Coronavirus has led to a severe slump in the German economy. The gross domestic product (GDP) in the second quarter of 2020 is 10.1% lower than in the first quarter, which is the steepest decline since 1970. According to current estimates, economic research institutes expect the GDP for the whole of 2020 to be about 5.2% lower.
The extensive efforts of the German government to support the economy were welcomed. The sawmill industry can benefit from a €700m recovery package that has been approved for the forestry and timber sector. The money is to be invested into the preservation and sustainable management of the forests as well as in modernisation and digitalisation projects. In addition, a greater use of wood as a construction material is to be promoted.
Our companies can also benefit from the €2.5bn CO2 building renovation programme, as well as from additional programmes for the energy-related renovation of municipal buildings and climate adaptation measures at social institutions.
The measures, such as the reduction in VAT and the €25bn bridging aid for small and medium-sized companies to combat the effects of the coronavirus pandemic were also well received by the industry.
Economic Situation
Coping with the volume of timber damaged by the spruce bark beetle, which increased again significantly in the fourth year, the German sawmill industry has had the additional challenge of the coronavirus pandemic.
At the beginning of the year, there was still a justified hope that the sawmill industry would be able to make its contribution to managing the increasing amount of damaged wood in 2020 by cutting more logs.
Covid Impact On Markets
Against this background, the coronavirus pandemic has had a considerable impact on the sawn timber markets. In particular, the temporary lockdown and closure of borders in several neighbouring countries, but above all the severe impairment of long-distance hardwood exports to Asia have significantly reduced export opportunities. Restricted exports unsettle the sawmills and lead to restrained production.
In the meantime, it has become apparent that the softwood and hardwood sectors of the sawmill industry are developing very differently under the limited possibilities during the coronavirus pandemic. While softwood processing companies were able to recover quickly, expectations for hardwood have increased according to the ifo Business Climate Index, although the crisis continues to have a strong impact on this sector.
Contrary to initial fears, construction remains at a high level even during the coronavirus period, resulting in very steady domestic demand overall.
The other timber industry sectors were also able to recover to a large extent after the slump and have recently recorded a significant improvement in production activity.
Due to the decline in economic activity, the packaging sector is recovering only slowly. For many sawmills, sawmill by-products are becoming an economic challenge.
Uncertainties in the export markets also influence the production activities of sawmills. For many export-oriented softwood and especially hardwood sawmills, export is a determining factor.
In the case of softwood, the reluctance and uncertainty in production and sales caused by the pandemic was only felt for three months. The declining export of sawn softwood to South-east Asia – with the exception of China – was contrasted by significant increases in exports to the US.
The US is currently experiencing a particular boom in demand for sawn timber and has thus become an even more important market for German softwood timber. In the first half of 2020, significantly more sawn softwood was also exported to China.
The hardwood industry, which is heavily dependent on exports, is struggling with a sharp drop in demand. In particular, long distance exports to Asia came to a partial standstill. Hardwood processing companies are only slowly recovering from these effects.
Beetle Crisis
In 2019, the raw materials market was characterised by the increasing amount of damaged wood, mainly due to beetle infestation, but also due to the drought and weakening of trees. The total volume of timber felled in 2019 increased significantly to 68.2 million m3. Of this, 62.5% was the result of the felling of damaged trees.
In the current year, the volume of damaged wood caused by the continuing drought is increasing further. Estimates have now been accumulated by the Federal Ministry of Agriculture to 178 million m3 of damaged wood and have been revised upwards for the years 2018-2020. For the year 2020, an accumulation of 73 million m3 is expected.
Apart from softwood, other types of wood, especially beech, are also affected by the drought damage and its consequences.
The sawmills are making a decisive contribution to the management of damaged wood by expanding their production capacities. The considerable export efforts of the sawmills make it possible to continue producing at a high level.
The forest products sector has reacted to the increasing amount of wood from forced utilisation by expanding the export of softwood logs. In the first half of 2020, 3.5 million m3 were exported. The main buying country is China with 2 million m3.
Sawn Timber Balance
In the latest phase of uncertainty regarding the further accumulation of damaged wood and the further course of the coronavirus pandemic, it is almost impossible to assess the development of the sawn softwood and sawn hardwood market.
The domestic markets have proven to be robust and remain at a high level. While exports to European countries have decreased significantly, exports to non-EU countries have increased and now account for more than one-fifth of total sales.
For sawn hardwood, both domestic and foreign sales are significantly lower than in 2019.
All further developments in the coming months will be largely determined by the effects of the coronavirus pandemic and weather events.
