The crises of recent years continue to weigh on the German economy. Russia’s war against Ukraine has further exacerbated existing challenges and structural problems and noticeably slowed economic growth. The hoped-for economic upturn failed to materialise last year. Instead, the German economy stagnates – with consequences for the sawmill and timber industry. Julia Möbus, managing director of the German Sawmill and Timber Industry Association (DeSH), explains the economic development in the industry and gives an outlook for the future.
2023 started with a positive outlook but instead of a fast economic recovery, high inflation and sharp rises in interest rates caused real incomes to fall and had a dampening effect on investments and private consumption. While prices in the energy sector gradually decreased, the rise in production costs was increasingly reflected in all other goods and services. At the same time, there were no significant impulses from the international market environment.
The sawmill and timber industry was directly affected by this development. Instead of an upturn, the construction sector, the most important domestic customer for timber products, experienced further setbacks. While companies were able to compensate for the weak domestic market in the previous year with increased exports, the most important foreign markets also proved to be weak in 2023. The unsteady market developments led to a very changeable business climate and continuing uncertainty. After exports fell well short of the previous year from February onwards and the domestic market continued to provide no positive impetus, there were noticeable reductions in production, particularly in the first three quarters. As a result, softwood lumber production fell by 5.6% in 2023, but remained at a high level at 22,944,059m3.
Despite a decline of 11.4%, foreign sales remained of key importance in 2023. After the record year of 2022, the volume exported fell to just under 10 million m3. Despite significant volume losses, the US market remained the most important single buyer of German softwood lumber in 2023. The UK took ninth place and purchased around 10% less than in the previous year. Nevertheless, European countries were the most important buyers outside Germany, accounting for around half of exports overall.
At 16 million m3, domestic consumption fell to a long-term low. This was because the construction and packaging industries, the most important sales markets, were under pressure. The sharp slump in demand in the construction industry intensified over the course of the year. The number of residential building permits fell by more than a quarter. At the same time, the packaging industry lacked important impetus from foreign trade.
Weak demand in domestic markets and abroad led to falling prices. Prices for softwood lumber lost an average of around 25%. As a result, sales fell by a quarter compared to the previous year. The earnings situation was difficult. Raw material costs in particular put companies under pressure. Until 2022, large quantities of calamity timber ensured an oversupply of softwood logs and low costs but this trend reversed in 2023. Rising raw material costs met with a poor sales situation.
Production output was inconsistent in the first half of the year. Reductions in the first quarter were almost offset by an increase in the second quarter. Overall, the trend points to little change in the current year and therefore it’s possible the bottom could have been reached. Slightly rising prices for softwood lumber and falling raw material costs support this scenario. Nevertheless, many uncertainties remain. A slow recovery in the construction industry is not expected until 2026. At the same time, foreign business is subject to many influencing factors, not least the equally weak construction industry in neighbouring European countries, China and the US.
Many challenges also remain for the German hardwood industry. The largely export-oriented companies had to make major production cuts last year. After foreign sales slumped by around 30%, production was 12.4% lower than in 2022. While important domestic markets for hardwood lumber, such as the furniture industry and interior construction came under pressure, high raw material costs and low raw material availability led to competitive disadvantages on international markets.
There are signs of a slow recovery in exports in the first half of 2024, but this will only be reflected in production with a time lag. At the same time, it is becoming apparent that the forest damage of recent years was not limited to coniferous wood, but that deciduous wood is also severely affected. The availability of good quality logs is also becoming a problem for beech and oak due to more frequent drought damage and insect infestation.
Despite significant reductions in production and a challenging sales situation, Germany remains one of the world’s leading timber industries and the largest producer of sawn wood in Europe. While international trade will continue to play a central role in the coming years, the importance of timber construction in Germany is growing. The proportion of houses built from wood has been increasing for years and stood at 22% in 2023.
Politicians have recognised the potential for climate protection and have launched an initiative at federal level to increase the use of wood in construction. At the same time, the demand for living space is increasing, drawing attention to innovative solutions such as adding storeys and densification in urban areas. Wood will play a key role here in the coming years and will also contribute to a climate-friendly building stock as part of the necessary renovations.
At the same time, the industry has to deal with increasing bureaucratisation and restrictive environmental and climate protection policies at both federal and EU level. With the EU Deforestation Regulation (EUDR), the industry is facing massive challenges throughout Europe, the consequences of which for the value chain are not yet foreseeable. The EU’s biodiversity and carbon reduction targets could also lead to a drastic reduction in the availability of logs in Europe. In addition, plans for restricting forest use and strict requirements for forest owners are being discussed at national level.
The results of the Federal Forest Inventory, which is carried out every 10 years and provides information on the condition of German forests, are a source of debate. While the overall timber stock remains at the 2012 level, the drought years with beetle infestation resulted in considerable stock losses in some regions, while at the same time timber stocks in southern Germany are at record levels.
Given this background, the DeSH is not only campaigning for a reliable political framework but is also urging the mobilisation of timber stocks and rapid forest conversion in order to prevent further calamities and preserve the forest for sustainable timber use in the long term.
ABOUT DESH
The German Sawmill and Timber Industry Association (DeSH) has been representing the interests of the sawmill and timber industry at federal, state and European level for over 125 years. With their diverse products made from the renewable raw material wood, the 350 member companies of the DeSH form the link between the forest and wood processing through to timber construction. They are an essential part of the bioeconomy and key to the sustainable transformation of the economy and society. The DeSH stands for the sustainable processing and use of the raw material wood as a contribution to climate protection, employment and value creation for a sustainable business location in Germany.
