As Swedish mills return to work after the Christmas break they are preparing to face another difficult year ahead.
Last year was one of the toughest yet for Sweden’s timber producers since the global economy took a tumble in 2008 and they don’t expect much change in the next 12 months.
According to the latest forecast by the National Institute of Economic Research (NIER), which came out just before Christmas, Sweden’s GDP was falling in the fourth quarter, 2013 would get off to a weak start, and recovery would not commence until the end of the year – and then it would take "many years" before the economy was in balance again.
As in all European countries, 2012 was characterised by high log prices and weak demand, and Swedish mills had the added burden of a strong currency. The krona moved up by around 5% in early summer and, although it’s been stable since, it’s remained high.
"There’s been no improvement over the year; I’d say it’s actually got tougher," a shipper said.
Just before Christmas SCA cited the worst economic conditions for Swedish sawmilling in 40 years for its decision to close two mills – Vilhelmina and Holmsund in northern Sweden – at the end of July (ttjonline December 7, 2012).
The difficult year is documented in the latest quarterly report from Skogsindustrierna, the Swedish Forest Industries Federation. It says the value of forest products exports fell by more than 3% in the first three quarters of 2012 and during the year seven sawmills, two paper mills and a pulp line closed or announced closures.
Total sawn softwood production during January-October was 13.6 million m3 – 2% lower than the same period in 2011. Redwood production was up 2% to 6 million m3 but whitewood output fell by 5% to 7.5 million m3. However, in October export volumes were 13% higher than in October 2011, and for the period January-October they were 3% up on the same period in 2011.
The tough conditions have been alleviated slightly as log prices have edged down, although not necessarily in southern Sweden, and the supply/demand balance is expected to improve as many of the big players have announced production curtailments.
"Production is slowly falling and that means the supply/demand balance will become more favourable so I think we’ll see a better market, but only because of production cuts; there will be no pick-up in demand," one shipper said.
However, lowering production is not so much a collective effort to stabilise the market but more a response to reduced log supply or because mills just don’t have the cash flow to carry on producing. It is widely acknowledged that, at worst, Swedish mills are losing money, or at best just breaking even.
"Each sawmill is looking after their own interests," said one contact. "The reality is that the more they produce, the greater the losses will be, so why produce?
"In the past if sawmills weren’t making money they would produce more to get the unit costs down but because demand has nowhere to go now, the more they make, the more they lose so a different approach has to be taken."
Whatever the motivation for the cuts, shippers are anticipating a positive impact on the market.
However, to what extent sawn timber prices will benefit remains to be seen. "There are a lot of medium-sized mills in Sweden and they need cash, so prices will remain keen," a contact said.
While most mills are reining in production, Södra has bucked the trend – and surprised many – by announcing it will increase output at its Mönsterås mill from April 1. It will move from two to three shifts, increasing annual output by around 140,000m3 to 410,000m3.
It also plans to introduce a three-shift pattern at its Värö mill in September, producing 600,000m3. It is installing three new kilns in anticipation of the increased output (see p10).
A Södra spokesperson said the company had reduced output over the past two years and it was now too low to be economic. "Since we have raw material for the time being we believe it’s a better economy for us to run the sawmills at a higher pace," the spokesperson said.
"Some people have said this is a surprise to them but we’ve significantly reduced production in the past two or three years and everyone else has pretty much increased or held up their volume so we’re getting back to the level we were at two or three years ago."
Although there is positive news from the US where housing starts are picking up, Swedish mills expect few changes in their markets this year. "I don’t see that consumption will improve very much; I think we’ll stay with the market difficulties that we have," one told TTJ.
North African and Middle Eastern markets continue to sustain Sweden’s redwood production – the former buying a record amount in 2012 as imports from Sweden during January-October were up by more than 16% on the same period in 2011. Exports to the Middle East were up by more than 9%.
European demand, including the UK, is expected to remain weak.
Although the UK market remains slow, the latest statistics from the Timber Trade Federation reveal that in the nine months to September volumes imported from Sweden rose by 6.5% on the same period in 2011, to account for nearly 50% of imports.
"The UK market is steady and slow but it’s not flat nor as desperate as some other European countries are," one shipper told TTJ.
Decking could be one potential bright spot in the UK. Last summer’s sales were dented by the persistent wet weather and traders are hoping that consumers might resume interest this year.
However, generally, traders are resigned to the difficulties which have become the market norm in recent years.
"I think it’s going to be much of the same for the year," one told TTJ. "Demand is not going to change and supply will continue to fall in line with demand. We’ve had this for four or five years and I think we’ll have it for another two to three years."
