Figuring out the new normal24 August 2022
Today’s combination of supply, price and cost issues facing the European timber sector is unprecedented. The solution, after 20 years of price stagnation, must be market appreciation of the true value of wood, writes Jean-François Guilbert, managing director of France’s international marketing organisation French Timber
2021 started with low stock levels at most distribution yards across Europe. We were all still trying to figure out Covid and it seemed money was better left in the bank than spent on restocking.
Then, of course, came the sudden upsurge in demand for timber and wood products in France as across Europe, everything from decking to kitchens. And the market continued at a frenetic pace to September. Orders piled up, lead times extended. Wood was a good business to be in for both producers and distributors. The landing from these heights was fairly smooth, with French lumber diverted to other, albeit less profitable, markets such as north Africa and Asia.
In 2022 trade started earlier than expected in the US, driving a renewed sense of urgency in Europe. Santa Claus had come early and demand accelerated. Logistics remained an issue, but it seemed this and having to work harder to secure supply, was the new normal.
Demand for all wood products remained robust. Construction, renovation and packaging were still following 2021’s upward trend and the economy was back on track.
The data showed international wood products trade up 20%, although to what extent this was new market demand or the timber sector stocking up to avoid being caught out as in Q1 2021 was unclear.
Then came the war in Ukraine, triggering a new wave of panic buying. Distributors anticipating supply constraints once more endeavoured to stock up. However, it soon became clear that the situation was very different from 2021. Economic data increasingly pointed to global slowdown or downturn as energy and other costs rose increasingly rapidly. By May, while lumber was reasonably available, albeit not always in the right place due to continued logistics disruption, and stocks at distribution were high, order books had suddenly become smaller. European suppliers were again offering volume to less profitable markets.
It will take all summer to rebalance supply and demand and come September, after the holidays, we will face a very different market situation.
The next new normal won’t be what we’re used to: log prices will not go down because of now increasingly tight supply and the diversion of saw logs to the energy sector. At the same time sawmills’ other costs are also set to keep rising: lack of labour and inflation are forecast to push labour costs up 5% in 2022 and energy prices remain on an upward curve. Power used to represent 2% of sawmills’ turnover. This could rise by 2%, 3% or even 8% depending on the deal mills strike with providers. So energy costs may exceed labour costs – a new situation for the sector.
What we must be looking for is for the market to accept this new normal and pay a fair price for lumber. After 20 years of stagnation, that is something to hope for. Wood is the unique sustainable raw material and it should be valued as such.