Underlying demand for Finnish sawn softwood in the UK and other markets remains fundamentally healthy but macroeconomic and geopolitical issues are casting a shadow over trading.
In the UK the uncertainty over Brexit, which has generated more column inches of coverage and more metaphors from journalists and politicians than anything in living memory, is taking its toll. Although this issue of TTJ went to press before March 29, just as Theresa May had secured a short extension to Brexit and as parliament and pundits were picking over the consequences of the decision by the speaker, John Bercow, not to allow a third vote on the prime minister’s deal unless there were significant changes, it is likely that uncertainty continues.
One Finnish sawmiller said this ongoing disquiet had created two distinct camps in the UK. “Some customers are reluctant to buy too much volume forward, concerned about the potential of stock to devalue if the pound strengthens after Brexit. Other customers are building up larger stocks than normal as a response to concern over continuity of supply during the Brexit transition period,” he said. For others, however, most customers fell into the former.
“The UK market had been performing surprisingly well but now the risks relating to Brexit have made buyers very cautious and they’re trying to run their businesses with low stocks,” said another contact.
Another said that the new build market was maintaining demand for whitewood but a slowdown in RMI in the first quarter had reduced interest in redwood. Trading had picked up noticeably, however, following parliament’s vote against a no deal Brexit in the second week of March.
“This shift from a no deal Brexit and the fact that people really do need to start buying because there are gaps appearing in stocks has increased activity,” he said.
Traders are hoping that the second quarter will bring some stability – not least to the euro/sterling exchange rate which has been fluctuating by as much as 5%.
“Despite Brexit looming, people are trying to carry on with ‘business as usual’,” said one shipper. “The housing market remains buoyant, and demand from this sector remains healthy. A hard Brexit may have consequences but this remains to be seen. It goes without saying that a lot rides on how Brexit unfolds and how the currency reacts.”
There are, however, other issues around the world that could also impact on market dynamics for Finnish producers.
“We have a lot of tensions in the world at the moment which are not good for business,” said one shipper.
While one contact said trading had been “surprisingly active globally”, China had been “the real headache”.
China’s slower economy and the fact that some businesses have closed until they can comply with the new environmental and health and safety measures have weakened demand for whitewood. In 2017 Finland exported around 1.7 million m3 of sawn softwood to China but last year volumes were back at 2016 levels of just over one million m3.
One shipper, however, said China’s reduced appetite was not affecting the supply balance.
“The excess whitewood volume available is being sold to, and absorbed by, the wider European markets, therefore we have not noticed any significant impact as a result of the volumes to China decreasing,” he said. At the same time as China’s economy is slowing, Russia’s exports to the country are growing, providing increasing competition for other softwood producers.
In a news statement on UPM Timber’s website, the company’s director, sales and supply chain, Miko Hyvärinen, says that Russia has now overtaken Sweden as the main competition for Finnish mills, especially in the Chinese market.
“They have also recently increased their deliveries to Europe and Egypt. The Russians have invested heavily in new production technology, they have grown considerably in terms of product quality, and have also stepped up their delivery reliability.
“In addition, they have the advantage of cheap raw material and a weak rouble, with which Russians have made quite good results in recent years and gained market share,” he said.
One shipper acknowledged that if “Russia becomes more active in supplying, this could have wider implications for supply and demand”.
Another shipper agreed that Russian volumes were muscling in on the European market, partly filling the void left by shipments to the US, but he pointed out that Russia’s offering tended to be long lengths and the product range was more restricted than those of Finland and Sweden – although as Russia provides timber by the shipload it could unsettle the finely balanced market.
“Suppliers are looking more towards Europe now but the difference between famine and feast is only a 10% shift in volume so this is quickly affected if someone offers cargo quantities,” he said.
The fundamentals of the MENA markets remain positive, with growing populations and some financially-sound countries, but again, political issues are creating trading risks. In Algeria weeks of protests persuaded president Abdelaziz Bouteflika to withdraw from running for a fifth term. The calls for political reform continue and the instability has already impacted on sawnwood demand.
Finland is also facing political upheaval. On March 8 the government, headed by prime minister Juha Sipilä, resigned after failing to overhaul the country’s health and social care systems. Mr Sipilä is now the caretaker prime minister until the general election on April 14. Finns are hoping that vote will allow normal service to resume, especially with the European elections in May and Finland taking over presidency of the EU Council in July.
Finland’s main competitors, Russia and Sweden, both have the advantage of more favourable exchange rates and lower raw material costs. Finland’s log prices have been climbing steadily since last year, denting mills’ profitability. The prices have peaked and are now coming down, but not quickly enough for the mills.
“The financial results of the Finnish sawmilling industry are lagging behind those of Sweden, especially south Sweden,” said one sawmiller. “Finnish sawmills have ample stocks of logs but they’re very expensive logs and at the same time prices are going down so many of the mills are struggling to cover their running costs.”
He said some mills had considered reducing production but that would also affect financial results so it was not a decision a business would make lightly.
The high cost of Finnish logs is influenced by the 600,000 or so non-industrial forest owners who sell only when they need to and only when the price is right, and the large integrated forest products companies that harvest the pulpwood then sell the quality logs to independent mills. It’s a disadvantage for the mills but they acknowledge it’s a fact of business life in Finland.
“There’s nothing you can do about it; it’s just a given,” one shipper told TTJ.
With so much political disruption around the world it is even more difficult than usual to forecast trends over the next few months with any confidence. Shippers and traders are reassured by the fact that timber is in demand and it has a good story to tell but at the moment it is caught in the ebb and flow of political uncertainty.
“The timber trade depends on political decisions like Brexit and the trade war between China and the US so it’s difficult to predict the end result,” said one sawmiller. But despite the turmoil, he did find cause for optimism.
“Whatever Brexit will be, softwood demand will continue in the UK and I have no doubt that the good relationship between Finland and the UK will continue.”
Finland focuses on new products
Developing new wood-based products is one of the new goals outlined in the latest update of Finland’s national forest strategy.
The Ministry of Agriculture and Forestry says this new focus will be supported by research and development funding.
The latest strategy, which carries Finland through to 2025, highlights more clearly measures to safeguard climate sustainability and forest biodiversity. Its new goals also include climate-sustainable forestry and an international forest policy that could encompass the EU. When Finland takes over the presidency of the EU Council on July 1 one of its focuses will be promoting development of the EU forest strategy and its implementation.
By identifying these goals, rather than believing they would be achieved by other goals in the strategy, the Ministry wants to emphasise their importance for the sustainable use of the country’s forests.
“The updated Forest Strategy brings stability and predictability to the forest sector and supports the creation of sector wide added value. At the same time, the update emphasises forest biodiversity and the climate sustainability of forest use,” said minister of agriculture and forestry Jari Leppä
Metsä heads to Olympic games
Metsä Group and Business Finland are joining forces to build a pavilion made from Kerto LVL to be used in Tokyo during the Olympic Games next year. It will be built in the grounds of the Finnish Embassy in the centre of the city and serve as a meeting place for Finland’s Olympic team during the Olympic Games and the Paralympic Games.
The pavilion will be constructed from factory-made LVL elements, which will be assembled onsite in Tokyo
