Summary
• Finland’s GDP is expected to fall to 0.9% this year.
• In the third quarter of 2008, sawn wood production fell by 25%.
• The volume of logs from private forest owners is diminishing.
• The FFIF says the forest industry has the potential to treble its biomass contribution.
The deterioration of its key export markets are expected to depress Finland’s GDP growth to 0.9% this year, according to economic research institute PTT. This compares to the 2.7% growth it forecast for 2008.
After rising 3.4% last year, the country’s overseas trade has started to decline across a range of sectors, including forest products. Some forecasts are that the export totals will actually contract in 2009.
The cracks clearly started to show in the performance of the timber sector last year. According to the Finnish Forest Industries Federation (FFIF), in the third quarter, sawn wood production fell by about 25%, or 2.1 million m³, compared with the same period in 2007, and from January to September, output was down 20%.
Prices started falling in mid-2007 and in July 2008 they were 25% lower than a year earlier. Over the first three-quarters of 2008 the value of sawn wood production was 33% below that of the same period in 2007.
Plywood producers also saw demand declining last year and their overall output fell by 8% in the third quarter and by about 4% from January to September.
Declining export demand is reflected in the steadily diminishing volumes of logs being purchased from private forest owners. September’s volume of 4.4 million m³ was down 20% on August, and by November this had fallen to 2.7 million m³, a drop of 31% on October.
One reaction of the Finnish government was to introduce 50% tax relief on the sale of logs in order to secure supplies and support the forest industry. This, it says, will stay in place until the end of 2009.
Some good news was Russia’s announcement that it was postponing further increases in its roundwood export duty. The tax was set to rise to €50/m³ on January 1, but this has now been delayed for 9-12 months. Finland relies heavily on Russia for its timber: in 2007 it accounted for 66% of its imports of 15.8 million m³, equating to 16% of its total raw material use. Last year to August total roundwood imports from Russia were 8.4 million m³.
Antro Säilä, the FFIF’s senior vice-president, business environment and innovation, told TTJ that construction activity in Finland’s key markets will certainly remain low for the first half of the year, but there may be some improvement in demand in the second half. Specialist companies may fare better in the current climate but Mr Säilä said the Finnish timber industry overall would continue to adjust production levels to demand.
Staying positive
However, the FFIF says it remains positive about the longer-term prospects for Finland’s wood products industry. While construction activity has fallen around the world, it maintains there will be a strong surge in demand once the global economy revives – and timber is well-placed to meet demand from a market which is looking to boost its sustainability.
Another positive is the forestry and timber industries’ potential in renewable energy. Renewables contribute 28.5% of Finland’s energy production, and the forest industry accounts for nearly 70% of this. Around 40% of wood arriving at mills is ultimately channelled into bioenergy production and the FFIF believes that the industry has the capacity to treble the volume of wood chips going to biomass to 9 million m³ a year.
Looking at individual companies, UPM has reviewed its financial targets in line with the new business structure introduced on December 1 last year. The previous five divisions have been pared down to three – energy and pulp, paper and engineered materials – in a bid to make the business more competitive and flexible.
In its latest report, UPM said that it expected “further softening” in birch and spruce plywood demand and for the sawn timber market to remain weak. The demand outlook for the fourth quarter also weakened further, although operating profit was estimated to be about the same as 2007. Its response to market conditions will include “capacity management in different production lines, new shift arrangements and temporary lay-offs”.
UPM said its new financial targets “emphasise the importance of cash flow in steering the business”. It added that debt reduction has been made a priority and that it had set a long-term target of achieving an operating profit margin of more than 10%.
Stock rebuilding
Finnforest expects demand to increase as merchants and importers gradually have to replenish their stock levels, but the improvement is only expected to be marginal, according to Ole Salven, group executive vice-president of parent company Metsälitto’s wood products division. “High quality niche products – be they sawn goods, plywood or Kerto – will perform best as restrictions on production will impact availability of these first,” he said. “There has been no option but to restrict production in order to avoid losses.”
He maintained that most producers in the current tough environment are struggling with profitability. They have benefited from the downward movement of the Swedish krona and the rouble, but this advantage has been offset by the weak exchange rate of sterling against the euro, he said.
Vapo Group said that its 2008 performance will be “well below” 2007 results, reporting operating profits for the first nine months already down over €20m at €25.1m. Its sawmill business faced declining construction demand and falling prices. “The availability of roundwood has also been poor and prices have been too high in comparison to the price of sawn timber,” it added.
On a brighter note, Vapo said demand for biofuels remains strong. It also highlighted its increasing activity in the wood energy market, with the acquisition of 18 heating plants in Sweden last year.
