Summary
• Finnish sawmills are happy with the market balance.
• There is good demand from the domestic and export markets.
• Raw material supply continues to be a concern.
• Egypt is now the biggest buyer of Finnish sawn timber.
• Sawn timber production is forecast to rise by 15% this year.
At the end of last year Finnish traders were concerned that the small gains the market had made in the fourth quarter could easily be lost. However, a sense of stability was maintained during the winter and it looks set to continue through the second quarter.
The severe winter and the fact that importers/merchants carried stock into January made the start of the year slow but since then a pick-up in demand and prices is keeping traders happy. One contact cited a 15% rise in sawmill production between February and March, and plywood output has also improved, although it is still at historically low levels.
“Sawn timber demand is gradually improving and we are happy with current demand against production; it’s a good balance,” one shipper told TTJ.
“The market is OK,” said another. “We are especially happy with the domestic market which is picking up again. It’s still the best individual market we have.”
Over the past year the RMI market has held up well in Finland but now the prefabricated housing market is also providing sales for the timber industry. “Their order books are good,” said one contact.
Expott markets
Export markets generally have also strengthened and price rises have been secured for the second quarter. One shipper said Japan, in particular, was looking “quite strong” but in the UK demand remained fragile. “If the current good weather continues, increased activity can be expected,” said one shipper, although at present there was some nervousness about the general election result and its impact on public spending.
While the mood is more positive, the ongoing raw material shortage is vexing mills and could force production cuts. “The market is screaming for more wood,” said one shipper.
And it’s not confined to Finland: Continental Europe’s log stocks are thought to be 5-4 million m³ lower than this time last year.
In Finland the heart of the problem is private growers’ reluctance to harvest at current prices, felt all the more keenly because of the halt to Russian imports.
“They [forest owners] keep reminding us of the price levels of 2007 and we tell them there is no possibility of getting such selling prices now because demand isn’t based on consumption but on low inventories and restricted production,” a sawmiller told TTJ.
In December, just before the end of the 50% tax break on log sales, growers did place around 6.5 million m³ of roundwood on the market, providing mills with enough timber for the first quarter. “That was quite a shock for us and quite expensive to buy that much timber at a time,” said one contact.
Reduced tax relief of 25% continues throughout this year but whether it will encourage forest owners to harvest is still uncertain.
However, while one shipper described harvesting as “hand-to-mouth cutting”, he was hopeful the severity of the log shortage was temporary. Frozen ground during the severe winter allowed some usually inaccessible areas to be logged but now the spring thaw is restricting supplies. In addition, farmers have other demands during the spring. “We have to allow time,” he said.
Balance will continue
While some mills predict the log shortage will lead to production cuts over the summer, they don’t appear overly concerned and believe the market balance will be maintained.
“We are pretty safe until the end of June but there are question marks over the third quarter – about the supply of roundwood and what’s happening in the market,” said one contact. “We expect we will run out of certain qualities because the market is always more active in the summer.”
Another said that, if shortages do appear, sawmills would focus on supplying long-standing customers and not letting them down. “There is a risk of raw material and product shortages but I think they will be temporary,” he said.
Despite these uncertainties Finnish mills are feeling positive, buoyed particularly by the higher prices.
“We are quite optimistic, but cautious,” said one sawmiller. “In general, real demand hasn’t picked up quite yet. Demand will improve but we need to remember that we start from low levels.”
The improving market – and the benefits of last year’s cost-efficiencies and restructuring – is reflected in first-quarter results: Stora Enso has reported pre-tax profits of €117.9m (2009: €48.1m loss) and Metsäliitto has said it expects its results to be a marked improvement on the fourth quarter.
Despite these positive indicators, contacts said sawmillers’ returns were only just improving and profitability remained poor. “If you think about the last two years, the losses that have been made, it’s still a long way from normal,” said one.
Sensible pricing
While the higher prices are something to celebrate, traders are mindful that they don’t follow the meteoric track of three years ago.
“We have to remember that it’s not 2007; we wouldn’t need another year like that. I hope people will be sensible because in 2007 the prices peaked so high that even substitutes came to the market and we don’t want that to happen again,” said a contact.
There is the fear that raw material prices would rise too high as well. “Sales prices are followed by raw material prices and the raw material prices come down more slowly and not as far as sales prices.”
However, another contact pointed out that, in the past, rising prices have led to production increasing faster than demand, but this was unlikely because of the raw material shortage.
Another unknown is the impact of China’s resurgent demand on an already stretched raw material supply. In January and February this year it imported 1 million m³, 75% more than a year ago. “It will be interesting to see how it reflects on material flows around the world,” a sawmilling contact said. “Roundwood supply from Russia to China really has weakened and they need timber for their furniture industry and building.”
