Since 2020, the German economy has been facing numerous challenges. While the markets were still struggling with the effects of the Covid-19 pandemic, and global supply chains were slowly recovering, Russia’s attack on Ukraine added another global event with consequences that persist to this day.
While the German sawmill and timber industry faced exceptionally volatile market developments in 2021, the markets came under pressure in the past year. Due to high demand at home and abroad and dynamic price developments, 2021 saw record production levels and strong revenue increases. However, this trend, which continued into the early months of 2022, reversed with the war in Ukraine.
With the beginning of 2022, the outlook for the sawn softwood market seemed positive. Increasing demand on domestic and international markets stimulated production. This changed in February. The overall economic climate changed, and its effects became apparent among sawn softwood producers from the second quarter onwards. Like in other industries, rapidly rising energy prices put pressure on companies. While power-generating companies benefitted from the energy market, many others faced significant cost increases.
Additionally, the key market for the industry, the German construction sector, came under pressure. Despite being a growth driver in the crisis year 2020, the challenges of the past year initiated a trend reversal in the construction industry. The substantial increase in investment costs due to rising interest rates, coupled with increasing construction prices, led to a significant decline in building permits, which continues to this day.
As a result, construction projects were frequently cancelled or postponed, and the construction-related product ranges faced price pressure, leading to a steady decline in production. After two record years, sawn softwood production declined for the first time in 2022. Despite a 4.1% decrease compared to the previous year, the annual production of 24.3 million m3 remains well above the long-term average.
Strong foreign markets played a significant role in this, with exports of sawn softwood reaching a new record of 11.1 million m3 in 2022. Foreign sales helped compensate for the fluctuating production in the face of volatile domestic markets, with the US market being particularly receptive since 2017, experiencing a 300% increase in exports over the past five years to almost 3 million m3.
Despite the challenging market situation and numerous obstacles, the past year saw strong revenue growth due to the very high price levels in the early months. However, this trend is no longer continuing, as demand and prices for sawn softwood have continued to decline since the beginning of the year. In the first half of 2023, production decreased by 6.8% compared to the previous year. This decline affected not only the domestic market but also exports, which saw a significant 8.2% decrease between January and August.
The weak export market also affects the German hardwood industry.
In recent years, these companies have experienced a volatile economic environment, with the Covid-19 pandemic and disrupted supply chains impacting the industry significantly. The subsequent recovery was hampered last year, leading to substantial declines in demand on both national and international markets.
High costs and ongoing difficulties in securing raw materials have put considerable pressure on the sector. In total, 997,000m3 of hardwood were produced in 2022, 5.9% less than the previous year. A large portion of the decrease in production can be attributed to a 7.7% drop in exports, which continues into the current year, with hardwood production declining by 10.9% in the first half of 2023.
CHALLENGES AND OPPORTUNITIES
For several years now, the German sawmill and timber industry has held a leading position in Europe in terms of production, exports, and consumption. It has evolved from a timber-importing country to a major exporter, playing a significant role in international comparisons. However, ensuring the supply of domestic markets and strengthening the use of wood domestically remain the top priorities.
Despite the current challenging economic situation, the medium-term outlook for wood usage in Germany is positive. Given climate protection goals and the desired economic and societal transformation towards a bioeconomy and circular economy, sustainable use of the renewable resource of wood holds significant potential. The demand for climate-friendly construction, housing, and living, as well as renewable electricity and heat, can be reliably served with wood.
Particularly in construction, the potential of wood as a natural carbon dioxide sink has been recognised by policymakers, with initiatives at the state and federal levels aiming to promote timber construction and, in turn, climate protection. With Germany’s growing housing needs and clear goals for new construction, it’s imperative to implement measures to stimulate the construction industry quickly considering the current crisis.
At the same time, wood usage is facing potential restrictions from other climate and nature protection initiatives at the EU and federal levels. Bans on forest management to protect biodiversity and to build carbon dioxide sinks could reduce wood supply across Europe.
Given the already significant damage to forests, the active management and transition to climate-stable forests remain a politically contested issue that will significantly affect the long-term raw material supply of the domestic sawmill and timber industry.
The central goal of the DeSH is to holistically strengthen wood usage in Germany and align the economic and political framework with this renewable resource.
