Summary
• Finland’s costs have increased by more than 50% in competing countries.
• After a boom at the start of the year, sawn timber prices are expected to fall slightly in the winter.
• Harvesting problems last winter have impacted on furniture and plywood production and prices.
• Finland plans to double the harvesting of forests on soft peat soil to 12-14 million m³ per year.

Finnish forest industry production increased in the first half of this year in spite of pressure from increased costs and timber shortages. Estimated figures issued by the Finnish Forest Industries Federation show that 6,700m³ of coniferous sawn wood was produced, an increase of 6% over the same period for the previous year, while plywood production was 745,000m³, an increase of 4%.

However, despite these favourable production figures, Finnish Forest Industries Federation president Anne Brunila believes that Finland’s forest industry is in danger of losing its international competitiveness as a result of increased production costs and high energy taxes.

Ms Brunila said that there is a risk that the extensive work carried out in recent years to improve the industry’s profitability could be in vain.

“A great number of skilfully implemented efficiency enhancements among the leading companies in the forest industry are beginning to be rapidly eaten up by sharply rising production costs,” she pointed out and added, “In just a short time costs for raw materials, energy, transport and labour have climbed significantly in Finland and by up to 50% more than comparable price increases in our most important competing countries.”

“Competition in the industry is fierce and the cost increases noted cannot be transferred to product prices,” she said.

Extra burdens on industry

Ms Brunila pointed out that trading in emissions rights and high energy taxes in Finland are also an extra burden on the industry. Each year, the Finnish forest industry pays about €60m in a type of industrial energy tax that does not exist in, for example, Sweden. It is estimated that a recently announced increase in the Finnish energy taxes next year will add an additional €10m in charges to be absorbed by the forest industry in Finland.

In a recent forecast the Pellervo Economic Research Institute (PTT) confirmed that the Nordic sawmilling industry had experienced a record-breaking boom at the beginning of this year. High demand combined with a limited availability of sawlogs, especially in northern Europe, due to the mild winter were key factors in the high production and rising prices, but PTT forecasts that market conditions will weaken slightly during the coming winter months, leading to a drop in sawn timber prices.

The main reasons behind the weakening market conditions are diminishing construction activity in Europe and especially in the US, while at the same time, sawn timber output has grown briskly, above all in Germany. In addition, the weak dollar hinders the price competitiveness of European sawmilling industry on the non-European markets.

However, PTT estimates that the drop in sawn timber prices will be modest, if Russian roundwood can no longer be economically used at the beginning of 2009 due to the very high export duty which will be in force then. This may lead to increasing demand for roundwood and sawn timber at the end of 2008 if Asian and European sawmills, plus consumers of sawn timber, begin filling their warehouses.

PTT adds that the Finnish woodworking industry is also supported by very strong domestic demand. In Finland, despite increasing sawn timber production, the export volume is expected to remain at last year’s level, almost half of the 12.8 million m³ produced being consumed domestically.

A shortage of timber due to unfavourable harvesting weather last winter is affecting the production of both Finnish furniture and plywood. As a result, furniture prices have risen and UPM is reducing the production of birch plywood for the rest of this year.

Harvesting to double

In conjunction with signals from the forest industry of an acute shortage of timber, it has been announced that Finland plans to double the harvesting of forests that grow on soft peat soil, increasing it to 12-14 million m³ per year.

A project to develop wood harvesting technology for soft peat soil has been undertaken by the Finnish state Forest Enterprise Metsähallitus and the Finnish Forest Research Institute, together with Ponsse, the Finnish manufacturer specialising in forest machines designed for the cut-to-length method of harvesting.

A prototype of a new machine was developed during the course of the project, which will enable profitable and environmentally-friendly harvesting on soil with poor bearing capacity. The concept is based on a 10-wheel, five-shaft forest machine equipped with a soft ground track. This combination has been shown to significantly reduce the surface pressure imposed on the soil compared with traditional methods.