Profitability in the sector is falling
The Polish timber industry has recently been facing a significant decline in profitability. In the third quarter of 2023, the sector recorded a negative net profit margin. Profitability fell for manufacturers of wood products, pulp and paper, as well as wood-based panels.
A report by the Polish bank PKO states that the timber industry is currently facing its steepest decline in profitability – in the 3rd quarter of 2023, the sawmill sector saw a negative net profit margin. The sales profitability of the wood products manufacturing group fell to an unprecedented level of 3%. Pulp manufacturers also showed a significant decline in profitability. A similar situation was observed in the paper (sales profitability margin in the 3rd quarter of 2023 was 2.6%) and wood-based panel (1.7% in the 3rd quarter of 2023) sectors. This is linked to high energy consumption in production.
Timber industry profit margins
The authors of the bank's report believe that profit figures for Polish companies (especially in the timber and paper manufacturing sectors) may remain “under pressure” in the coming quarters, with the situation potentially continuing until the 2nd quarter of 2024. Bank experts believe this will be determined by further declines in the prices of finished products in these sectors. Limited opportunities to reduce costs are visible. This is occurring due to both the increase in the minimum wage (from 1 January 2024) and persistently high energy prices. The report emphasises that for furniture, pulp and paper manufacturers that are “heavily export-oriented”, the strengthening of the zloty against the euro is also unfavourable.
There are also better forecasts: the bank's report states that the Polish furniture and paper industry are already showing signs of improvement, evidenced by key economic indicators growing in the final months of 2023, which exceed the average values for industrial processing as a whole.
The reversal of negative trends will be facilitated by the expected growth in private consumption in the domestic market in 2024. To a lesser extent, it will also be aided by the situation in the markets of Poland’s main export partners. Overall, it must be acknowledged that sentiment in the Polish timber industry remains negative. This is largely determined by limited activity in the construction sector and lower demand for timber industry products (including furniture). Experts believe that a return to growth in the Polish timber industry will not happen before the second half of 2024.
Possible improvement in the situation
Other factors that may improve the situation in the sector include demand for joinery products in connection with building insulation projects (renovation) and the increasing popularity of using wood in construction. Processors also benefit from the long-term trend of replacing products with a high carbon footprint with products of natural origin. This is also a good opportunity for growth for cardboard packaging manufacturers.
Demand for furniture and other wood products largely depends on the situation in the housing market – currently supported by Poland’s “2% Safe Credit” programme. The potential expiry of this programme, combined with the low number of new housing starts in 2022 and 2023, may, however, negatively affect domestic demand for furniture and wooden elements for home furnishing in the 2024-2025 perspective.
Proportion of profitable companies
Profitability among Polish paper product manufacturers has increased (sales profitability margin was 10.7% in the 3rd quarter of 2023). The average profitability of the furniture manufacturing sector has also improved (5.9% in the 3rd quarter of 2023).
However, the decline in the proportion of profitable companies overall is worrying. In the timber industry in the 3rd quarter of 2023, every third company was in the so-called “red” zone – such a high proportion of unprofitable entities in this sector was last recorded more than 10 years ago (excluding the 1st quarter of 2020 during the C19 pandemic). In the furniture manufacturing sector, this figure fell to 74.1% in the 3rd quarter of 2023 (-4.7% year-on-year). This means that every fourth furniture manufacturer in Poland registered a net loss in the 3rd quarter of 2023.
Bank experts point out that compared to the increase in average profitability in the sector, one can see how different the situation of individual companies is in an unfavourable market environment. Companies that are less efficient or highly dependent on, for example, only the German market are in a worse position, as it is currently facing a significant decline in economic activity, thereby leaving a negative impact on many partners in Poland.
Polish wood for the forest industry
Data from the FAO (Food and Agriculture Organization) shows that Poland is the fifth largest producer of wood (in terms of roundwood availability for the forest industry) in the European Union, after Germany, Sweden, Finland and France. Wood harvesting in Poland has been increasing for several decades. This is a trend in most European countries that are leading wood producers (including Latvia).
According to FAO data, 45.1 million cubic metres of roundwood were harvested in Poland in 2022, i.e., 4.6% more than in 2021. The majority of wood harvested in Poland meets the needs of local processors. FAO data show that roundwood exports from Poland reached 3.8 million cubic metres in 2022 (-7.8% year-on-year), which accounted for 7.9% of the country’s wood supply (i.e., logging plus imports).
Wood exports
Experts emphasise that the ratio of exports to supply has been systematically decreasing since 2018. In previous years, domestic supply in Poland increased significantly, while exports grew. It should be noted that in 2017, a very large volume of wood was exported as a result of windthrow.
Poland – a roundwood exporter
Eurostat data show that wood exports from Poland in the period from January to August 2023 reached 2.7 million cubic metres, which is significantly less than in the corresponding period a year earlier (3.7 million cubic metres). In 2022, roundwood exports reached 5 million cubic metres. Germany dominates the geographical structure of exports – its share is almost 40%. In total, 24% of Poland’s exported wood went to the Czech Republic and Slovakia, and 16% to China (compared to 45% in 2020). It should be noted that, starting from 2021, wood exports from Poland to China have been declining.
Wood processing sector indicators in Poland
The sectors of the Polish wood processing industry – furniture, wood products and paper – accounted for 11.8% of the country’s gross value added in industrial processing in 2022. The importance of these timber industry sectors in the Polish economy is strengthening in the long term, as evidenced by the increase in the value of this indicator in recent years (9.2% of manufacturing gross value added in 2010, 11.3% in 2015).
Poland is the largest exporter of furniture in the European Union. Polish timber producers are also the second largest exporters of wood products in the European Union. Germany takes first place in this segment. Poland's importance in the export of EU paper industry products is also growing – 6th place in the 1st-3rd quarter of 2023, especially in the production of paper (cardboard) packaging – 3rd place.
As a forestry nation, Poland holds a very significant place in Europe; it plays a vital role in shaping European forest policy, defending the interests of its own national economy and, of course, resolving international forestry issues. Last year, Poland ceased cooperation with the FSC certification system in state forests, which is why it is also important for us in Latvia to see how the situation in this area develops further in Poland. As is known, since 2024, AS “Latvijas valsts meži” has also suspended FSC certification on its forest lands. The decision is linked to the fact that FSC has not developed a National Forest Management Standard for Latvia. FSC certification in accordance with existing standards in Latvia is suspended until such time as a national standard is developed.