Similar to Latvia, the situation in the Estonian timber industry is complex, with a significant downturn observed for several consecutive quarters. The rise in bank interest rates has severely hampered construction activity, raw material prices are high, and competitiveness in export markets has declined.* The Estonian Private Forest Union (EPFU) has provided an overview of the situation in the timber market.
Looking at the overall landscape of the forestry sector, there is not much good news, as emphasised by EPFU representatives. Not only the timber industry, but other sectors of the forestry industry in Estonia are experiencing a downturn. This has happened under the influence of various factors, including global ones. A general economic cooling is taking place, Russia’s invasion of Ukraine continues, and the impact of the so-called cluster crisis is being felt. There is also an adverse impact from the Estonian government’s unsuccessful decisions regarding the forestry sector as a whole, which are currently worsening the situation. The EPFU believes that the Estonian government has “done everything” to ensure that no one would want to invest here (in Estonia) and build new timber processing plants. Market activity is low. These factors have significantly reduced the competitiveness of the local timber industry. The situation in the Estonian timber industry has become more complicated with each passing month. The economic downturn and the shrinking of the construction market are also reflected in the roundwood market. Prices for both softwood and hardwood logs and small-diameter timber clearly fell in the third quarter. At the same time, pulpwood assortments have become more expensive. Softwood pulpwood prices have risen significantly. It should be emphasised that, compared to the previous year, prices for some assortments have decreased. For example, pine roundwood has become almost a third cheaper over the year, while spruce roundwood is almost a fifth cheaper.
Just as with softwood logs, larger diameter hardwood assortments in private forests have also become cheaper over the last quarter. Compared to the second quarter, a distinctive feature is the significant drop in birch roundwood prices. Unlike in the previous quarter, prices for softwood logs sold in Estonian state forests increased for all assortments, and pine roundwood became more expensive compared to spruce roundwood. It should be noted that in Estonia, prices for the majority of hardwood logs sold in state forests have decreased over the last quarter.
There is observable demand for energy wood. Its price is rising
The price of firewood increased in the third quarter, reaching €48.87/m³ in September. For households in Estonia, VAT of 20% is added to the aforementioned price, bringing the total to €58.64/m³. Over the quarter, the price of firewood has increased by 7.8%. However, compared to the situation a year ago, the price of firewood has now fallen very sharply.
The price of oil rose by 12.5% in the third quarter of 2023. At the same time, the dollar exchange rate against the euro strengthened by 0.1%. Firewood became 2.7% more expensive. Thanks to the significant rise in the price of oil and the slight strengthening of the dollar, the competitiveness of timber compared to oil has nonetheless increased significantly. The price of natural gas continued to fall in the 3rd quarter, but now, as winter approaches, it has begun to rise. It should be noted that compared to last year, its price in Estonia has become almost four times lower. Gas prices also have a very significant impact on the European energy market and on the demand for energy wood. Mention should be made here of an indicator such as the average CO₂ price. In the third quarter, it was €83.94/t, which means a 2% decrease compared to the average price in the second quarter and a 5.8% increase compared to the average price in the third quarter of 2022. CO₂ price influences the use of fossil fuels and also the price competitiveness of energy wood.
Entrepreneurs in the Estonian timber industry are worried about the future
The Estonian forestry sector as a whole believes that the future of the timber processing industry is bleak. According to data from the law firm KPMG Law, the turnover of Estonia’s largest timber companies fell by 30-40% in the second quarter of this year. The greatest concerns in the timber industry are the availability and price of raw materials. Government policy is aimed at reducing logging volumes. There is a critical attitude towards wood extraction in general.
Currently, experts do not see a quick improvement in the situation in Estonia. Entrepreneurs believe that, as the Estonian timber industry is primarily export-oriented, the situation in Estonia’s foreign timber markets must be evaluated. Special attention should be paid to construction activities in the respective countries. In Finland, Sweden, Norway and Denmark, the issuance of new building permits has decreased by 30-50%. Estonian entrepreneurs do not believe that changes for the better can be expected before 2025.
According to Swedbank building materials market sector data, construction volumes in the second quarter fell by 16% compared to the second quarter of 2022. Swedbank estimates that by the end of the year, there will be a 12% drop compared to the previous year. In Sweden, construction of new buildings has started by 57% less this year than last year. In Finland, 220 companies have already gone bankrupt. According to statistical data, this is the highest number of bankrupt companies in the last 26 years. Estonian entrepreneurs have also not avoided bankruptcy. In mid-October, Harju County Court declared the bankruptcy of Kaper Moduls OÜ (a company that sold modular houses to the Swedish market).
According to Swedbank data, the decline in the timber and building materials market in Estonia and Finland could stop in the new year, but growth is not expected – rather, there will be slight stagnation. Thinking about 2024, Estonian entrepreneurs should pay attention to what their northern neighbour’s timber imports have been in the recent past. Most of the timber imported into Finland, i.e., 54%, was pulpwood, 29% wood chips, and only 3% sawlogs. Since the import of roundwood and wood chips from Russia to Finland was stopped in July 2022 due to sanctions, the share of Russian products in the market fell significantly. Estonian supplies in Finnish timber imports increased to 23%, but this did not mean an increase in the volume of timber imported from Estonia – it decreased by 10%, to 1.3 million m³. Uncertainty during this time makes it impossible to forecast a recovery in construction volumes in important export markets.
According to major Estonian entrepreneurs, the state, with its regulations, has pushed the Estonian timber industry sector away from international competitiveness. In fact, there is no clear understanding of how and where to go next. The Estonian timber and forestry industry could be the flagship of the national economy and the biggest winner of the so-called Green Revolution, but unfortunately, in Estonia, the timber industry sector has become the biggest loser. A good example is said to be the northern neighbours, where representatives of the timber industry sector (and the entire Finnish forestry sector as a whole) believe that the current Finnish government takes special account of the needs of forestry and the timber industry. This applies to the creation of the local political environment, public opinion, and the defence of industry interests in Europe. Such is the opinion of Estonian entrepreneurs regarding the situation in the sector.
* The Estonian Private Forest Union was established as an organisation in 1992. Its founders were the most active forest owners. The EPFU is an umbrella organisation for local forest owner associations, and its members are 20 local associations. They represent owners who manage approximately one-third of Estonia’s private forests. The EPFU represents the interests of private forest owners, actively participates in forest policy and the legislative process, and ensures that the needs and rights of private forest owners are taken into account.