With only last December’s Latvian forestry industry export stats still to be released for 2016, several things are clear.
The value of the country’s entire forest industry exports in 2016 is expected to surpass the 2015 record total. The figure was €1.92bn for Jan-November, according to Latvian government statistics.
Sawn timber, particleboard and plywood were all up, but it’s important to emphasise the increase also came from sawmill byproducts, while the nebulous “other articles of wood” category also saw growth.
Sawn softwood export volumes were 2.48 million m3 (2015: 2.25 million m3), valued at €472m (2015: €452m), which represents a 10% increase in volumes over the same period in 2015 and a 4.4% growth in value.
Hardwood volumes were down 15% to 436,200m3 and 20% down on value to €70m. Meanwhile, on the panel products front the situation looked quite healthy with particleboard volumes up 12.6% to 884,000m3 and value up by 11.9% to €146m.
The other significant panel product export – plywood – saw a 19% increase in volume to 317,100m3 and an 11% growth in value to €196m.
Overall, the value of timber, panel, log, sawdust, pellet, chip, woodfuel, packaging, veneer and builder’s joinery and carpentry exports totalled €1.64bn, a 4% increase on the same period in 2015.
The UK of course was Latvia’s standout performer for sawn softwood and also pushed Germany close for plywood volumes.
The value of timber and wood product exports to the UK was €368m, up 8.6%. Of that, sawn softwood represented 913,000m3 with a value of €184m, up 14.7% in volume terms and 4.4% in value, while hardwood was 59,100m3, down 17% in volume and down 24% in value. Plywood export stats to the UK were very good, with volumes reaching 55,500m3, worth €29m, a growth of 35% and 13% respectively.
Kristaps Klauss, executive director of the Latvian Forest Industry Federation (LFIF), said the Latvian softwood sawmill sector had in recent years focused on increasing competitiveness and productivity.
He said Latvian Forest Industry Federation members, who represent approximately 70% of the softwood sawlog volume processed, increased output by 3% in 2016.
“Market challenges are not significantly different from the colleagues from other EU countries – Egypt, Brexit, China – is also on our agenda,” he said.
“Since the end of 2016 a big challenge is by-product (chips, sawdust) prices and sales. At present, by-products prices are significantly lower than last year, but the stocks are at a normal level.”
Mr Klauss described the log situation as good, but he predicts some challenges in 2017.
The growth of neighbour Estonia’s sawmilling and further processing sector has not had any marked impact on Latvian forest industries, but Mr Klauss said most likely they would feel it in the near future.
Another contact involved in sawmilling in the region estimated Latvian sawn softwood export volumes at around 5-6% annual growth in 2016 and UK volumes at nearer 20% growth.
He believes Latvian softwood sawmill production in 2016 to be slightly less than 2015 (2.83 million m3) and being around the 2.7 million m3 mark.
“Raw material has been quite stable for the last year, availability has been rather good all over the Baltics,” he said. “The Belarusian log ban has had an impact in terms of logs coming out from there.”
Estonian Timber Industry Expansion
“There is a radical increase in production in Estonia, about 25% growth. But so far the log prices have not changed in Estonia.” He puts the stable log price situation partially down to softness in pine prices due to weaker demand in the MENA region.
“Not all the extra capacity Estonia has had planned has come on stream,” he said. “The main driver for Estonia is the domestic demand for sawn timber and that will be increasing in the future.
“Its re-processing industry has been growing dramatically for mouldings, scantlings and timber frame homes.”
As well as growing re-processing market in Estonia, the country is also expected to be a larger re-exporter of timber products.
Estonia Statistics suggests there is sufficient volume and availability of logs in the country to cover the growth in sawmilling capacities.
Projected annual felling volumes in Estonia by 2020 identify 10 million m3 of logs, which was last at that level in 2003.
The export value of timber and wood products from Estonia was €1.21bn in 2016 – a growth of 6%, representing the best performing industrial sector in the country in terms of the balance of trade.
As well as sawmill and re-processing investments, Estonia’s plywood industry is also seeing expansion
Metsä Wood’s intends to invest in the region of €50m in a plywood mill in Pärnu or Tartu and Latvijas Finieris has opened a birch plywood mill in Estonia at its Kohila Vineer site.
After two investment phases worth €80m in total, Latvijas Finieris says a world-class birch plywood mill has been created with an output capacity of some 45,000m3 of plywood per year.
Another major investment in the Estonian plywood industry was recently carried out by UPM, with the completion of a €40m capacity expansion at the plywood mill in Otepää. It now has a capacity of some 90,000m3 of plywood per year.
Latvia is expected to increase its reprocessing production capacity in the future.
“The Baltics is an extremely important market,” said one contact. One of the big changes in the last few years has been the ‘appearance’ of the Baltic market.”
“The UK might in future present a smaller percentage of the industry’s exports but still the UK will be very important in the future.”
Currency Challenges
The large drop in the pound since the Brexit vote last summer has obviously been a challenge for Baltic sawmills’ profitability.
“When the pound started to drop it started to have a big impact on all sawmills supplying the UK,” said a contact.
“But the prices in pound terms have managed to be increased and have almost covered the currency swing, though we have taken a bit of a hit.”
Prices are also being agreed in Euros, though this is not mainstream yet.
“The pound is still highly volatile and that will continue for the next few years. I think it will be between 5-7 years and it will take a decade before we see how Brexit will impact the UK and European economies.
“The European market is good at the moment, with sales steadily increasing by a couple of per cent. China is becoming a very important market and the US is growing at the moment. This year we will see more shipments to the US market.”
Another contact, based in the UK said he thought companies were hitting their budgets but not smashing any records and detected a “bit of a slowdown” coming.
“A lot of orders were placed at the end of last year and the start of January for the first quarter, so Q1 capacity was sold out.
“At the moment there is quite a lot of supply in the UK and some deals are being done.”
But he predicted whitewood price increases in Q2, saying the material would be harder to get, citing that some operators have not rushed to re-order and that Swedish producers may not be using the UK to “dump” timber. He said Swedish producers were talking up the US market.
“When the weather improves everyone will rush to buy timber and maybe they will be told they can’t,” he said.
He also cited weakness in redwood prices but talk of redwood demand picking up in Egypt may change that.
He also reported doing some contracts in Euros, while sterling contracts are having currency clauses tied to a certain exchange rate.
“Generally, the UK customers understand why the price increases happen [due to currency fluctuation].”
FSC Certification
Meanwhile, there have been developments with regard to FSC certification in Latvia. Since 2012 Latvian state forestry company LVM has had dual certification for the forest management in all 8 of its forest regions according to both PEFC and FSC systems.
Due to the unclear situation with the FSC National Forest Management Standard process in Latvia, LVM has decided not to prolong its FSC forest management certification in 4 of the 8 forest regions it manages.
LVM communications manager Tomass Kotovics told TTJ that this decision at the beginning of last autumn stemmed from FSC’s development of a new set of International Generic Indicators (IGIs) as part of the new standard process.
“There have been a lot of developments regarding voluntary timber certification systems internationally as well as in Latvia,” he said.
“We have seen an increased interest in organic certification of forest berries and mushrooms growing in our forests.” Mr Kotovics said the harmonisation process of the IGI’s is quite unclear taking into account the national legislation requirements and local conditions.
“The further developments in this area from our point of view depend on the success of elaboration of a clear FSC National Forest Management Standard with measurable indicators, which correspond to the biological, historical, social, economic and environmental characteristics of the forest.”
But the door is not shut – LVM and LFIF are both taking an active part in the working group of the standard’s development.
Latvia has undergone the re-endorsement process of the National PEFC forest certification system.
Mr Klauss at LFIF said good balancing of the standard was not a simple task as on one hand it is expected that the standard requirements be above the law.
“But on the other hand – the national forest legislation in Latvia has already in many cases more strict requirements than FSC standards in many other countries.”
Another contact, a Latvian sawmiller said FSC certification was important in the UK market and if it was lost it would have an impact, but the fact that Latvia was a large player in the UK market meant the market would have to adapt.
