparison to the beginning of last year, but during the year the relative rise will slow down. Next year the prices will develop more moderately. Gross income from private forests increases due to both increased fellings and prices. 

    Export market  

    2021f
    %

    2022f
    %

    Timber trade 2021f
    %
    2022f
    %
    Paper quantity -25 -7 Wood consumption
    of forest industry
    3 1
      price 3 2      
    Paperboard quantity 11 5 Roundwood removals 5 3
      price 1 1      
    Pulp quantity 6 1 Timber sales, private forests 9 5
      price 12 2 Wood price, nominal (1)    
    Sawnwood quantity 8 3    log 6 3
      price 8 -2    pulpwood 3 3
    Plywood quantity 9 3 Stumpage earnings,
    private forests
    14 8
      price 5 -1      

    f=PTT forecast, 1=standing sales, yearly average price

    Rapid growth of the global economy increases demand mostly in services 

    The global economy will experience rapid growth this and next year. In China, production is already strong. The United States will gain momentum early in the year and take the lead from Europe thanks to the rapid pace of vaccination and massive stimulus. In Europe, the economy will not grow properly until the summer. Private consumption will grow briskly due to the record household savings and consumption needs accumulated during the corona crisis. At the same time, the structure of consumption is normalizing, and growth is focused on services. The recovery in consumption is so rapid that supply does not always keep up. This year will be marked by temporary rises in prices. However, the pandemic continues to cause great uncertainty, with new disease variants potentially further delaying the normalization of the economy. 

    Production and exports of the Finnish forest industry fell sharply last year, mainly due to industrial action and corona restrictions. This year’s forecast figures reflect the weak previous year. Exports of all forest industry products except for paper will recover this year. The increase in export prices of paper and paperboard is moderate compared to the price development of pulp and sawnwood. This year, the export value of the Finnish forest industry will rise by four percent from the year 2020. However, the value of exports will be 14 percent lower than in 2019, as the increase in paperboard production will not be enough to compensate for the gap left by declining paper production. Paper production will decline this year, as Stora Enso will likely this year close the Veitsiluoto papermill in Kemi, Northern Finland. Due to the closure paper will already this year become the smallest main product group of the Finnish forest industry measured by export value. The value of paper exports will halve in only two years.  The comparison of the export value of the forest industry to 2019 also reflects the price fluctuations of forest industry products. Next year, the value of the forest industry exports will rise by two percent from the current year. The recovery in exports of forest products during both this year and the next will depend on the growth of the world economy. 

    The collapse of paper exports continues 

    Paper exports experienced an unprecedented decline last year. Exports decreased by a quarter compared to 2019. Last year Stora Enso closed paper capacity in Oulu and UPM in Jämsä. In addition, the decline was increased by industrial action at the beginning of the year and lower machine utilization rates due to weaker demand caused by corona. The average export price of paper decreased by about seven percent. 

    This year production capacity of graphic paper will continue to decline as Stora Enso will more than likely close its Veitsiluoto papermill in Kemi, Northern Finland. The annual capacity of the papermill has been 790000 tons of uncoated fine paper, coated newsprint and packaging paper. According to the announcement of Stora Enso paper production at the Veitsiluoto papermill will cease during the third quarter. The closing of paper capacity will cause a decline in exports this year as well, although there may be a slight increase in utilization rates. Next year the decline in paper exports will be moderate. The closures will somewhat ease the overcapacity in graphic paper production. The situation will be further eased by the recovery in paper demand during the second half of the year as corona restriction measures will be lifted in Europe - it remains to be seen in which grades of paper and how much paper consumption patterns will recover compared to the pre-corona period. However, there is no return to the pre-corona level of demand.  

    The strong rise in market pulp prices in the early part of the year will further depress the already weak profitability of paper producers. Indeed, according to market reviews, attempts have been made to negotiate price increases for recent paper supply contracts, with varying degrees of success. This may improve the position of Finnish companies whose paper production is not based on pulp purchased from the market but on pulp produced by themselves. This year there will be a slight increase in prices, assuming that during the second half of the year, paper consumption will recover slightly as the economy recovers. 

    Oulu investment will increase paperboard exports  

    The demand for paperboard was good last year. The export volume remained at the level of 2019 and the average export price decreased only slightly. Demand for paperboard is also expected to develop steadily in the long term. Ongoing product development for paperboard (for example, coatings made from renewable raw materials that improve the moisture or grease resistance of carton) will improve its recyclability and position compared to plastic-based packaging. 

    This year's and next year's exports of paperboard will be most affected by the kraftliner production started in Oulu. Stora Enso believes that the corrugated paperboard machine will reach its full capacity (450,000 tonnes per year) before the summer. As a result, this year paperboard exports will increase by about a tenth compared to last year and slightly further next year. 

    No major changes in the average export price will be seen this year or the next. The demand outlook for paperboard is consistently good and the increase in pulp prices will also enable price increases in paperboard. On the other hand, the average export price is lowered by the increase in the share of kraftliner. 

    Pulp market prices on the rise 

    Despite the difficulties of the graphic papers and the industrial action, pulp exports fell by only three percent last year from 2019. Instead, the weakening demand was reflected in the price: the average export price of pulp fell by almost a fifth, reaching its lowest level in ten years. Globally, the dollar price of softwood market pulp remained fairly flat last year. Towards the end of the year, prices started to rise, first in China and then in Europe. 

    Again, exports of softwood pulp will be affected primarily by Chinese demand. The country’s economic growth is strong and private consumption is on the rise. The use of paperboards and tissue papers is growing, and with it the demand for softwood pulp suitable for their production. This is reflected in the prices of softwood pulp futures listed on the Shanghai Futures Exchange, which have also pushed up ton prices by more than 40 percent during early 2021. In Europe, price increases over the same period have been about a quarter. The prices of softwood market pulp are also clearly rising. 

    Pulp price development has been strong in recent months, but there are also questions about the near future. Although the demand for market pulp for the production of paperboard and tissue paper is strengthening, it is uncertain how its use for the production of printing and writing papers will develop this year and next. This year, the average annual export price of pulp will increase by 12 percent compared to previous year. Exports will be supported by the likely weakening of the euro against the dollar. The closure of Stora Enso’s Veitsiluoto pulpmill will decrease pulp production by 360000 tons. This pulp has been used entirely in Finland, so the closure will not affect exports. The volume of exports will rise by about six percent this year from last year. In 2022, both the export volume and price will remain close to this year’s values. 

    Sawnwood prices will rise sharply this year 

    This year, sawn timber exports will recover by eight percent. The recovery is due to the favorable market situation, but also to the weak comparison year. Last year’s export figures reflect the difficult market situation at the turn of 2020, the industrial action and the corona control measures. This year the demand of sawnwood is supported by the recovery in construction volume. Construction volume will grow thanks to the gradual easing of corona control measures as vaccinations progress and stimulus, mainly through growth in aggregate demand. Construction is also supported by the strong housing market both in Finland and in many other countries. On the other hand, the easing of corona control measures will reduce do-it-yourself construction to a normal level as consumers once again are able to spend money on services. 

    Except for last spring, demand for sawnwood has remained relatively good throughout the corona pandemic both globally and in Finland. The ability of North African countries to import sawn timber has been weakened by the ongoing stagnation of tourism. This has been a strain on the regions countries and their economies and has weakened their foreign exchange reserves. In China, the volume of construction increased last year, but Russian sawmills in particular have benefited from this. In the United States, growth in construction has increased demand for sawnwood. This in turn has increased sawn timber imports from Europe. 

    At the end of last year and the beginning of this year, sawnwood production has been curtailed due to corona infections in at least parts of Sweden and Central Europe. Due to good demand and limited production, the inventories of sawmills have decreased in these areas. In Finland, inventories fell to a low level during last year’s industrial action. Inventories of Finland's most important exporting countries are also low both in Europe and in some North African countries. 

    The average export price of sawn timber will increase by 8% this year due to  the good market situation and low sawn timber stocks. In the first half of the year, monthly prices will peak close to the previous price peak of 2018, but prices will slowly start to fall in the second half of the year as the stocks of sawmills and importers are replenished. Also in Finland, the average price of sawn timber is rising. The price increase is driven by increased demand from do-it-yourself construction and rising export prices. However, the rise will level off in the second half of the year as summer, the peak season for do-it-yourself construction season, ends. 

    The lumber market will continue to be affected this year and the next by beetle and storm damaged wood in Central Europe. Damaged wood is still abundant, which keeps high the supply of lower quality sawn timber and limits its price increase. The export prices of sawn timber may start to fall again if a lot of damaged wood accumulates next summer and autumn and at the same time the demand for sawn timber levels off. 

    Last year, about 11 million cubic meters of sawn timber was produced in Finland. Production volumes will rise by seven percent this year and three percent next year. Next year, the production volumes will be affected by the commencement of production at Metsä Groups new Rauma sawmill. Currently the sawmill is scheduled to start up in the third quarter but will not reach full capacity till 2023. 

    The export price of plywood will finally increase 

    Plywood exports will recover nine percent this year from the previous year, which was influenced by industrial action and corona control measures. The majority of Finnish plywood is exported to Europe, where construction has remained brisk despite the corona pandemic. Of course, in a few important export countries of Finland, such as the UK and France, construction volume declined due to corona control measures. On the other hand, plywood exports were hampered by declining production in the furniture and automotive industry. Next year, plywood exports will grow by three percent. 

    This year, the export price of plywood will rise by five percent. Next year the price will fall by one percent. The export price of softwood plywood is rising moderately, but the price of hardwood plywood will increase stronger. The increase in the export price of plywood reflects the recovery of production in the furniture and automotive industry. During this and next year the hardwood plywood market may be affected by the European Commission's ongoing investigation into whether Russian plywood mills have dumped birch plywood in Europe between 2019 and 2020. Depending on the outcome of the investigation, the EU may impose an anti-dumping duty on Russian birch plywood. An anti-dumping duty could improve the competitiveness of Finnish plywood in EU countries. 

    Plywood production will recover by seven percent this year and two percent next year as demand continues to recover. Plywood production capacity will decline this year, because UPM closed its Jyväskylä plywood mill last summer.

     

    Forest industry production 

      Paper milj. t. Pulp milj. t. Paperboard milj. t. Sawnwood milj. t. Plywood milj. t.
    2017 6,7 10,8 3,6 11,8 1,2
    2018 6,7 11,7 3,8 11,8 1,2
    2019 6,0 11,6 3,7 11,4 1,1
    2020 4,5 10,6e 3,7 10,9 1,0
      % % % % %
    2021f -25 -3 11 7 7
    2022f -7 -1 5 2 3

    Source: Finnish Forest Industries Federation, PTT forecast (f) and estimate (e)

     

    Logging and timber sales are picking up due to the better economic situation and forest industry investments 

    Rising demand will increase the use of wood in the forest industry 

    Last year, industrial action and the global economic downturn caused by the corona pandemic 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 were caused by changes in industrial production capacity. The closure of the Kaipola papermill in Jämsä will reduce the use of spruce wood by less than 300,000 cubic meters, but the start paperboard production in Oulu will increase the use of softwood fiber by half a million cubic meters. Simultaneously this year softwood fiber use will be reduced by the closure of the Veitsiluoto mill in Kemi, Northern Finland. Especially use of birch pulpwood will be reduced by the closure. Although it has been announced that the bioproduct mill being built by Metsä Group in Kemi will use a million cubic meters of birch pulpwood per year. Next year this will strengthen the demand for birch pulpwood. 

    Last year, PTT estimated that the use of wood in the forest industry fell by more than seven percent to 65.8 million cubic meters. The decline was greater in the pulp industry than in the wood products industry. This year, the use of wood in the wood products industry will clearly increase as utilization rates rise. The use of wood in the entire forest industry will rise by three percent from last year. The opening of Metsä Group's Rauma sawmill will further increase the use of logs next year. 

    However, the increased use of imported wood reduces the need for domestic wood. Timber imports will increase by a couple of percent this year, remaining at about one-sixth of the forest industry's total raw wood consumption. Last year, the volume of birch pulpwood imports increased by six percent from the previous year and the import of wood chips by as much as 11 percent. The share of wood chips in wood imports rose to 42 percent last year. Wood chips are largely imported from Russia, more precisely from Finnish-owned sawmills and nearby sawmills in the absence of local demand. Birch pulpwood and wood chips combined cover more than four-fifths of wood imports. 

    Russia accounted for 77 percent of last year's imported wood. President Putin’s announcement of a ban on timber exports from the beginning of 2022 is unlikely to apply to birch pulpwood and wood chips, which cover a total of 87 percent of wood imported from Russia. The volume of wood imported from Sweden and Lithuania rose by a brisk 63 and 50 percent last year. Of the wood imported from Sweden, softwood logs account for about 40 percent and pine fiber for about one-fifth. However, Lithuania's share of Finland's wood imports is only in the order of one percent, so when Estonian and Latvian wood imports to Finland decreased last year, the Baltic countries' share decreased to less than one-fifth. 

    Harvest volumes rise this year and the next 

    In Finland, last year's timber harvest in January-December was 11 percent lower than in the corresponding period of the previous year, according to the Natural Resources Centre's monthly statistics. The largest decreases, 13–18 percent, were in the harvesting of birch logs and pulpwood and spruce pulpwood. The volume of felling in private forest stumpage sales decreased by about 11 percent, but the amount of wood from delivery sale fellings decreased by more than a quarter. The combined felling volume of the companies and Metsähallitus increased by more than three percent from the previous year. There will usually be corrections to the monthly logging statistics and preliminary data, and last year's total harvest accumulation will probably fall to about ten percent from the previous year. 

    According to statistics from the Natural Resources Center, in January-February this year, the felling of forest industry wood increased by ten percent compared to the corresponding period last year. The largest increase was in the harvesting of birch and spruce logs. The harvest of pine pulpwood was still four percent lower than at the beginning of last year. The amount of wood accumulated from private forest delivery sales increased by a fifth. The combined felling volume of the companies and Metsähallitus has increased by one tenth. In total, logging volumes will increase by a tad less than five percent this year as demand for wood increases. Demand is more focused on logs than before. Next year, investments in the forest industry will increase the need for wood and market fellings will increase by about three percent, settling close to 62 million cubic meters. 

    Timber trade will pick up markedly 

    This year's figures for the development of the timber trade will be strongly influenced by the fluctuation of last year's trade from the collapse of the early months to the recovery of spring and summer and finally to a clear rise in the autumn. This year, the largest increases in timber trade volumes will be in the early part of the year, and the trend will level off towards the autumn. In January-February, the standing sale trade volumes of logs were 75–93 percent higher than at the beginning of last year. Trade volumes in pulpwood have also clearly increased compared to the beginning of last year, but the development of trade in pine and birch pulpwood, in particular, has been slightly more moderate. The volume of standing sales for the whole year will be just over ten percent higher than last year. Next year's sales volumes will continue to rise by five percent from this year's reading, anticipating the opening of Metsä Group's Rauma sawmill and Kemi bioproduct mill. The sales will focus on stands ripe for regeneration fellings this year. Imported wood, especially wood chips, meet partially the wood needs of the pulp industry. This year, and especially next year, the trade in pulpwood, especially in northern Finland, will also pick up. This year sales of birch pulpwood will maintain at the level of last year. 

    Wood prices are rising with increasing demand 

    Last year, the average log prices fell from the previous year. The three percent fall in the price of pine logs is slightly steeper than the one percent fall for spruce and birch logs. The price of pine pulpwood also decreased compared to the previous year. In contrast, the average annual prices of spruce and birch pulpwood increased slightly. The average annual wood price of standing sales increased by almost four percent from the previous year, as the sales were more focused on log intensive stands than before. In delivery sales, the average annual prices of all types of timber decreased from 2019, logs by an average of about four percent and pulpwood by an average of about 2.5 percent. 

    The average annual price of logs in standing sales will rise clearly this year compared to last year. The prices of softwood logs will rise more sharply than the price of birch logs. These developments reflect rising export prices for sawn timber and a recovery in demand. Next year, the average annual prices of softwood logs will continue to rise from this year’s average price due to an increase in production capacity. 

    This year, the average annual prices of pulpwood will be a tad above three percent higher than last year. The price increase will continue at almost the same speed next year as demand increases. Nominal prices for pine and birch pulpwood will reach historical record levels by next year at the latest. The nominal price of spruce pulpwood peaked in the year 2007. However, measured in real prices, calculated by the consumer price index, still lag well behind the prices of softwood pulp before the recession of 2008 and the introduction of the Russian wood tariff, and slightly below the price of birch pulp.  

    The nominal annual average price of timber, calculated on the basis of volume-weighted average prices of roundwood assortment, will increase by seven percent this year. Next year, the average stump price will rise by more than three percent from this year's average price. 

    Gross income from private forests fell by about a tenth last year due to a decrease in the volume of fellings and trade and a fall in timber prices. Gross income from private forests decreased to 1,75 billion euros. Logs accounted for 67 percent of gross income from private forests last year, a slight decrease due to a more moderate decline in pulpwood prices and trade volumes. 

    This year, the gross income of private forests will start to rise as the price of wood and amount of logging increases. The increase is 14 percent, so gross income will rise to two billion euros. Next year, private forest revenues will rise by a tad less than eight percent from the current year as logging activity increases and wood prices rise. 

    PTT-forecast – Forest sector 2021 spring. Helsinki 2021. 

    Authors: Matti Valonen, Marjo Maidell, Paula Horne, Janne Huovari and Maurizio Sajeva 

    Additional information: 

    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  

    e-mail: forename.surname@ptt.fi