Thanks to overall positive demand development in both our domestic and main export markets, such as the UK and North Africa, the Swedish timber industry increased output in 2014. In fact, production hit near record levels of 17.5 million m3, with the consequent impact on stock levels.

When sawmillers closed their books for the year, the results showed a very good first half, a more modest second. But overall domestic and export deliveries increased strongly compared to the previous 12 months.

Generally mills in north and mid-Sweden performed better commercially than their southern counterparts. Differences in log prices were the main factor here. Competition in the round wood market strengthened particularly strongly in south Sweden due to the general production increase. In fact, most of the increased output, and hence raw material demand, came from the south.

Swedish construction activity increased in 2014, the result of pent-up demand after years of low output, combined with population increase and a pronounced urbanization trend.

The market was also buoyed by home improvement labour cost tax reductions for private households, plus low inflation and rising real incomes. All combined to spur building activity further.

The new socialist-green alliance government has now decided to reduce this RMI market tax break by the year end. But short term this is expected to give business another spur, as consumers rush to get projects started.

UK and MENA boost
Exports increased overall by 5% per cent in 2014, compared to 2013. The UK market is our biggest export market and continued growth in its construction sector in 2014 further improved business for Swedish mills.

Well-established contacts, distribution systems, service and a full range of products all combined to help them satisfy increased demand.

Swedish timber’s second biggest export market is Egypt. Sales there dipped at the start of the second half, but recovered strongly to finish the year at a record annual high of 1.5 million m3.

The North African and Middle East markets (MENA) combined now account for almost 30% of Sweden’s exports overall, and 70% percent of exports outside Europe. The market, though, also comes with risks.

Back in Europe, our neighbour markets, Norway, Denmark, Germany and Holland have not developed like the UK, but have been stable.

The Japanese market contracted and continues to stagnate, although it’s still important for many mills.

Meanwhile, in China Swedish exporters increased deliveries around 16% in a market where total softwood imports rose by only 4%. Many mills see a significant potential here, reporting that Chinese industry is beginning to understand and appreciate Swedish timber quality and service.

Other Asian markets are on the industry’s radar and are expected to see volume growth, but from low levels.

An expected upturn in US demand did not materialise, but again there is a positive take on long-term prospects, with Swedish mills’ established distribution systems and representation leaving them well-placed to capitalize on eventual market improvement.

2015 and onwards
So far 2015 has seen production continuing to increase, although more modestly. Overall good log availability and a very mild winter have contributed to favourable market conditions and a negative interest rate over the first quarter depressed the Swedish krona, giving mills a competitive edge against rival suppliers, bar those whose currency is the rouble.

British mills are understandingly unhappy about the weak Swedish krona, but the expected increase in output that has resulted is not likely to continue through the year. It is expected to produce another overall upturn, but less pronounced than 2014.

The broad forecast is continued improvement in the Swedish domestic market, continued strong demand from the UK and stability through the rest of Europe.

The MENA countries are predicted to remain challenging, but main markets are expected to perform normally. In China, where Swedish mills are positioned towards interiors and furniture sectors, we expect volume growth despite competition from Russian exporters supported by a weak rouble and a backdrop of generally growing Russo-China trade.

So long-term fundamentals for the timber market are positive and put timber generally, and Swedish timber in particular, in a healthy position.