Summary
• Higher costs and falling export prices will reduce the profitability of sawnwood production.
• Contraction in the housing market is expected to reduce timber demand and increase competition in Europe.
• Buoyant demand helped raise plywood export prices by 3% in 2007.
• Some companies are curtailing production because of reduced demand.
• A new biodiversity programme is being finalised for southern Finland.

Improved profitability in the Finnish sawmilling industry prompted hikes in output volume in the first half of 2007. However, the Finnish Forest Research Institute (FFRI) now forecasts that higher roundwood costs and falling export prices for sawnwood will put the squeeze on earnings and lead to a wind down in production levels.

The FFRI says that in 2008 GDP growth in the Finnish industry’s key export markets will slow, while housing starts in the euro area will be depressed by higher interest rates. Tougher competition was already evident on the sawnwood market before the end of 2007 and oversupply will put the lid on sawnwood prices across Europe.

The ultimate consequence of a European construction squeeze and economic slowdown will, predicts the FFRI, be a 4% fall in the average unit price of Finnish exports compared to 2007. And, it says, if the reduction in sawnwood demand is steeper than expected, the drop in export prices would naturally be greater. A fall in Finnish housing production is also forecast to reduce sawnwood demand on the domestic market, although production is expected to remain above the 2006 level.

Buoyant demand

Buoyant demand for plywood has raised the export prices of Finnish softwood and birch plywood, bringing the overall unit price of plywood exports in 2007 to a level about 3% higher than the previous year. A similar percentage increase applies to the volume of plywood production and exports, the increase largely concerning softwood plywood. In 2008, the drop in housing construction will mean a slight fall in plywood demand, although the unit price of Finnish exports is expected to remain at around the 2007 level. This will also be the case for production and export volumes.

Reports from individual businesses bear out the wider industry predictions. Stora Enso states that market conditions for its Wood Products business continued to weaken in the latter part of 2007 and the division’s results for the fourth quarter were poor. This was due to temporary oversupply and high inventories in its main markets. In response to these conditions, the company said it was cutting production of sawnwood and glue laminated posts and beams in Austria, the Baltic states and Finland from the 2007 fourth quarter through to early 2008.

Positive results

Metsäliitto Wood Products Industry (Finnforest) also cut output at two of its mills in Finland in line with market conditions. However, sales for 2007 as a whole (excluding those of Moelven Industrier ASA, which was sold during the year) were still up 8% on the previous year.

Finnforest’s latest developments include, of course, the acquisition of iLevel’s European engineered wood products business from Weyerhaeuser and there are now plans to revamp the processing line at the Boston mill in the UK during the second quarter of 2008.

UPM’s wood products business, particularly plywood, also had a good year but the group continues to press on with measures to improve profitability. Following the review of its asset portfolio against its current cost position and business environment, it is also planning to take out production capacity. This includes the possible closure of the timber components and planing mill in Luumäki, Finland, in line with its plans to centralise planing operations. The financial performance of the mill has been poor and the market outlook for 2008 will remain weak.

On a more positive note, in November UPM won second prize in the European Business Awards for the Environment – National Cleantech Finland awards, in the Product category for UPM ProFi Deck, its wood plastic composite based on recycled material.

Forest biodiversity initiative

A new forest biodiversity programme for southern Finland is being finalised to build on the innovative conservation measures successfully tested in the pilot METSO Programme for 2002-2007. “The new voluntary forest conservation has gained wide approval, and the new programme will continue to apply the same principles,” said environment minister Kimmo Tiilikainen. The new plan includes a promise to assess the effects on biodiversity of the increased harvesting of wood for biofuel.

The Finnish Forest Industries Federation points out that the Finnish forest industry supports the METSO programme in its forest operations. Responsible wood procurement practices help to ensure biodiversity of Finland’s forests, it says, while companies provide employees with training in matters concerning the forest environment.

“The environmental and quality management systems and chain of custody arrangements adopted by the companies also help to ensure high environmental standards.”