Finnish Forest Research Institute  Metla
Press release 29.10.2008

Finnish Forest Sector Economic Outlook 2008-2009:

Forest sector is affected by weakening economic development

The declining economic growth in the export market has diminished demand for Finnish forest industry products. As a result of the slowing down in construction, the export price of sawn timber has fallen and the production quantities have diminished by about one-fifth from last year. Paper production capacity has been cut back in Finland and in Europe, and the price level has risen slightly. The diminished profitability of the forest industry is not expected to show any significant improvement before the prices of end products clearly start to rise.

The gloomy economic development is reflected in the timber market in the diminished use of wood in the forest sector, and there will be fewer commercial clear cuttings this year than last year. Stumpage price levels are reduced particularly by the fall in the price of softwood logs. The industry is preparing itself for a slump in wood imports from Russia next year by increasing wood procurement from other countries and purchase volumes from Finland. The fixed-term reduction in the sales tax of wood is expected to increase domestic wood supplies.

Weak market outlook for sawn timber

In Europe, the demand and price level of sawn timber have clearly weakened this year along with the fading housing construction. In Finland, the demand for sawn timber is reduced especially by the diminishing construction of single-family houses. With the falling demand, production has been limited in Finland and elsewhere in Western Europe. This year, the export volumes, price and production of Finnish sawn timber will fall by about one-fifth from last year.

In 2009, consumption of sawn timber in the euro zone is expected to diminish further and exports of Finnish sawn timber are forecast to continue to fall. However, the export duties of Russian roundwood may result in a shortage of logs especially in China and Japan which, together with the limited production in 2008, will probably raise the price level of sawn timber in Europe at the end of next year.

Diminished capacity will reduce paper exports

As a result of long-lasting over-supply and poor price development, some of the capacity in the paper industry has been closed in Finland and elsewhere in Europe. Due to the diminished production capacity, Finnish paper production and exports are predicted to fall by about 6 per cent in 2008. The decrease in economic growth will further diminish the demand for paper, and this autumn the Finnish forest industry companies have announced new closures of factories and machines in the course of this and next year.

The increasingly gloomy economic development in the export markets will diminish paper demands in 2009. As the forest industry is also cutting back its production capacity in Finland, the production of paper and cardboard, as well as exports, will continue to diminish next year. In order to improve profitability, companies have announced increases in the price of paper. However, this will be hindered by weakening demand due to the economic depression.

Use of wood in industry will diminish and stumpage prices will fall

Diminished demand for sawn timber and paper will reduce their production, and the use of wood in the forest industry will also fall at the same time. Commercial clear cuttings will remain at 51 million cubic metres this year, and production in forestry units will fall by 13 per cent. Stumpage price levels are reduced by the fall in the price of softwood logs. When the forest industry prepares itself for plummeting imports from Russia, imports from other countries and roundwood stocks will increase. This year, imports are estimated to grow to well over 18 million cubic metres.

In 2009, the reduction of wood imports by about 40 per cent will increase the demand for domestic wood. The demand for wood will be covered by reducing stocks and increasing purchases from Finland. The fixed-term reduction in the sales tax of wood is expected to increase domestic wood supplies. Along with the reduced production in the forest industry, also the pressures to increase wood prices are relieved, due to which the prices of pulpwood will remain at about the same level as this year, with the exception of birch, and the prices of softwood logs will fall.

Profitability of the forest industry is falling

The profitability trend of the forest industry will take a downturn this year. Of the subsectors, the profitability trend of the wood product industry will diminish the most. Especially the disproportion of the price trend in sawn timber and wood raw material will have an impact on this. Real relief in the profitability trend in the wood product industry cannot be expected sooner than in 2010 at the earliest, however, provided that construction will start to recover in the domestic and export markets.

The profitability of the pulp and paper industry will fall only slightly from the previous year despite poorer development of product prices than expected. This is partly due to production cuts aimed at improving profitability and cutbacks. As a result, the over-supply of paper qualities subject to reductions will gradually diminish in Europe. The strengthening of the US dollar will also contribute to the improvement of competitiveness and profitability. However, the continued gloomy economic prospects and falling demands pose a threat to increases in the export prices of paper, which are of primary importance to profitability.

Stumpage earnings are falling, but investments in forestry units are growing

This year, total investments in wood production in forestry units will rise to more than 200 million euros, which is more than 13 per cent of stumpage earnings. Along with the increase in regeneration areas, total investments in 2009 will be at the level of about 210 million euros, just under a third of which will be funded by financial assistance for sustainable forest management. On the other hand, stumpage earnings will fall by about 25 per cent from last year’s record level and will remain below 1.6 billion euros this year. In 2009, stumpage earnings will continue to fall slightly. This and next year, the operating income from private forestry will remain clearly below 100 euros per hectare.

 

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