The German sawmill industry has been working at full speed again this year. As feared, last year’s storms were not isolated events but were messengers of climate change. The windthrow also increased the threat of bark beetle infestation.
The aim has been to utilise large quantities of wood in the optimum way and place them on the market. However, this strategy is coming under increasing pressure and the overall economic situation in Germany is clouding over.
Against the backdrop of Brexit and international trade conflicts, it is uncertain whether it will be possible to expand exports of compulsorily processed timber, as was the case last year.
Damaged Timber
The Federal Ministry of Agriculture and Food currently estimates the damage to forests at 180,000ha. The amount of damaged wood resulting from this – 100 million m3 – significantly exceeds the regular annual felling of 54 million m3. In comparison, two years ago ‘only’ 12 million m3 had to be compulsorily processed.
However, together with the national forestry authorities, private forest owners and logistics companies, the sawmills are doing their absolute best to process damaged wood threatened by insect infestation as quickly as possible in order to make the valuable raw material usable for society in the best possible way. After all, the climate protection contribution of active wood use is essential.
For companies, this means increased logistical effort in sorting. Log prices, however, fell only regionally and overall by a moderate 2.3%. The destroyed areas are to be reforested as climate-stable mixed forests in the near future. At a specially convened crisis summit, the German government promised financial aid of €800m.
Production increased
The timber industry has adapted to the raw material situation and is trying to adjust its production in line with the challenging volumes of logs. In the past year, the proportion of damaged wood in Germany has already doubled. The total volume of green and damaged wood amounted to 64 million m3, which resulted in record production, which will be exceeded again this year.
Because of these exceptional circumstances in the otherwise very tight acquisition of raw materials, the German sawmill industry can compete internationally with other European countries for the first time in years.
In 2018, sawn timber production climbed to a total of 24 million m3: sawn softwood 22.8 million m3 (+3.3%) and sawn hardwood 1.1 million m3 (+6.2%). For this year, the industry expects a further increase of 2.2% to 23.3 million m3 of softwood timber while hardwood timber is expected to remain at the same level or increase.
The production of planed timber (softwood +10.5% to 4.3 million m3; hardwood +15% to 610,000m3) grew particularly strongly, which is a clear sign that customer requirements are increasing.
Market demands quality
This is now also noticeable in the construction sector, which is the most important domestic customer for sawn softwood timber. Modern timber construction requires not only strength-graded sawn timber but also increasingly processed building products such as solid structural timber, laminated beam timber and cross-laminated timber.
The companies involved are dependent on a continuous supply of green wood for this purpose. Sales of mass assortment abroad are also increasingly encountering saturated markets and against this background, the utilisation of storm-damaged wood is becoming more difficult.
In addition, in order to guarantee high product standards for wind thrown wood as well, the sawmill industry and forestry authorities are endeavouring, among other things, to expand storage capacities.
In general, domestic demand for sawn timber remained high in 2018, not least due to the stable economy and the overall increase in residential construction, which is having a strong impact on the sector. Although typical single-family and twofamily homes in the country are currently in decline, the number of new homes is still rising.
However, demand for multi-family homes in conurbations is currently growing the most and it is in this arena that wood is increasingly being used. This is due to the flexible construction solutions it offers, as well as the high degree of prefabrication and the fast build times.
The German sawmill industry also benefits from the strong position of structural timber in the low-energy and passive house sector and the high proportion of renovation and thermal insulation measures.
In addition to construction, the packaging sector is an important consumer of domestic softwood timber.
Until mid-2018, increased production and sales had a positive effect on revenues. In the second half of the year, however, the individual softwood sawn timber products came under increasing price pressure due to over supply. This situation has continued this year.
The price trend for sawmill residues also continues to be highly unsatisfactory and it has not yet been possible to return to the level prior to 2014. This is having a negative impact on the companies’ earnings, as approximately 40% of the raw materials used are for sawmill residues.
Exports
While storm damaged sawn softwood production increased by 700,000m3, domestic demand only grew by 300,000m3, therefore the excess was exported, with Germany supplying a total of 8.5 million m3 of sawn timber abroad.
Among the buyer countries in 2018 Britain proved to be one of the most receptive (+18% to 500,000m3). There was also a significant increase in exports to the US and India, Australia, Pakistan and Saudi Arabia also recorded growth. The largest customer is the Netherlands (964,000m3), followed by Austria. The other European neighbours remained consistent in their demand or tended to decline slightly.
The German sawn hardwood market is even more dominated by exports – 70% of the beech production is supplied abroad, for example. The biggest customer is China, followed by the US and Mexico, while Britain is 11th in the rankings.
However, due to the customs measures taken by the US against China, the market is becoming increasingly unpredictable. Exports fell by 13% in 2018, which has a significant impact on overall exports (-4.8%) for German beech.
China’s huge demand for raw materials is detrimental for German sawmills – almost half of the German beech logs exported (800,000m3) go directly to China, meaning that they are then no longer available for domestic processing and added value.
Political Framework
Against this background of its dependence on exports, Brexit and the trade conflict between the US and China, the German sawmill industry sees many uncertainties in the near future. And these ‘insecurities’ make it difficult to estimate the development of both softwoods and hardwoods in 2020.
There is hope that the export successes of 2018 could be repeated despite increasing adversity and that the challenge of using the additional wood in the best possible way and placing it on the market can be met. It remains to be seen whether this will be possible in the event of continuing major difficulties. The markets are strained and the price pressure on sawn timber and wood residues has increased.
In Germany, the macroeconomic environment is also clouding over: economic research institutes are warning of a recession; and the federal government only expects gross domestic product to grow by 0.5% after significantly higher growth of 1.5% last year and 2.5% in 2017.
However, growth of 1.1% is forecast for 2020 and the German sawmill industry has experience of difficult times and is able to face challenges. And, the industry is currently getting a helping hand from politicians who have already decided or are planning their own programmes to promote timber construction.
