The impact of increasingly positive global economic developments from last year on the softwood market has been modest. Swedish sawmills, along with producers in Europe and North America, are yet to benefit from the long-awaited upturn in US.
However, growth in Asia, North Africa and the Middle East have offered good opportunities, compensating for lower demand from traditional European markets. And, more recently, trends in our important UK market have been positive.
Exports in the two first months were up almost 25% against 2013, confirming British economic and increased building activity. All forecasts indicate continuing recovery and the broad range of products the UK demands mean producers from all parts of Sweden are involved. Overall it remains our biggest export market, hence the long and fruitful co-operation of the Swedish industry with the Wood for Good marketing campaign.
The Swedish domestic market is underpinned by a relatively strong economy and strong private consumption, providing a stable base for our industry. Building activity grew in 2013 to 31,000 units, around 50% more than in 2012, and recovery is expected to continue this year. Underlying demand is for 40,000-50,000 units per year, and the issue is high on the political agenda. Sweden has the strongest trend to urbanisation in Europe, but there is also growing demand for housing in the regions.
Another factor pushing private consumption is favourable labour tax rates for home improvement and other maintenance work.
Last year the Swedish sawmilling industry met the slight overall growth in demand from both export domestic markets. In the first four months of 2014 output rose by 11%, although growth tailed off in April, indicating that the improvement on last year may decline. First quarter figures translate into 17.5 million m³ annual output – a 1.4 million m³ increase on 2013. An added factor behind this is generally better raw material availability, partly boosted by storms earlier this year in the mid-north region. A ‘normal’ winter would have created difficulties in meeting the increased demand.
Despite increased production volumes, sawmills still carry relatively low inventories, although they are growing slowly, slightly more in whitewood, helping balance supply and demand. By the end of April the stock difference against 2013 was no more than 1% and, going into the peak delivery season, most sawmills don’t see it as a major problem Margins have improved too, and it’s vital that this lasts to help the sector consolidate after some very difficult years. Improvements began in mid-Sweden last year and they’ve now percolated to north and south, but announced log price increases in the latter region indicate their margins may come under pressure.
We have had no reports of bankruptcies or closures this year, indicating an overall healthier business environment in the industry. The Swedish krona has also stabilised.
Looking forward, growing markets outside Europe look set to take a higher share of Swedish exports and several hold particularly strong prospects. In the last half of 2013 and first quarter of 2014 we’ve focused especially on China, with Swedish Wood staging three major events in the country since September. The main focus has been the furniture and interiors sectors, and increased demand from a growing Chinese middle class.
Swedish sales to the country may still be marginal, but the outlook is positive. Our key marketing points for Swedish timber in China are its proven sustainability, quality, and technical performance, its advanced distribution solutions, and Swedish companies’ record as reliable business partners. It is an interesting parallel to our opening of the Japanese market 20 years ago.
