Summary
¦ Mills report fairly good trading over the summer.
¦ Demand in Finland’s domestic market has improved.
¦ Higher log prices have attracted private forest owners.
¦ Mills are still operating below capacity.

Finnish timber traders are generally looking back on the past quarter or so with some satisfaction as demand held up and log supply problems, which had dogged the industry, eased.

“Volume and price development was positive in July and August,” one sawmiller told TTJ. He added that the market was “moving towards” being demand, rather than supply, driven but this did not mean it was strengthening.

The summer was a “a good period of trading”, said another. “Building activity has improved and in that respect things are looking a bit better.”

There has been strong demand from Japan and north Africa and, although Europe’s markets have remained quiet, one contact reported an improvement in sales to the UK. “The quantities are not huge but prices have held up quite well,” he said.

However, he noted that over the past few weeks there was “a sense that everyone is waiting for the government’s spending review”.

Another mill contact said an improvement in UK construction activity since the lows of 2009 had increased sales to the merchant and building sectors but the DIY market had not recovered as anticipated.

Domestic market

Throughout the difficult trading of the past few years demand from Finland’s domestic market, especially renovation, has been more certain than most, and there are now signs it is strengthening as building activity picks up. The construction market in neighbouring Sweden has also performed better than expected.

Markets were quieter in September when the mills returned from their summer shutdown, perhaps partly reflecting quieter trading during Ramadan. “We are getting enquiries but not to the extent that we had hoped. The market hasn’t improved as much as expected,” said one contact.

In response to lower demand Finland’s mills continue to operate below capacity and expect to for some time. “It’s not nice to curtail but we don’t want to end up with oversupply either. In that respect it’s better for the trade, sawmillers and the forest industry if we can maintain some sort of balance,” said one shipper.

Another contact said these curtailments could mark a lasting change in sawmills’ approach to the market. “It seems to be a trend that we are far more cautious and more proactive in keeping the market balanced. I’d like to think that’s a lesson learned.”

The recent woodworkers’ strike, which closed several large sawmills, could have had a notable impact on production but the issue was resolved after a week, before the dispute created industry-wide closures.

Earlier this year raw material problems were perhaps more acute in Finland than anywhere else in Europe but this position is now reversed as higher prices for logs have attracted private forest owners. “Our raw material supply is perhaps in the best shape compared with Germany and Sweden,” one sawmiller told TTJ. “Happy is perhaps too strong but we are quite satisfied with the situation for the moment.”

Mills were holding around four months’ stocks but they could easily be eroded once the 25% tax benefit to encourage private owners to harvest expires at the end of the year. The storm-damaged timber placed on the market in late summer had also had a “psychological effect”, he said.

However, another contact said while log supply has improved, the underlying situation “remains challenging”.

Log costs

But now the greater concern is not the supply, but rather the cost of logs, which is challenging sawmills’ profitability.

“Raw material accounts for 70% of our costs and there are fewer price fluctuations in the sawn timber market than in raw material,” said one shipper.

As the industry enters the traditionally quiet winter months the consensus is that next year’s market is uncertain but traders are generally feeling more positive about prospects.

“With fairly flat demand and increased production of sawn timber we’ve seen price pressures in some markets and grades for the fourth quarter,” said a shipper. “The situation in 2011 is highly dependent on the speed of economic recovery, and consumer confidence and building activity in the main markets. We’re cautiously optimistic we’ll continue to see a gradual improvement.”

Another contact concurred: “I don’t expect any fast recovery but I’m optimistic that recovery will continue now and in Europe it’s gradually improving.”