zemeunvalsts.lv. The article published in 2023 was titled “The level of log prices in Latvia is eating up international competitiveness”. Today, in 2026, when the events described have already been forgotten or some would like to interpret them differently, it is only fitting to recall the situation in the timber industry and on world markets. Clearly the situation can be assessed in different ways, which is understandable, but in assessing it differently one must not forget the course of events and what actually happened.
So – the year is 2023, prices and demand are both falling on European and Asian markets, yet the price of domestic sawlogs remains persistently high. In more detail – in the article.
Producers of softwood construction materials have run into a substantial drop in demand and prices for their products on European and Asian markets, while the sawlogs they need to manufacture them now have to be bought from the manager of Latvia's state forests at “good times” prices, which means lost competitiveness — hence the alarm bells being rung, in the hope that ministers and the government will step in to normalise the situation.
The position is made even harsher by the fact that in Latvia's direct competitor countries the very same raw material – softwood sawlogs – can be bought at substantially lower prices (by as much as 40%) than those at which AS “Latvijas valsts meži” (LVM) supplies them under the contracts concluded. What is going on? Companies are trying to mix the ultra-expensive sawlogs from the forests managed by “Latvijas valsts meži” with cheaper ones bought from private forest owners, or to import them from Scandinavia. Discussions about this problem are taking place not only in the industry's business organisations, but also in the German-Baltic Chamber of Commerce.
Crisis on the markets
“There is a crisis on the European construction market, because a 30-50% decline is being observed in this sector in various countries, similar to the one we experienced in 2008,” is how the chairman of the council of the European Confederation of Woodworking Industries, Sampsa Auvinen, characterises the overall market situation, noting that price increases have made many would-be homeowners very cautious. What is more – in an effort to curb inflation – the price of money (loan interest rates) has risen substantially. “These factors have brought the construction of new homes to a halt; those whose construction had already begun are being completed,” explains S. Auvinen, acknowledging that a radical deterioration of the situation will only be visible in the statistics at the beginning of next year.
“Unfortunately, for the time being there are no signs pointing to optimistic forecasts for the approaching year 2024; there is only an assumption that the situation on European markets will begin to improve in 2025,” assesses S. Auvinen, adding that in other regions of the world, for example in Asia, the situation is no better. Russian timber ending up on the sanctions list and the ban on its deliveries to Europe have resulted in the following: that country's products have become cheap and have flooded the Asian market, and not only that region's market alone.
“Asia is a very important export market for Latvian and European sawn products,” explains S. Auvinen, stressing that because of these problems sawmills in Europe have run into a shortage of orders and at best are working only three days a week.
Indexation is not working
The crisis in construction, smaller orders and, in particular, the substantial fall in prices for sawn products should, in the timber industry's view, also be reflected in changes to the contract prices for softwood sawlog deliveries agreed earlier with the manager of Latvia's state-owned forests (LVM). “It is paradoxical that Latvia's state-owned and most important supplier of timber resources in Latvia insists on roundwood sales prices that are effectively killing the sawmills,” S. Auvinen says with surprise. He cannot understand why the price monitoring system is not working, or why it does not reflect the situation on the market.
“At present the softwood sawlog selling prices of the manager of Latvia's state-owned forests are the highest in the world; they are killing the sawmills rather than fostering the development of an industry traditional to Latvia,” concludes S. Auvinen, who is genuinely surprised by this situation, all the more so because for more than 20 years “Latvijas valsts meži” has shown timber buyers an understanding of the market situation and acted accordingly, and to those who buy timber products from this company it has been a partner (upholding all agreements concluded, delivering products of appropriate quality, ensuring timely deliveries and so on) in the very best sense of the word.
“Perhaps the reason is that the company's management has changed completely; perhaps the problem is to be sought in the ministry (of Agriculture) that oversees the company,” answers S. Auvinen when asked about the causes of the problem. In his view, if there is political will to keep the timber industry in Latvia, a solution will have to be found at this level too, one that would allow the producers of softwood sawn products working here to regain their competitiveness.
“This situation directly affects Latvia's economy, because Latvia's reputation as a reliable supplier of sawn products is being called into question. Buyers of sawn timber know about LVM's roundwood prices and are starting to buy these products from other countries, which they now consider more reliable,” says S. Auvinen.
Latvian suppliers are being replaced by Scandinavians
“At the moment it is economically more advantageous – cheaper – to buy blanks in Scandinavia than to produce them ourselves in Latvia,” is the blunt assessment of the situation from Andris Veide, chairman of the board of the sawn timber trading company SIA “Lameko Impex”, explaining that timber for manufacturing finished products is bought from a producer in Sweden.
“Is it not absurd that Latvia, where one of the key sectors of the national economy is woodworking and which over the years has become one of the world's leading suppliers of softwood sawn products, is no longer able to produce this product from its own raw materials at economically adequate prices,” A. Veide says indignantly, recalling that this paradoxical situation is currently being successfully exploited by Scandinavian producers, who are also entering Latvia and taking the market away from domestic producers.
Revenues do not cover costs
“Producers of softwood sawn products began raising the alarm about this problem and have been in discussions with the other contracting party – “Latvijas valsts meži” – ever since the moment when sawn timber prices on foreign export markets began to fall, while the indexation of sawlog prices not only failed to follow in the direction of a price reduction, but at first even worked in the opposite direction, which means there is an error or shortcomings in the price indexation calculation algorithm introduced for the first time,” explains Voldemārs Ciršs, chairman of the board of the softwood sawn products manufacturer SIA “Smiltene Impex”, concluding that for timber industry companies operating in Latvia which have longer-term contracts with the state forest manager for the supply of softwood sawlogs, the situation is becoming more critical by the day, because the market prices for some timber assortments have already fallen to the purchase price of roundwood.
“Sawn timber prices have been falling for 16 months in a row, because there is a thorough stagnation in construction and on timber markets worldwide, yet the sawlog selling prices for LVM's longer-term contract partners were only finally reduced in the fourth quarter of this year to the purchase prices of the end of 2021,” answers V. Ciršs when asked about the root of the problem, recalling that the first slowdown in demand and prices for sawn products was observed at the end of the summer of 2021, while the trend that began in mid-summer 2022 has still not changed direction. “It is significant that the current stagnation of the softwood sawn timber market is being observed worldwide, whereas in 2007-2008 it affected Europe alone, which is why there were opportunities to sell our products at acceptable prices beyond Europe's borders. At present there are no such opportunities,” explains V. Ciršs. That is precisely why a solution must be found and action taken immediately, because over 16 months the situation for the timber industry has become critical.
“Ever since mid-summer 2022, when sawn timber prices began to fall on the market, we have talked, written and debated, and we still continue to do so in various formats and at various levels (individually, through the association); to this moment there have been no real actions to solve the problem either from LVM or from the holder of its capital shares, the Ministry of Agriculture, which is why we also sought support from the Baltic-German Chamber of Commerce, of which our company is a member, and the chamber's management reacted immediately,” notes V. Ciršs, acknowledging that the current situation is a dead end for producers. For businesses this has resulted in a loss of competitiveness on external export markets and the loss of market share or of those markets altogether, with substantially smaller production volumes, frequent forced downtime that causes companies continuous losses, and also with the laying off of employees, which increases people's uncertainty about the future and affects the well-being of those living in the particular localities.
Several solutions
V. Ciršs stresses that there can be several solutions for getting out of this particular situation – this dead end: “The simplest is the indexation of sawlog prices in the existing contracts in line with the real situation on the sawn timber market and the continuation of those contracts; the termination of the concluded contracts by mutual agreement and without sanctions against the party initiating this, and a re-auction of the freed-up volumes; as a compromise – the extension of the final year of performance of the concluded contracts by a further two years, with additional logging volumes allocated in the state forests to compensate for the reduction in the annual volume; there may be yet another solution.”
“Quite recently, at a moment when electricity prices were rising very sharply, the Latvian state-owned energy supply company AS “Latvenergo” was able to terminate electricity supply contracts with almost everyone it had concluded them with and immediately conclude new ones – at a price matching the market situation; I do not understand why another Latvian state-owned company – LVM – cannot act in exactly the same way?” S. Auvinen answers the question of what should be done with a counter-question.
Opinion. The ministry will not stand aside
Normunds Šmits, Parliamentary Secretary of the Ministry of Agriculture
The current situation, in which the prices of finished products have undergone a substantial fall while the raw materials needed for production, or a substantial part of them, are being bought at “fat years” prices, is unacceptable; it is a path neither to sustainable development nor to growth.
At the same time I would like to recall that the businesses themselves, by taking part in the public procurement procedure, submitted their own price offers at which they were prepared to buy softwood sawlogs from LVM over a longer term. Moreover, both the longer-term sawlog purchasing procedures and the price formation mechanism were developed jointly with the industry's business organisations, and all of this was known before the businesses submitted their price offers.
Yes, the situation on the export markets for sawn products has changed radically, but it is not possible to change the terms of a contract concluded under a public procurement procedure, because doing so may set in motion various processes whose consequences could be devastating not only for those who set them in motion, but also for the industry as a whole. The simplest thing – the Ministry of Agriculture is now getting involved, raising this issue at government level in order to secure the timber industry's export capacity and competitiveness at the international level.
The forest sector and the timber industry were, are and will remain an important cornerstone of Latvia's national economy.
We have familiarised ourselves with this complicated situation, and I see several possible solutions, although these are still under discussion and their impact, benefits and losses are being assessed.
Prices in Latvia threaten investment
Florians Šrēders, Head of the German-Baltic Chamber of Commerce
The competitiveness of Latvia's timber industry gives cause for concern in view of the very high selling prices of raw materials. Companies in Latvia are already now forced to buy softwood sawlogs at substantially higher prices than, for example, in Sweden, Finland, Lithuania or Germany. This also affects our member companies from Germany that operate here and have made substantial investments in Latvia.
The article was first published in the 7 November 2023 issue of the magazine “Dienas Bizness”