Asian demand could soften Finnish downturn

Summary
• Low demand, excess supply and exchange rates have impacted on the Finnish market.
• The roundwood shortage may be met by domestic supply.
• The FFIF says this is capacity to increase felling volumes in small-scale private forests.
• Harvesting has increased in the Finnish archipelago.

The forecasted slowdown in output in the Finnish wood products industry has materialised in the face of deteriorating demand for sawn goods and an excess supply of such goods in Europe in particular.

The strength of the euro in relation to other currencies, in particular sterling, has also been a negative factor. The situation has been exacerbated by a shortage of roundwood largely caused by the reductions in imports from Russia due to the increases in Russian timber export duties.

In its latest forecast for the Finnish forest sector, the Pellervo Economic Research Institute (PTT) anticipates that the lowered demand for Finnish sawn goods, caused by the weakened economic situation, will continue at least until the autumn. Fortunately, it is anticipated that the supply of sawn goods will not increase elsewhere in Europe this year, either. PTT says that this may result in a growing demand for European sawnwood in Asia and cause a new upswing in the Finnish sawmilling industry at the end of this year and early next year.

Russian duty

PTT anticipates that the increase in the Russian export duty on roundwood to €50/m³ in 2009 will cause Finland's imports of Russian roundwood to cease completely and will reduce sawn timber production internationally since Russia is a significant exporter of roundwood worldwide. This will particularly be the case in Asia, where substitute raw material is difficult to find. PTT expects that, in the short term, Russia will be unable to increase its own production to compensate for the current decrease in international production.

PTT estimates that the roundwood shortage could be met by domestic supply. The increased demand will raise commercial fellings in Finland by more than 10% in 2009. This will result in an increase of 5-7% in average wood prices.

The Finnish Forest Industries Federation (FFIF) points out that present logging volumes leave over 15 million m³ of felling potential untapped in small-scale private forests. It says that, in recent years, the forest industry’s annual roundwood purchases from small-scale private forest owners have amounted to about 45 million m³, but that Finland’s forest resources are sufficient to allow that to increase to above 60 million m³.

Realistic target

Professor Antii Askinainen of the Finnish Forest Research Institute agrees that harvesting 10-15 million m³ more timber in Finland is possible if the whole forest sector improves its work. However, he points out that if this target is to be met within two or three years there won’t be enough harvesting or transporting machines to cope with the extra work. With this in mind, he suggests that 10 million m³ would be a more realistic target.

The FFIF says that although roundwood sales activity picked up in April, in order to maintain its manufacturing activities, the forest industry requires a lot more wood than is currently available on the market.

“It is essential, from the perspective of the entire forest sector, to ensure the steady availability of wood at a competitive price and not just when roundwood prices are peaking,” said Dr Anne Brunila, president and CEO of the FFIF. “Regular roundwood sales not only create stable revenues for forest owners and make it possible to develop forestry, but also help keep the forest industry’s wheels turning.”

The shortage of timber and rising wood prices have meant that harvesting in the Finnish archipelago has become more commonplace since it has become more profitable for forest owners. The higher temperatures and ice-free winters have provided a longer season and enabled harvesting to be carried out in the winter.

Investments

On the investment front, some previous investments by the industry have recently come to fruition, while other major ones are planned. For example, UPM has formed a joint venture company with the Russian Sveza Group to build a state-of-the-art forest industry facility in the Vologda region in north-west Russia. The facility will include a modern pulp mill, a sawmill and an OSB building panels mill. Operations are planned to start in 2012 and the total investment would exceed €1bn.

In Finland, Metsäliitto has opened a new plywood upgrading mill in Suolahti following a €15m investment, making it one of the largest wood products industry investments in Finland in the past 12 months. The mill, which uses state-of-the-art technology, further processes a total of 30% of the material produced by the birch plywood mill in Suolahti.

In Austria, following a year-long construction project, Stora Enso Timber has officially inaugurated its cross-laminated timber mill next to the Bad St Leonhard sawmill. The total cost of the investment amounted to €18.7m and adds an annual capacity of 65,000m³.