Tough present, brighter future

Summary
¦ Swedish timber output fell 13% in 2008-2009.
¦ Seven sawmills or saw lines closed in the period.
¦ The industry is focused on new product development and is spending SKr100m on a five-year cross-sector research programme.
¦ Around 18.5 million ha of Swedish forest is now environmentally-certified under PEFC or FSC schemes.

The international recession started to impact on Swedish sawmills from the beginning of 2008.

The position worsened through the year and production for 2008-2009 fell 13% from the peak achieved in 2007, a decline of 2.5 million m³. Overall seven sawmills or sawmill lines were permanently closed in the period, taking out total capacity of 600,000m³.

Most mills took market-related downtime or reduced the number of shifts during the acute phase of the economic crisis; the consequence, reduced production, temporary staff layoffs and redundancies and, in some cases, a lack of raw material further contributed to downtime or closure.

The Swedish domestic market for timber also weakened considerably in 2008 and 2009 as building activity declined. Consumption held up better in the renovation, alteration and extension markets, which were boosted by a tax cut on project labour costs. But residential construction contracted especially sharply and non-residential building activity was also hit, declining through 2009 and into 2010.

While timber deliveries to the domestic market decreased by 15% from 2007, export deliveries, after a sharp decline that year, actually increased in volume in 2008 and 2009, boosted by weak exchange rates for the Swedish krona. However, this advantage has since receded as the currency strengthened, notably against the euro.

Market fragility

More recently there have been price increases in sawn wood products but, despite the fact that production is now rising, this seems to be more the result of continuing limited output rather than strong demand. In fact, in the first four months this year compared to last, although export value increased 8% to SKr7.6bn, volumes fell 8% to 3.7 million m³ – and exports to the UK for the period declined 18% to 800,000m³.

On a brighter note, deliveries to the domestic market, which represent 30% of total output, have increased about 5% in the same period.

Some Swedish sawmills have reported better 2010 interim results due to stronger price levels, although this improvement has been tempered by the recent steep rise in raw material costs, which has kept margins and profitability at a relatively low level.

So, is the industry now on the road to recovery? The market seems to remain very fragile, with increased output of sawn wood products from many competitor countries and continuous weak demand. Although the situation in Sweden looks set to get better, the wider European building and construction sector shows only few signs of improving this year and the pace of any upturn will also be restrained by government debt reduction programmes, likely interest rate rises and higher financing costs.

Against this background, the Swedish sawmilling sector sees product development and cultivation of new markets as more important than ever and, besides individual company R&D, a five-year SKr100m trade research programme focused on developments in timber construction, wood processing and durability is under way.

There is a move in the industry into more value-added, further processed products, notably door and window components, and the sector is also focused on development of new construction systems based on engineered wood, glulam, cross-laminated timber and other concepts.

Environmental performance

Another area where the Swedish timber industry has continued to focus is environmental performance and sustainable development. Around 50% of Swedish sawn timber is now produced in mills with certified environmental management systems and in 2009 the total area of forest certified under the FSC scheme reached 11 million ha, while PEFC certification hit 7.5 million ha. An increasing number of forest products companies are also applying for dual certification (see below).

Besides individual companies implementing their own environmental programmes, the Swedish forest industry is establishing sector-wide objectives, as detailed in the recent report Products from the forest – a natural choice (www.forestindustries.se/web/Prod.aspx).

The forest products industry also now sees bio-energy from forest products-based raw material as a “third leg” to their operations, alongside timber and paper production, and it is confident that it will remain a complementary sector rather than a raw materials competitor.

Europe remains the main export market for the Swedish sawmilling industry, accounting for about 70% of its total, and this is likely to be the case for some time to come. But the sector has also gained a strong foothold in North African and Middle Eastern markets, and aims to develop these further.

In China, the industry is working with counterparts from other European countries to develop sales under the brand name European Wood Initiative and it is also collaborating with Canadian partners to promote the use of wood in building and interior decoration.

Positive climate

While the market has been difficult, the Swedish sawmill sector is an efficient industry that continuously strengthens marketing strategies and devotes considerable effort to product development in co-operation with customers.

Highlighting the longer-term optimistic outlook for the business, two new sawmills with a combined capacity of 1.5 million m³ are now under construction, with start-up planned for 2011.

In addition, the industry is backed by forest growth that will ensure sufficient raw material for further expansion and development and it sees the performance and environmental benefits of its products, notably their potential contribution to tackling climate change, giving them an even stronger market appeal for the future.