Summary
• Swedish mills are taking downtime because of the weaker market.
• Exports of sawn softwood to the UK fell by 7.6% in the first half.
• The difficult market is generally reflected in companies’ first-half results.
• Mills are continuing to invest.

Swedish forest industry companies have been hit during the first half of this year by the drop in demand for solid wood products but are continuing to invest in new developments.

During the first half, sawmills’ production was down 3% on the same period last year and, according to Skogsindustrierna, their inventories are now starting to decline. This may be more marked by the end of the summer after many of the big mills have taken market-related downtime.

During the first six months there was also evidence of the impact of the UK’s slowing economy as exports fell by 7.6% to 1.2 million m³ of sawn and planed softwood. In Ireland, which accounts for around 2.5% of Sweden’s exports, there was a 15% decline.

SCA‘s operating profits weakened for the first six months from SKr3bn in 2007 to SKr2.92bn this year. They report that the price decline for solid wood products has continued and demand among end consumers has fallen, primarily in the UK.

The weakening market is reflected in Swedish companies’ first-half results.

Södra’s operating profits fell to SKr627m, a decrease of SKr256m on the same period last year, and the company believes there are more difficult global conditions to come. ”Profitability in the sawn timber business is now a thing of the past,” said CEO Leif Brodén. “This summer we are having a month-long production shutdown, which represents 150,000m³ of ready sawn products. The possibility of further market-related shutdowns later in the year cannot be excluded. The international building market continues to weaken and we have to adapt production to the new demand levels.”

Setra has reported an operating loss of SKr74m for the first half of 2008. It has also decided to scale down production, amounting to 200,000m³ of sawn wood, with the cuts mainly affecting the third and fourth quarters. On the positive side Setra says that the decline in prices for sawn wood products slowed gradually during the second quarter and sales of processed products in the Swedish market have increased.

On the other hand, Norra Skogsägarna achieved very good results for the first six months, with operating profits increasing by SKr12.9m to SKr69.5m, which the company attributes to improved prices for round timber while doing well in the finished products market for sawn timber.

Company investments

On the investment front Norra Skogsägarna is investing SKr105m in its Kåge sawmill and over SKr30m in the Sävar sawmill. “This is just the beginning,” said Göran Persson, technical manager at Norra Skogsägarna. “We expect to invest approximately SKr400m during the coming years.”

Plyfa Plywood AB have inaugurated a new factory in Hassela at a total cost of SKr150m. This, the largest investment in the company’s history, will increase production capacity by 100% to 90,000m³. The new factory will produce high quality bottom veneers for the manufacture of three-layer parquet, with a small amount of plywood manufactured as a by-product.

Masonite Beams AB has invested SKr100m in new buildings, finger-jointing equipment and an I-joist line in Sweden, and the new factory will be officially opened in September. Following this investment the company is formally relaunching Masonite I-joists, beams and systems in the UK.

Other investments include VIDA‘s new planing line at its Vislanda works; Martinsons is to invest SKr130m in a new trimming works at its plant in Bygdsiljum, and Södra Timber is investing SKr30m in a pressure treatment plant at its Värö sawmill.

Swedish forest owners are reporting damage to trees in the forests from a number of different sources. Summer temperatures have led to an increase in attack by bark beetles and to fungal attack, while worse is feared to come as climate change leads to increased temperatures. Fungal attack is affecting trees throughout Sweden, with approximately 15% of spruce in southern and central Sweden suffering from it. Losses due to this attack are estimated to be in the region of SKr1bn per year.

Voles, elk and deer are also causing substantial damage. Voles have caused millions of kronor of damage this year by eating young plants; mostly pine but recently they have also been feeding on spruce as well. In some cases voles have eaten the young trees when they have been covered by snow and it has only been discovered when the snow has melted. In certain areas in the north of Sweden voles have eaten up to 80% of the young trees planted and there are examples of where clearings have had to be replanted two or three times.