Fog of war obscures outlook

Not once in my 29-year timber industry career have I been in this type of softwood market where the outlook is so foggy.

The industry has had a great run since the Covid pandemic started and there are several arguments for this to continue. At the same time, I can also come up with many arguments why the market will change to the worse. There are too many moving parts that can and most probably will impact the market to try to forecast what will happen during the second half of the year. Never mind what the market will look like in 2023! The long-term outlook for the timber and forest industry looks good and promising, but the short and medium term could not be more unclear.

The war in Ukraine and the economic sanctions following it are having – and will have – a huge impact on the timber market. I would say a bigger impact even than Covid had. Russian, Belarusian and Ukrainian timber will not be allowed in the European markets and the impact is only going to be felt after the summer as existing contracts can be delivered until the end of June. Sawn timber export volumes from these three countries to Europe have been over 8 million m3 annually, representing about 10% of European consumption. The disappearance of this volume is going to have an enormous impact on European and global markets.

Consumer uncertainty, a substantial increase in inflation and what happens next in the war are inevitably going to reduce consumption and demand for timber products. How much and when this will reduce are unknown at the moment.

Global trade flows will change as Russian and Belarusian timber won’t make it to European and Japanese markets. Russian sawmills will be forced to sell more to the Chinese and other Asian markets, resulting in increasing price pressure in these markets. Russian sawmills in Siberia will be better placed to sell their products to China, but mills in north-west Russia will have big challenges logistically. This will result in reduced European exports to Chinese and some Asian markets. Also, as Russian and Belarusian sawmills will not be able to trade in US dollars, several MENA markets will very likely buy less timber from them, resulting in more demand for European sawmills.

The situation is going to be different for carcassing, joinery and packaging materials. Demand must reduce more than 6-8% for the supply demand balance to change. For joinery and packaging materials the demand should reduce more than 10% as Russia, Belarus and Ukraine have been mainly supplying these markets.

How the annual supply demand balance of wood products is going to settle is very hard to predict. On one side we see the demand slow down, but having one of the world’s largest forest products producers disappear from the European market is an unprecedented event.

The hardwood and plywood sectors are similarly impacted and their prospects equally difficult to predict.

In addition, softwood availability for the coming years in central Europe is going to tighten due to the bark beetle.