Following two years of a positive economic climate, Polish wood processing companies are facing a decline in demand and increased cost pressures, driven not only by rising raw material prices but also by energy costs (which are particularly challenging for wood-based panel manufacturers, whose energy costs as a share of total expenses are higher than the industry average) and wage costs. High inflation is curbing activity in the construction market and also reducing consumer spending on durable consumer goods (including furniture). However, a sharper decline in demand is not expected.

The Polish wood industry remains in a favourable position:

1) the growing popularity of timber construction;

2) planned investments in the thermal modernisation of buildings (creating demand for windows and doors);

3) the long-term trend of replacing products with a high carbon dioxide emission footprint with natural products. As the situation in the housing market improves, demand for wood products and furniture should also recover.

A risk for domestic processors is the state forests' withdrawal from FSC certification. The popularity of the FSC CoC certificate among Polish processors is higher than that of the PEFC CoC certificate, which is linked to consumer preferences. Polish companies occupy a significant place in the IKEA supply chain, which requires FSC certification. A favourable solution for wood-processing-related industries in Poland would be for the state forests to maintain both certificates, which attest to sustainable forest management.

In the long term, the Polish timber market will be affected by the EU Deforestation Regulation. The new legislation will come into force at the end of 2024 and will prohibit the import into the EU of products that have resulted from or contributed to deforestation after 31 December 2020, including wood and wood industry products (including furniture). Companies placing such products on the EU market will be required to submit a due diligence declaration regarding the verification of the origin of the raw materials used in production.

The provisions of the EU Biodiversity Strategy for 2030 and the Forest Strategy will also be important, according to which 30% of the EU's land area must be protected and 10% must be subject to strict protection. The implementation of these rules will reduce the potential for wood harvesting in the EU and thus limit the supply of raw materials for processors, which in turn may manifest as further price increases (more in the PKO BP Industry Monitoring report: EU Forest Strategy and wood processing in Poland).