Summary
• Prices have risen slightly during the year.
• The RMI market has been reasonably steady.
• North Africa has become an important market for Finnish shippers.
• Concerns continue over log supply.
Finland’s timber industry is finishing the year on a stronger footing than it started, but the market is still fragile and traders are cautious of making any bold forecasts for next year.
One sawmiller described the market as “a balance of horrors”. “The situation is slightly better but nevertheless we are below normal levels,” he said.
The early part of 2009 was “really miserable”, said another sawmiller, but by late summer the impact of the production cuts, which have taken output down to the levels of the early 1990s recession, became apparent, and prices started to rise.
“Prices have increased and the mills are now in a slightly better financial state. There’s a small margin to be made on timber that wasn’t there earlier in the year,” a shipper told TTJ.
Another sawmiller confirmed that profitability had improved slightly, “but it’s not the level it should be”.
There is some, albeit delicate, supply/ demand equilibrium, but one contact was worried the balance could easily tip the other way over winter. “We need only one storm in either Germany or Sweden and the whole market would be ruined. The roundwood would be sawn immediately and prices would fall,” he said.
RMI sector
The repair, maintenance and improvement market, both in Finland, where it has been buoyed by tax incentives, and in export markets, has generated a reasonably steady flow of orders and helped demand for redwood.
“Joinery manufacturers have had a good year because of the buoyancy in the RMI market. It’s not all doom and gloom this year,” TTJ was told.
According to the Finnish Forest Research Institute’s Economic Outlook 2009-2010, Finland’s sawnwood consumption will be down 20% this year, but a further rise in renovations next year will create growth of 2%.
Housing starts remain sluggish – down 40% from January-June – but some sawmills are hopeful of an upturn next year.
“I feel the new build housing market has reached the bottom, but what kind of curve we will have next year, I don’t know,” one sawmiller said.
Exchange rates
The strong euro has made life “more difficult” for Finnish sawmills but they have managed to place volumes in alternative export markets. In the first six months, says the research institute, the bulk of exports went to markets outside Europe.
“The strong euro has been a drag on profitability, in particular against Swedish production,” said one mill.
The two neighbours have found a ready market in north Africa, especially for redwood. “North Africa is a big market; it’s been stable and it’s a premium market to some extent,” TTJ was told.
The issue of log supply is preoccupying the whole industry. According to the Finnish Forest Industries Federation, in October log sales increased by 10% to 1.7 million m³, but in January-October purchases from private forests totalled only 7.4 million m³ – down 71% on the year – despite a 50% tax break on log sales to encourage forest owners to harvest. The tax benefit will be reduced to 25% in January, causing concern among sawmills that there will be even less roundwood available.
One shipper said the tax cuts had not worked – in fact, they may have had the reverse effect as forest owners wait to see if prices will rise – and his company was very worried about log supplies for the upturn next spring. Lack of supply could lead to mills curtailing production.
Solutions
Industry and the government are working on long-term solutions to secure log supply and improve the forest products industry’s competitiveness. Among the proposals in a government report published in September are increasing forest holdings from the current average of 24ha to 50-100ha, and changing inheritance laws.
Ordering for all markets is pretty much complete for the year’s end but uncertainty surrounds the market for the early part of 2010. Stock levels are low as the industry enters what is typically the quietest season and what will happen in the spring seems to be anyone’s guess.
“For the first quarter business is up in the air,” said a shipper. “We don’t have log volumes and neither do our customers have orders.”
“We have a very cautious attitude towards the first quarter and are prepared for a dip in the otherwise improved situation,” said another.
Strengthening consumer confidence and construction sector recovery are key to the timber industry’s fortunes and, while the economic outlook is improving, the Finnish Forest Research Institute points out that if the government’s economic measures weaken and unemployment rises, there will be a steep drop in consumer confidence.
It is a view shared by Finnish traders. “Longer term we are fairly upbeat but we are still nervous about the near-term outlook for housing starts and consumer spending level,” TTJ was told.
