Finnish producers continue to feel the brunt of poor demand and a lack of confidence in European markets and are resigned to seeing no improvement in the near future.
According to the Finnish Forest Industries Federation, sawn timber production in the first half fell by 3% on the year to 5 million m3, and plywood output was down 6% to 520,000m3.
This is reflected in comments by industry contacts who say the typically busier summer season failed to materialise and now, as the quieter winter months approach, mills are likely to reduce production.
"We didn’t see any kind of summer season," said one contact. Volumes moved "more or less OK" but the order base stayed very short at about two to four weeks.
"Normal would be double that, but what’s normal now? I remember when normal was half a year but I think those days are gone," he said.
Demand remains flat in many of Finland’s export markets and in its domestic market – the largest individual market for Finnish sawn timber – housebuilding has slowed again. According to Statistics Finland, the number of building permits issued in May was down nearly 20% on a year earlier.
"In Finland’s domestic market sales are off by about 10%," said one shipper. "Customers have run stocks down and are buying to order. The domestic market is under pressure, but that’s the same across Europe."
One mill reported that its sales to central Europe were increasing but generally European demand was said to be flat, and in southern Europe it was particularly poor.
Shippers still regard the UK market as "challenging" but, against expectations which have lowered over recent years, they say it hasn’t performed too badly over the last two quarters.
"The UK market has been pretty good," said one contact. "Sales have maintained their levels, prices have been stable and the UK is stronger than some other markets in Europe."
Another concurred that UK demand remained weak "but business is going on", while another said business had been good until June but had since dropped off.
And one contact believed that in the UK there was latent demand waiting to be unlocked when business confidence resumed.
"I think there are quite a lot of businesses with quite a lot of money to spend but everyone has a confidence issue, whether it’s wondering where the next order is coming from, or whether they’re going to be paid."
There has also been some positive movement for those shipping to Japan. Further improvement is expected next year as the country’s post-tsunami rebuilding programme continues and consumers undertake work before VAT rises in 2014.
North Africa continues to be the best-performing market for Finnish exporters, and several contacts said volumes shipped were bigger than expected. This demand means the redwood market is more buoyant than whitewood but mills’ profitability is so near the edge that the little profit they make on redwood "they lose in whitewood, and a little bit more", said one contact.
Despite flat demand, mills are keeping prices stable to try to cover costs. "Everyone’s milling costs are so high. If the price in the market reflected mills’ costs it would be far higher," said a shipper.
Another said that mills would maintain their position on prices. "The assumption could be that because the market’s not busy prices will come down but that’s not the case because costs are so high," he said.
Another shipper said that mills throughout Europe could not afford to lower prices – and even if they did it wouldn’t stimulate demand.
Finland’s diesel tax, higher labour costs and rising energy costs are all eroding mills’ profitability but the biggest factor is log costs. Raw material costs remain high and Swedish log price cuts are adding to concerns.
However, the advantage the Swedes may gain in lower log prices they’re probably losing through exchange rates.
"Swedish producers are under a lot more pressure than Finland. Swedish mills are losing money at the moment," TTJ was told.
"Appreciation of the Swedish krona means the price there is under a lot more pressure. If capacity is taken out of Sweden it could switch to Finland, so it could have a benefit."
However, with no hope of a recovery expected in the near future, Finnish mills are also likely to reduce output over the winter. "I expect there will be production cuts; it’s quite impossible for the current situation to continue," said a contact.
Predicting low sales during December and January, another shipper said the only solution was to reduce output.
"We’re faced with three alternatives: find new markets; increase the selling price – which won’t be possible; or reduce production. I think we’ll see a reduction in supply and people concentrating their efforts in export markets," he said.
On a positive note, he added, if there were any pick-up in demand then prices could rise as mills would be nervous about increasing output.
Also, over the winter there could be some boost to sales as customers fill stocks that have been kept low during the majority of this year.
