The global line-up of speakers at the first ever online International Softwood Conference (ISC) acknowledged the sector is facing uniquely demanding trading conditions.
Besides coping with the Covid-19 pandemic, the industry is confronted with the continuing spruce bark beetle onslaught in central Europe. At the same time, booming US house building is causing price inflation and a consequent trade shift.
Each of these factors alone would be challenge enough. That they are coinciding makes this a time, said ISC moderator, former UK Timber Trade Federation president Keith Fryer, for the “brave and the bold”.
But besides challenges, speakers highlighted positives for softwood, among them that markets were recovering from lockdown more robustly than anticipated. Wood based construction also continues to gain momentum, while developing markets hold prospects for increased consumption.
No doubt reflecting market turbulence and the increased demand it’s created for information and analysis, the ISC, co-organised by the European Timber Trade Federation (ETTF) and European Organisation of the Sawmill Industries (EOS), attracted nearly 300 participants from 22 countries – a record.
The scene was set with a macroeconomic overview from Karlis Danevics of Nordic corporate bank SEB. He said “incomparable fiscal stimulus” to mitigate pandemic impacts had increased interdependence between private sector, government and banks, while a further increase in economic nationalism was leading to a “different competitive scenario” globally.
However, while prospects of a second wave of Covid-19 prompted caution, Mr Danevics also identified causes for optimism, including greater consumer investment in home improvement due to more remote working and increased business digitisation through the pandemic. He also predicted gradual economic recovery into 2021.
“It will be survival of the most adaptable and it’s estimated [full recovery] will take two to three years, but we are perhaps at the end of the beginning of the crisis,” he said.
Looking at Europe’s softwood trade, ETTF softwood chair Morten Bergsten said the pandemic had initially seen a slump in construction demand and from January to May 11.3% import contraction. But recovery had been stronger and faster than expected.
“Construction saw a catch up from May through July, and we anticipate only a small drop in imports for the year,” he said. “And for 2021, European softwood consumption is forecast to increase by 2.3 million m3.”
Increased home working and consequent higher consumer spend on DIY was now proving a major plus for softwood, as was political advocacy for green building.
“European Commission president Ursula von der Leyen highlighting the environmental need to build in wood in her state of the union address was especially significant,” said Mr Bergsten.
According to EOS president Sampsa Auvinen, Europe’s sawmills experienced a conjunction of multiple problems due to the pandemic. The consequence would be 3% contraction in 2020 output from EOS members.
“We’re seeing decline in commercial construction globally and contraction in paper demand, due to increased home working, means many forest owners are seeing less demand from the pulp sector, so reducing harvest and sawlog availability,” said Mr Auvinen. “At the same time, bark beetle infestation is resulting in huge supply of lower priced material, benefiting mills in the area, but putting those elsewhere at competitive disadvantage.”
Exports had become the key driver for Europe’s softwood producers. With the US housing sector heading for 1.5 million starts this year, European mills were selling unprecedented volumes to the market at healthy prices. After emerging from the coronavirus pandemic, China too was proving to be a bullish customer.
But, while the European market is not going to transform overnight, Mr Auvinen was also cautiously upbeat. “Softwood output is forecast to grow 1.5% in 2021 and wood is set to continue to increase its construction market share,” he said. In response to a delegate question, he also predicted Europe could further increase exports to the US if its high prices continued.
Focusing on central Europe’s spruce bark beetle crisis and its similarities with North America’s mountain pine beetle infestation, Paul Jannke of Forest Economic Advisors acknowledged the severity of the situation.
“Mountain pine beetle affected around 700 million m3 of timber and estimates were that spruce bark beetle would have similar impact, although latest data suggests it could affect 800-900 million m3,” he said.
It was, however, more difficult to predict whether the market and capacity effect of the two infestations would be comparable. Mountain pine beetle had struck at the height of global recession, with plentiful supply chasing falling demand. The result was North American price deflation and closure of 35 mills in British Columbia alone. But the international softwood market environment was now different, with “constrained fibre supply”, even taking into account bark beetle impacted timber, coinciding with underlying increasing global demand. Growing global production of CLT also offered a market outlet for affected wood.
The mountain pine beetle crisis also resulted in innovation in processing affected timber, which Europe could replicate. “We won’t see the current one-year shelf life of affected spruce reaching the 10-12 years of affected lodge pole pine,” said Mr Jannke. “But we may see it increase to two years.”
Clearly the North American softwood sector has experienced some of the most volatile market conditions through the pandemic.
Presentations from Marc Brinkmeyer, owner and CEO of Idaho Forest Group, and Don Kayne, president and CEO of Canfor Corporation, painted a picture of an industry on a roller coaster.
Applying lessons from the 2008 financial crisis, mills curtailed output and reduced inventories. From March to May an estimated 2.3 million m3 of capacity was taken out.
Market uncertainty, with US unemployment rising to 20 million between February and May, saw prices fall, bottoming out in early April at US$182/m3 or US$282/1000 bd ft. What changed the situation was massive US government fiscal stimulus.
“For an idea of the scale of this injection, the stimulus in 2008 amounted to 6% of personal income, now it’s 19%,” said Mr Brinkmeyer.
Government action triggered the start of a housing boom, with home sales hitting a 14-year high in July. At the same time home improvement, or ‘box’ stores, reaped the rewards of the growing construction and particularly the repair and remodelling sectors, with timber sales soaring.
The outcome of surging softwood demand was mills swiftly returning to capacity and surging prices, reaching nearly US$1,000/1000 bd ft for SYP and US$950- 975 for SPF.
Looking ahead, the North American softwood sector faces uncertainties and headwinds; with the presidential election the future of the US stimulus strategy is undecided and substantial stumpage price rises are expected in the new year.
Sustainability of softwood prices, which have added US$16,000 to average house construction, is another concern. But the industry remains confident of its ability to cope.
“We’ve learned a lot in six months and see new market models emerging from the crisis where we lock into longer term customer agreements giving everyone more sustainable and consistent returns,” said Mr Kayne.
Russia has seen sales to China, its biggest export market, decline this year due to pandemic lockdown. However, recovery has set in, according to Vadim Eresko, woodworking division sales director at sawmill to plywood, pulp and paper producer Segheza.
“Chinese industrial output has improved quickly and, with Russian production forecast down 2.5 million m3 to 38.8 million m3 this year, inventories are reducing,” he said.
Europe, he added, remains a key Russian market, with 2% growth in exports forecast this year, but some producers have refocused sales efforts on China and Middle East and North African (MENA) markets.
Turning to consumer markets, Yasuo Toyoda, senior general manager of Itochu Kenzai Corporation’s Wood Products Division, said Japan’s softwood sector had expected the 2020 Tokyo Olympics to boost demand. But with the pandemic, the Games were postponed, and construction and softwood imports to July contracted 11%.
However, the future looks brighter. “Housing starts should recover to 810,000 next year,” said Mr Toyoda. “The DIY market is growing, non-residential construction demand for softwood is increasing and the postponed Olympics will add market stimulus.”
Chinese softwood lumber imports fell 10% in the first half of 2020, but as that was from 27.7 million m3 in 2019, said SCA Hong Kong senior manager Håkan Persson, it remains the lead global buyer.
“It also quickly returned to growth, with GDP 3% up in Q2,” he said.
The conjunction of the pandemic and slumping oil prices is forecast to see a 4% drop in MENA markets’ GDP this year, said Ulf Gabrielsson, managing director Uni4 Marketing, the sales partnership between SCA, Holmen, Södra and Martinssons Trä. However, the region is predicted to return to growth in 2021 and softwood market prospects are positive, with major construction projects planned to meet rising housing need. Egypt, for instance, aims to build 765,000 new homes within three years, Morocco 800,000 by 2022, while Saudi Arabia’s Vision 2030 programme targets 70% home ownership. According to Tano Khan, managing director of digital marketplace Timber Base GmbH, the pandemic will see Indian GDP shrink 14.8%. But there remains underlying potential for softwood consumption growth.
“India has a diverse, growing timber products sector; from furniture and joinery, to pallets and packaging,” said Mr Khan. “There’s also major demand for shuttering and formwork.”
To test his contention that India is of growing interest to the international trade, Mr Khan conducted an online poll of ISC delegates. This showed 37% were exporting to the country already, while 26% planned to.
