Summary
• The summer was busier than expected.
• A Swedish government programme is stimulating renovations.
• Inventories are low.
• Log supply is at a critical level.

Swedish sawmillers are reasonably upbeat as the market has stabilised and is expected to continue on an even keel over winter.

The production curtailments introduced over the past year are paying off and they have managed to raise prices and turn around losses, although profitability remains weak.

According to the latest business survey by the National Institute of Economic Research, sawmilling and treated timber products are in a strong position. “Sawmillers are quite satisfied with their order book levels,” said survey director Roger Knudsen.

The bulk of demand is from export markets but the krona/euro exchange rate is enabling Swedish producers to compete better on the domestic market too.

Finished timber products

Although new construction activity remains depressed, demand for finished timber products, such as mouldings and joinery, is expected to grow as a result of the Swedish government’s stimulus package which allows householders to claim 50% of labour costs – up to a limit of SKr50,000 – on renovations.

According to the survey, the forest products sector as a whole, including pulp and paper, is operating at higher capacity than other Swedish industries, such as car manufacturing. “Sawmillers are one of the chosen few,” said Mr Knudsen.

This upbeat outlook is reflected in sawmillers’ comments to TTJ: “It’s going very well at the moment, despite the fact we’re going into the winter period. We’re still shipping rather well,” one contact said.

“We can’t complain at the moment,” said another company. “We have good order books, prices have been adjusted to a level where we can breathe, even though they are not bringing enormous margins.”

The market balance is the result of output being lower and demand being higher than expected. “This has created a very strong buy and sell market,” said a shipper. “It’s strange that in the middle of this recession we have a shortage of high quality softwood.”

However, the carcassing market was better balanced and now, with production of all grades rising slightly and the quieter winter months approaching, there would be more stability than during the summer.

Supply-led market

Despite Swedish sawmillers’ positive mood they are under no illusion that it is still a tenuous, supply-led market.

“We are entering this period with dramatically low inventories,” said one shipper. “We’ve never had such low inventory – that goes for everyone. Customers and factories are nervous so generally are not holding stocks.”

While mills were busier over the summer this was a consequence of reduced production and one sawmiller counselled against any knee-jerk reaction. “One shouldn’t interpret this increase in activity from May onwards as a demand increase; it’s been driven by a shortage of supply,” he said.

This increased activity was reflected in the UK market over the summer, where trading was busier than expected. In July, imports from Sweden accounted for just over 50% of the UK softwood market.

However, this has been contrasted by a quieter than normal September. “Our UK customers are quite well stocked,” said one shipper. “They bought heavily in the third quarter because they had to and, with business slackening off in September, it means a little bit of wood in the system.”

Demand for decking

While the market generally was quieter, he had noticed steady enquiries for decking material as planing mills take advantage of having spare capacity in the fourth quarter.

The UK remains an important market for Swedish mills and earlier in the year they had the added benefit of the euro/sterling exchange rate working against their competitors. However, this advantage was removed over the summer as the krona strengthened against the pound, wiping 7% off shipments to the UK, one shipper calculated.

Swedish producers are also finding ready markets in north Africa and the Middle East, filling some of the gaps left by cuts in Finnish and Russian production.

Skogsindustrierna is forecasting an increase in production next year (see table) but the log shortage could have an impact. “There is a shortage of logs more or less over the whole country,” said the organisation’s market analyst, Magnus Niklasson. Private forest owners have not been harvesting, waiting for better prices, but now there was the risk that prices would rise too high, he said.

One shipper told TTJ there was a continued fight for roundwood. “One of our mills was nearly standing [still] this week with a lack of whitewood logs,” he said, “and I’ve never seen such low stock in our redwood mill.”

Another predicted that log shortages would force some mills to cut output in the new year.

Contacts agree that the market will remain stable over the winter and demand, and prices, will follow the normal seasonal rise in the spring, but what happens beyond that is still too difficult to call. One said there would be no substantial improvement until the US economy and housing market improved.

“As long as that’s not foreseeable then we have to live with the situation and hope it doesn’t get worse,” he said.