Prices for finished wood products are falling significantly, and there is currently a very wait-and-see approach among buyers throughout the European timber industry. Since the extreme peak in wood product prices reached in the spring, the volume of orders has fallen sharply, resulting in replenished stocks and price drops of 20-40% depending on quality, market, and manufacturer. The conclusion of supply contracts will continue, but for shorter terms. The timber industry is not really sure whether prices will fall further or if they have already hit bottom, write the experts at Danske Bank.

Russian timber and wood products have continued to enter the European market, despite the prevailing belief in the market that exports from Russia and Belarus would be completely halted following the invasion of Ukraine. The market significantly overestimated the immediate impact of the war, and many purchased large volumes at high prices, believing that Russian and Belarusian timber would disappear completely, but that did not happen. The EU's decision on sanctions allowed for the continuation of imports from Russia until 10 July if the purchase contract had been signed before the sanctions decision. Timber is no longer being imported from Russia, which could improve the timber market in the near future.

Many hope that the US and China will be able to further relieve the saturated European market. European sawmills are already exporting 4 million cubic metres to the US, which corresponds to 10% of the United States' wood product imports. Before the start of the pandemic in 2019, 27 million m³ of wood products were exported to China. Now, exports to China have fallen by as much as 40%, which indicates a potential to increase exports again if the Chinese market recovers.

“We forecast that the price floor will be significantly higher than in the previous recession. We believe that wood will be a scarce commodity to which higher priority will be given in various applications. Sawmill costs have increased primarily for wood and energy, while the costs of competing materials such as steel, aluminium and concrete have risen even further. All this suggests that wood products will be able to maintain a higher price position than before,” write the specialists at Danske Bank.

Timber and pulpwood

Danske Bank believes that total demand for wood is at a record high. Sawmills have so far been operating at maximum capacity, and the pulp industry has shown astronomically good results. However, sawmills are now reducing sawing volumes, while the pulp industry continues production. Danske Bank predicts that pulp mills will continue to face unbearably high demand for pulpwood and that in the future, given the electricity crisis, there will be high demand for energy wood.

In recent years, sawmills have supported the pulp industry with record production volumes, partly with pulpwood obtained from logging, but just as importantly, with pulp chips. As a result, pulp prices have developed more calmly, while timber prices have reached record levels. However, as noted by Danske Bank, which cites five factors pointing to the feverish state of the pulp market, this may change in the future.

• All wood processing plants are trying to operate at full capacity, given the current record profitability.

• Sawmills are beginning to reduce production, driven by a weaker timber market.

• The lack of 9 million m³ of Russian pulpwood in Finland is being reflected in prices and timber flows in the Baltic Sea region.

• Rapidly rising biofuel prices in Europe are starting to spread northwards.

• In a year’s time, a huge plant will start operating in the Finnish town of Kemi, which will increase demand for pulpwood by 4 million m³, and the hunt for wood has already begun.

Danske Bank's advice to forest owners

There is a very unique situation in the market right now. The industry needs raw material at the same time as a turning point has already occurred in sawn timber production.

“If you, as a forest owner, have been thinking about concluding a contract to harvest your forest, we believe you should do it,” advises Danske Bank. Regarding future growth, Danske Bank predicts that there could be room for it, especially regarding energy wood. “However, it is timber that is your money generator, and it is timber prices that determine decisions,” emphasise the specialists at Danske Bank. Currently, it is not believed that a quick turnaround with price drops will occur. “We believe that timber prices will remain at a high level until the end of the year. Given the above, if many people sell felling rights this autumn and sawmills increase their stocks, then, of course, prices will fall,” writes Danske Bank.

Factors that may indicate market stabilisation already occurring

• Russian volumes are disappearing, creating balance

• Sawmills are beginning to slow production

• The Chinese market is starting to grow

• In the construction industry, priority is given to climate-friendly projects with a higher proportion of wood use.

Factors indicating further price drops

• We have not yet faced the full effect of inflation

• A second period of decline will set in when ongoing projects in the professional market are completed.

• With the economic downturn, environmental awareness is decreasing, and priority is given to low-cost projects