The Finnish timber industry has embarked on a concerted process of restructuring in the face of high demand, mounting competition and ever-reducing raw material availability.
According to Anne Brunila, president and chief executive officer of the Finnish Forest Industries Federation (FFIF), the main problem faced by members is “getting enough raw material”.
The disparity between supply and demand is explained in part by Finland’s new tax laws which came into effect on January 1 this year: under the old system, tax was paid annually based on the value of the forest; under the new system, tax is payable only in years when harvesting actually takes place. Hence, there was an incentive for private forest owners to sell larger-than-normal volumes of timber immediately ahead of the change. Lower availability has subsequently led to higher prices and a return to more normal selling patterns.
Against this backdrop, the FFIF has set a target of raising use of domestic timber by 15 million m3 to 70-75 million m3 per year by the year 2030.
Far-reaching restructuring plans at the FFIF also involve the creation of Forest Cluster Ltd to spearhead its new research strategy. “The plan is to develop a centre of excellence to enhance innovation and to reflect changing markets as well as changes in customer needs,” explained Ms Brunila. “The aim is to address the renewal of the entire sector, boost competitiveness, and meet the challenges of sustainable development.”
The strategy has the following seven focal points: “smart” wood and fibre production; new products from wood-based materials; bio-refining; sustainable forest management; increased value from wood biomass; intelligent resource-efficient technologies; and customer solutions for the future where the accent will be on demand-oriented rather than production-oriented outputs.
“We are in a good position because our factories are very modern and much has been done to improve our environmental standing – but still, there is room to improve,” said Ms Brunila. “Our competitive edge is shrinking and will continue to do so if we do nothing.”
Focusing on core business
Among those leading Finnish forestry firms to have implemented restructuring plans, the goal of Finnforest‘s parent, Metsäliitto is to focus on its core business of processing and adding value to wood procured mainly from its 131,000 forest owners. “This recognises that, if we went for a broad strategy, we would go further away from our direct shareholders’ interests,” said Ole Salvén, group executive vice-president and director of Metsäliitto Wood Products Industry. The emphasis would be on exploiting areas in which the company is already active and in which it perceives ample scope for further sales growth, such as structural products and building systems/solutions.
Mr Salvén stressed that this strategy would not affect Metsäliitto’s commitment to the UK. “It’s a very important upgrading area for us – it is very much core,” he said. Indeed, changes would mean “somewhat more volumes in the UK,” he added.
Turning to market developments within Finland, Mr Salvén noted that sawmillers had witnessed a significant improvement in their financial results owing to good demand – notably from the US (although this had recently tapered off to some extent) and also from China and oil-producing countries. On the downside, he added that Russia’s drive towards value-added production represented “a growing competitive pressure”.
This year had also brought more restricted availability of the good-quality logs vital to Finland’s high-end production, according to Mr Salvén. “The availability of high-grade raw material is not that flexible any more and that keeps a lid on production,” he said. Increased energy costs – and therefore higher logistics costs – were also a barrier to increasing production, he added.
According to Stora Enso‘s executive vice-president of timber Peter Kickinger, “there is a lot of potential for more supply if we can mobilise it”. Having stated that the processing industry needed to convince smaller woodland owners to harvest more regularly, he pointed to the growing popularity of a full service package whereby Stora Enso handled permits, tree removal, clean-up and re-planting on the owners’ behalf.
The Stora Enso corporation was continuing to make “good progress” towards its €160m savings goal, said Mr Kickinger. The timber division had reduced administration costs and had improved process efficiencies but some costs were difficult to pare back. “Energy costs are still big issue,” he noted by way of example.
Proof of commitment
Despite Stora Enso’s well-publicised review, there was “no intention at all to go out of the [timber] business,” insisted Mr Kickinger. “It has been and remains core.” Proof of this commitment was reflected, he added, in investments totalling €44m at the group’s Nebolchi and Impilahti sawmills in Russia. The upgrades are designed to enhance the competitiveness of the sawmilling business and wood procurement in Russia, as well as bolster its overall move towards adding value. “Value additions and further processing” were pivotal to the future of the business, he said.
UPM is also enjoying healthy levels of demand in all its main markets, according to Edward Robinson, director of UPM-Kymmene Wood Oy’s Distribution Segment. He reported strong sales of both timber and plywood products in the group’s main European markets, and also noted equally firm demand for standard sawn in North Africa and the Middle East, as well as for special sawn and further processed timber in Japan.
Part of the recent restructuring of UPM’s Wood Products division was the integration of all sales and marketing into a “customer segment” organisation. “The needs of manufacturers and distribution companies are clearly different,” explained Mr Robinson. “The new organisation has allowed real specialisation to be achieved.
“For large manufacturers, we have been able to enhance our ‘consulting’ role, working with them to improve efficiency and yield in their production lines. With distributors, we have found new business opportunities by offering the full plywood and timber product package: we have also developed a new range of marketing communications tools.”
In re-focusing on its core business of manufacturing WISA products, UPM-Kymmene Wood has sold the merchant companies Anco, Brooks (in Ireland) and Puukeskus, its French plywood mill at Loulay, and its planing mill at Dinnington in the UK.
The division’s parent company has also been investigating ways to improve cost competitiveness, including negotiations concerning the restructuring of forestry work.
Significant investments in new product growth areas have been made, including: €10m in special sawn timber products at Korkeakoski and Kaukas; €6m in laminated panels and coated (painted/lacquered) timber products at Heinola and Parkano; €5m in increasing birch plywood capacity at UPM’s Chudovo mill in Russia; and €8.5m in productivity and technical qual-ity improvements at the Kaukas and Jyväskylä plywood mills. Other developments include a joint venture to produce structural laminated beams at Seikku.
Meanwhile, rising costs also remain a challenge for UPM. Mr Robinson pointed to the impact of higher oil prices on logistics and resin costs, as well as the dramatically increasing prices for pine, spruce and birch logs. He also feared that “tight” log supplies in Finland were being exacerbated by above-average temperatures, and that higher export taxes in Russia would also affect Finnish producers.
