Summary
• Harvesting has been cut as forest owners refuse to accept prices offered by sawmills.
• Sawmills output could be as low as 7 million m³ this year.
• Biomass could fill the gap left by pulp mill closures.
• The euro/sterling exchange rate has affected trade with the UK.

Following a first quarter marred by weak demand, tough price competition for sawn timber and high raw material prices, Finnish sawmillers now find themselves in a catch-22, caught between a welcome seasonal rise in demand and a heavily undersupplied market.

Faced with first-quarter losses, output has been reduced significantly, and now production – and profitability – may be constrained further by the limited supply of logs. “In the third quarter it may be challenging for the industry to maintain a suitable production capacity for profitable operations,” said one shipper.

Harvesting levels

Harvesting levels have been reduced dramatically, a result of the paper industry’s lower consumption of pulpwood – estimated to have been cut by 8 million m³ – and forest owners’ refusal to accept the €40/m³ or so offered by sawmills. This is having a major impact on the sawmills, whose roundwood inventories are becoming critical.

“We have enough roundwood for one to two months’ processing,” said Finnish Sawmills Association managing director Jukka-Pekka Ranta. “If we don’t get more wood now we will have to stop production during the summer.”

According to the Finnish Forest Industries Federation, in March, timber purchases from private forests amounted to 392,000m³, down 28% on February’s tally, while in the first quarter, the total of 2.3 million m³ was 51% lower than the corresponding period in 2008.

Economic research institute PTT forecasts a roundwood harvest of 55 million m³ this year, down from 75 million m³ in 2007, and it expects prices will drop by around 25%.

Mr Ranta said the situation was not helped by pulp and paper manufacturers’ loud message that they don’t need any raw material. “Our message is that we need wood,” he said.

Russian supply

In the past, the Finns could have turned to Russia for sawlogs but imports have declined over the past year and are unlikely to resume, as several Finnish companies have reduced their presence there. One shipper told TTJ that log supply from Russia had always been uncertain and “no-one wants to build up anything based on this kind of uncertainty”. And, he added, even if imports were resumed, it would be of no immediate help. “You can’t switch the tap on in one or two months.”

Now sawmillers are having to wait to see which way the market turns. “Companies need to make sure their businesses are viable,” said one contact. “Prices are going up but we can’t afford to increase log prices.”

With summer production closures coming in and the lack of harvesting, the situation could become even more polarised. “The rest of the year we will be playing catch-up on the market,” he said.

And sawmills are nervous about making significant production changes when demand over next winter is still uncertain.

“Everybody is cautious about the global economy so sawmillers are hesitant to put up log prices and ramp up volumes because there is still a question mark over how demand will develop,” TTJ was told.

Sawn production

PTT says that Finland’s production of sawn goods fell from a peak of 12.4 million m³ in 2007 to 9.2 million m³ in 2008, and it expects further curtailments will take the figure down to 8.3 million m³ this year. And despite some recovery in the global economy next year, PTT expects “no significant” change in sawmills’ production volumes in 2010.

Others are forecasting this year’s production could be as low as 7 million m³ and Mr Ranta believes that long term it will settle to just above 2008 figures. “Finland will never produce more than 10 million m³ again,” he said.

The lower production levels mean virtually all products are selling and redwood prices in particular have improved. However, demand “in all areas has been modest and restricted availability has forced buyers to look further ahead”, TTJ was told.

In a statement on May 27, the Finnish Forest Research Institute (Metla) said contraction of the country’s wood-processing industry had only just begun, with paper output projected to fall by a third by 2020 from the 2007 level. Antro Säilä of the Finnish Forest Industries Federation said it was an extreme scenario which would occur only if companies and the government did nothing to secure the industry’s future. In a report in the Helsinki Times, prime minister Matti Vanhanen said that, in addition to future demand for timber in construction, he hoped demand for bioenergy would help the wood-processing industry remain competitive.

Changing structure

It was a view shared by one shipper contacted by TTJ. “Closures of pulp mills will change the total business structure, while energy is improving its competitiveness,” he said. “The EU’s targets on bioenergy will continue to improve demand, especially on thinnings. But in the short term, low demand for pulpwood will restrict harvesting and sales of logs.”

To add to Finnish shippers’ concerns, the sterling/euro exchange rate has not worked in their favour in trading with the UK, a situation felt all the more acutely because their Swedish competitors have not been subject to the same currency hurdles. “The UK has been a tough market,” said Mr Ranta. “We have suffered.”

However, another contact said prices had risen and Finnish sawmillers were now being “compensated for exchange rate losses”.