Fortunes finally turned around for Finnish sawmills last year and the signs are positive that the market improvements will continue this year.

"Things really started picking up during the summer but the most encouraging thing was it continued through to the third and fourth quarters. I don’t recall times when prices have firmed in the fourth quarter, but that’s what happened," a shipper told TTJ.

Finland’s weak construction activity means domestic demand is low so it is export markets keeping mills busy and last year export volumes increased around 9%.

Some of this reflects the strengthening economy in the US which, although not a market for the Finns, creates voids elsewhere.

The export figures were buoyed by strong demand from Asia. In the 10 months to October, mills’ exports to Japan increased 43%, and to China by a staggering 160%, although on much smaller volumes. This makes China Finland’s fourth largest market for whitewood, but its redwood imports are much lower.

Shippers expect Chinese demand to continue strongly, with perhaps a change in specification. "The Chinese have been very price-oriented buyers so they’re buying low qualities and specification heavily leaning on sideboards, but demand for higher value products is increasing," a shipper said.

However, whether Japan’s demand will continue at the same level is less certain as many of the purchases were made to beat the sales tax increase being introduced in April.

Demand from north Africa and the Middle East has also been "brisk" but the continuing political unrest in the region makes these destinations uncertain too.

European markets
In the 10 months to October exports also increased to Germany (5%) and the UK (3%), the only bright spots in an otherwise quiet European market.

One shipper said about 85% of his UK customers were busier than this time last year and customers were generally "cautiously optimistic". "There’s been an upturn in housebuilding and they feel there’s room for expansion with constructional grades, second fix joinery, and even outdoor applications such as decking and sheds. People have been talking about 10-15% projected increases in their purchasing," he said.

Indications are that UK consumers are "starting to think that life isn’t so bad", and this will have a positive impact on the housing and RMI sectors.

Such is the improvement in confidence that customers are now willing to buy forward. "That’s a clear change from last year when it was very much hand to mouth," said one shipper, while another said buyers’ concerns had shifted from price to product availability, reflecting a better balance between supply and demand.

Last year’s improvement in demand lifted selling prices slightly but profitability remains a major concern for mills. Following the centralised wage agreement in October, the Finnish Forest Industries Federation said the forest industry’s cost burden must be reduced.

"For several years, production and labour costs in Finland have increased faster than in competing countries," director-general Timo Jaatinen said. He added that the EU Sulphur Directive, which adds to fuel costs, and the windfall tax on power plants, added "hundreds of millions of euro" in costs for the forestry products industry.

Many businesses are back in the black but, having endured some lean years, the mills need a sustained period of improvement to make a significant difference.

"It’s a matter of getting back into black figures. There’s still a long way to make it into a glorious business but we are going in the right direction," said one sawmiller.

Another pointed out that selling prices hadn’t improved sufficiently to make a big impact on profitability. "Raw material is expensive; on average roundwood prices went up 3% last year, and sawn timber prices rose 3.5% so we benefited by 0.5%."

A mild start to the winter initially delayed harvesting, which did have some effect on log supplies, but temperatures have now fallen and frozen ground is allowing machinery in.

Generally upbeat
But difficulties aside, Finnish mills are generally upbeat about the year ahead.

While an increase in European demand is not expected, markets outside Europe are likely to remain healthy, although one contact did point out that if mothballed plants in the US were opened again that could change the global situation.

"I see positive signs in general but when I look at the big picture, the signs are still weak. We have positive signals but we also have a lot of risk," he said.

"Supply is at a level people are happy with; they’re returning to profit and, while the economy in Europe is still fragile, I don’t see anything to really concern the industry."

Others were prepared to be more bold.

"The general outlook for the year is quite positive in that the US economy is strengthening, there is strong demand from Asia and positive signals from some European markets like the UK," said a shipper. "This continuing strengthening demand and modest increase in prices is something we’d rather see than a price rally. Huge volatility generally means bad news in the long term."

One producer pointed out that sawmillers were always in a "pretty good mood" as they moved towards the second quarter, when building work picked up, but he predicted that this year’s second quarter would be "exceptionally good".

And another was adamant that the UK market would continue to improve. "With all this momentum that’s building I think we’re going to have a pretty good year – not a spectacular year but better than years gone by."