Hi Folks! Two weeks since my last brief on timber industry. I cannot say how much the timber world changed since but the window view is has changed a lot. Today is a special day – the first snow day in my country and to the extend I can rely on forecast the real winter is here.

In the intro I share my personal experience best describing the situation, in my humble opinion. This week I had a telco with one of Egyptian timber buyer. Recently we have discussed that the timber market situation in Egypt is unfavorable due to massive price plunge. I was told the story about Swedish producers bringing bulk vessels to the port and auctioning the timber at the pier. This was two weeks ago but this week I was busy negotiating partners on their stocks for this and many other buyers form Egypt, Tunisia and other North African countries experiencing short supplies. Same as two weeks ago the global market continue its multi-directional movements.    

Today I’m going to focus on trends in Baltic sea and Nordic countries. Living in Latvia I’m sensitive to what happens on the home market. In next few block lines I have summarized the information on raw material prices and availability as a benchmark for other sectors. Our companies are service providers, production and trading so we are aware of current situation in all aspects of the market. At the same time our business much dependent on the global development and precision of forecasts.

Sawlog prices in countries around the Baltic Sea have tracked each other closely for most of the past 20 years. In the first decade, sawlog prices in the Nordic countries were paid at a premium over other regions, and in the following decade, the South-eastern markets (the Baltic States and Poland) had the highest log costs. However, in 2021 the relatively small price discrepancy between the countries in the southeast and the Nordic countries changed when the log costs in the southeast region rose considerably to record high levels, while the cost increases in the Nordic countries were more modest. In the 2Q/21, the sawlog price index (in Euro terms) for the Southeast Baltic Sea region was up 63% yoy, while the index for the Nordic countries was up only 16% over the same period. For the nations around the Baltic Sea, prices rose the most in Latvia and Poland in 2021 compared to the previous year.

ESTONIA. The main keypoint of the third quarter in Estonia is very high prices for both softwood and hardwood log assortments. During the quarter, new price records were set in almost all assortments. In the pulpwood market, prices have gradually improved and the price of birch wood can be considered good, and the price of aspen wood has also come out of the slump. The price of firewood has started to rise slightly at the end of the third quarter, but is still at a satisfactory and meager level at the end of September. Compared to a year ago, the prices of softwood logs and pine logs have increased by 37-59%. By the end of the third quarter, the average price of pine logs has reached 109 € and on spruce logs over 104 € per cubic meter.

LITHUANIA. Pine and spruce sawlog prices in Lithuania have doubled yoy in September 2021. Moreover, prices for all assortments are well above the levels of last year. On a monthly basis, there are some mixed developments: the price of pine and spruce sawlogs have risen slightly, while birch sawlogs price is stable. Pine logs could be bought in September for EUR 115.8/m3 (+107% yoy), while spruce and birch logs amounted to EUR 112.7/m3 (+82% yoy) and EUR 78.3/m3 (+10% yoy), respectively. As for pulpwood assortments, the price was EUR 29.7/m3 for pine pulpwood, EUR 29.2 for spruce pulpwood and 37.0 for birch pulpwood. The average price of pine pulpwood increased 29% over a year ago, as spruce and birch went up 29% and 39% respectively compared to September 2020. 

FINLAND. Finnish wood imports totalled 8.56 million cubic meters and increased from same period previous year by 2%. Of imported wood 57% was pulpwood, 33% chips and 3% logs. Compared to the same period previous year the imports of pulpwood increased by 8% and chips decreased by 3%. In August 2021, 0.98 million cubic meters of wood was imported to Finland. The exports value of Finland’s forest industry products totaled in real terms EUR 8.70 billion and increased from same period previous year by 15% (deflated using wholesale price index). The exports value of forest industry products totaled EUR 1.10 billion in 2021.

Of course, among the most important players are EU leading Economies –

GERMANY. The monthly price index for sawn timber and wood-based materials for wooden packaging and pallets in Germany fell less sharply in November 2021 than in the previous month.  At their annual press conference in Munich, the Bavarian State Forests drew a mixed conclusion for the 2021 financial year: Significantly cooler and wetter weather supported intensive beetle control in the state forest and resulted in a sharp decline in the number of bark beetles and vital forests.

In the first 9 months of the year, the German timber trade was able to achieve an overall increase in turnover of around 20%. This development was mainly price-driven and was based on strong demand from construction. Solid wood assortments in particular have become considerably more expensive, this development has slowed down significantly since the summer months, the assortments are available, so that there is currently no longer any question of a supply shortage or even a shortage of wood. Basically, the development of the container industry and the legislative processes in Brussels have particularly affected the industry in recent months. For the rest of the year, the timber trade is expecting stable business at a high level, the timber wholesaling is positive, the timber retailing is more cautious.

AUSTRIA. Austria’s sawmills are still very well stocked with spruce saw logs. Accordingly, demand was still subdued at the beginning of November 2021. That turn prices down. They were again reduced by 3 to 6 € / FMO. Compared to November 2020, however, the spruce log prices are around 20 to 30 € / FMO higher. For pine there were also regional price adjustments downwards compared to the previous month. Yoy there were increases of around 20 € / FMO. Larch, on the other hand, maintains its attractive price level from the previous month – around 5 to 10 € / FMO above the previous year’s price. Demand exceeds supply. At the beginning of the hardwood season, the trend of the past few years continues: oak is in very high demand despite the rise in prices. In a yoy comparison, the prices vary greatly from region to region, with an average plus of 5 to 40 € / FMO. In the case of beech, an increased demand can be observed compared to the previous year. Regionally there were price increases here as well. In the case of softwood panels, there were slight price adjustments upwards, while for hardwood panels, on the other hand, downwards. Red beech fiber wood is in normal demand with stable prices.

The most important benchmark for timber market is construction industry –

The fragile position of the EU CONSTRUCTION sector, a key driver of timber demand in the region, is revealed by the IHS Markit Eurozone Construction Index. The index increased from 49.5 in August to 50.0 in September and then to 51.2 in October. The trend is positive but, with 50.0 being the dividing line between contraction and growth, the index implies that sentiment in the sector is very mixed. Where construction activity rose, companies often cited stronger demand growth, although this was offset by a lack of raw materials which halted work on site. Underlying data indicated that growth was centered around house building, while commercial construction was steady but infrastructure activity was still slow. Overall the IHS Markit reports that construction firms are still confident that activity will increase over the next 12 months amid forecasts of strengthening economic conditions, improved supplier performance and new projects.

And of course energy wood. Member of the group ENECON ltd (Energy and Construction) is a reliable energy wood chips, pellets and other energy product supplier in home and regional market. We pay attention to major trends –

PELLETS. Pellets are biomass fuel generally made from wood wastes, such as wood shavings, sawdust, and logging residues; and agricultural wastes, for example, rice husks, corn stover, sugarcane bagasse, and coffee pulps.
Production of pellets in EU has not kept up with consumption, resulting in higher net imports to the continent over the past few years. To fill the supply deficit, Europe has imported almost 10 million tons of pellets annually from the US, Canada, and Russia. Overseas supply to Europe has been on an upward trajectory, doubling between 2013 to 2020. North America’s pellet production rose from 6.5 million tons to 12.2 million tons during this period, primarily driven by European demand. Russia, while still producing less than the US and Canada, has dramatically expanded capacity over the last seven years, going from 700,000 tons in 2013 to almost 2.3 million tons in 2020. Shipments in 2021 may reach closer to 2.6 million tons, with most of the volume exported to power companies in Europe. Beyond Europe, the only other market that absorbed a significant amount of these additional shipments has been South Korea, which accounted for about 7% of the Russian export volume in the first eight months of 2021. Global wood pellet trade has steadily increased over the past decade, reaching an all-time high in late 2020. The United Kingdom has been the primary destination for wood pellets globally since 2012, but import volumes have stagnated over the past three years. Instead, the Netherlands, Denmark, and Japan have increased imports substantially in recent years and, for the first time, imported more pellets than the UK in the 1H/21. Five years ago, the UK was the world’s largest market for wood pellet shipments, accounting for over 50% of global trade; in the 2Q/21, its market share declined to 34%. Import prices for industrial wood pellets ranged between $160-200/ton in the 2Q/21 and were generally higher than in the same quarter in 2020 . Denmark and the United Kingdom, the world’s two largest importers, had the highest pellet prices. The Netherlands, which increased imports dramatically from 2017 to 2021, has seen annual import prices rise from $150/ton to $190/ton over the past four years.

Vietnam exported around 3.2 million tonnes of fuel pellets of various types last year, making it the world’s second largest exporter of the products, according to the General Department of Customs. The country’s shipment of pellets rocketed to 3.2 million tonnes last year from just 175.5 tonnes in 2013. The export revenue increased 15.3 fold from nearly 23 million USD in 2013 to 351 million USD in 2020. The Vietnam Timber and Forest Product Association reported that Vietnamese pellets were mostly exported to Japan and the Republic of Korea to provide input for thermal power production.

Separate standing market in Europe and the center of consumption is U.K. market. In September 2021, imports of wood pellets decreased 5.5% yoy to 653.3 thousand tons, the value of imports rose 3.0% to $128.8 million. Average price of wood pellets expanded 8.9% to $197.2 per ton.

USA influences all the world in wood market as well as in any other life. For the second month in a row, total US housing starts decreased in October as the single-family sector continued to struggle with availability, affordability, labor and building materials challenges. Following the absolute plummet this summer after unsustainable highs in spring, lumber prices have been recovering during September and October. In the week ending October 29, most construction framing dimension lumber prices flattened out, to finish the week at close to the levels of one year ago. As October came to a close, Canadian Western S-P-F sawmills responded to steady demand with mostly even pricing. As order files extended into the last week of November, manufacturers restricted their production volumes due to high log costs. Construction activity in North America was better than usual for the time of year.

RUSSIA is most significant player and producer. Experts predict for Russia a 20% decline in wood prices and a new rise in April-May 2022. The price for a lumber board, 40-50 mm thick in October expect to fall from 291-327 Euro/m3 down to 218-242 Euro/m3. After the beginning of the logging period in December and the receipt of large volumes of raw material at the warehouses, prices are likely to decrease by another 15–20%. According to another forecast, prices will fall by about 5% per month, however, with the start of the new construction season, timber will start to rise in price again. The price drop may accelerate in December, after establishing stable subzero temperatures. Further, the price will stabilize and will begin to grow in April-May. Note that timber prices rose sharply in Russia this summer, rising by 100%. In October, experts noted that the decline in wood prices is temporary.

ASIA is the biggest producer and biggest buyer.

VIETNAM. The fourth wave of the COVID-19 virus curtailed the wood export from Vietnam. Strict social distancing forced many factories to close. Nevertheless, factories are expected to operate at reasonable production levels as vaccination rates increase, and trade is expected to recover. The COVID-19 pandemic continues to seriously affect production and enterprises.

CHINA. In October 2021:

– Russia’s exports of lumber to China dipped 0.8% yoy to 1,188.1 thousand m3, the value of exports increased 27.4% to $271.3 million. Average price of lumber upped 28.4% to $228.3/m3.

– China’s imports of softwood lumber declined 19.2% yoy to 1,487.4 thousand m3, the value of imports increased 11.3% to $362.4 million. Average price of softwood lumber jumped 37.7% to $243.7/m3.

– China’s imports of softwood logs declined 14.7% year-on-year to 3,965.7 thousand m3, the value of imports increased 25.1% to $676.3 million. Average price of softwood logs jumped 46.7% to $170.5/m3. Germany’s exports of logs to China declined 34.6% yor to 806.7 thousand m3. Average price of logs increased 47.4% to $178.5 per m3.

AFRICA is the niche product supplier but the massive one. A serious issue is developing in West Africa. A lack of empty shipping containers severely curtailed sawnwood exports from Congo and Gabon. It is less of an issue in countries, which imports considerable quantities of goods (like Cameroon), thereby freeing up containers for exports. Most sawnwood leaving the three countries is going to China and the Philippines.