WOODEN MARKET FORECAST Q3 / 2022

1. General market situation

For the first time since the last 5 months prices for sawn timber turned into a decreasing trend on almost all markets. There are several reasons for this development:

• Inflation which is now at all times high level decreases the willingness of companies to invest and hire;
• Rising mortgage rates, making construction and renovating of houses almost unaffordable for the buyers. So, lower demands from construction industry are noticed.
• Disruption of supply chains, this is a know issue since beginning of Corona pandemic. Since supply chains are still disrupted it has a negative effect on production output of several industries.
• Extremely high prices of electricity, fuel and other energy costs force buyers to decrease their spending for goods which are not necessaries.
• War in Ukraine causes disruption of supply chains as well as increase of energy costs in whole Europe
• Lower demands from the market are the results caused by the reasons mentioned above.

For the moment it can’t be said for sure that this is a start of new trend of decreasing prices. We must keep in mind that starting from 10^th of July Russian sawmills will be completely banned from European market. Belorussian supplies are already forbidden since more than a month. Therefore, sawmills are meanwhile split in to two parts: those who are willing to decrease their prices and those who prefer to wait and keep the prices. Majority of sawmills responds to decreased demands with lower production level to keep their prices as high as possible.

Log prices are also quite high and, on some markets, e.g. Norway, log prices even increased in June. Moreover, Lithuania is going to forbid export of logs to avoid possible shortages in supply of raw material. In recent years, the industry has covered a significant part of its needs through imports from Russia and Belarus.

Latest development of prices on US market is worth to mentioned as well. After a sharp fall started in April 2022 prices grew unexpectedly during the last weeks. So, it shows that further development of the market situation is very hard to predict, and we can’t rely of further price decrease of the raw material prices.

2. Raw material and wooden packaging indexes

Current market trends in Europe and US are not synchronize now. E.g. in Germany we see a first decrease of prices for the first time since last 5 months. While in US prices grew again during the last weeks.

a) German price index HPE

Latest HPE index from 24.06.2022 showing a decrease of 4.4% to the previous month. Nevertheless, current price level is still 41.2% above the price level from June 2021. Recent trend is driven by lower demands from the market as many buyers postponing orders to later time hoping on better prices during coming month.

Prices for wooden-based panels such as OSB and Plywood started to decrease again showing meanwhile similar trend as solid wood. Plywood prices decreased by 1.1 %, while prices for OSB decreased even more by 4.1%. While prices for main assortments of plywood decreasing, birch plywood is showing a different trend. Decided sanction against Russia will have a special impact on the prices for birch plywood all over Europe. Russia is one of the biggest producers of birch plywood worldwide. Therefore, undersupply of plywood coming from Russia will have to be closed by other producers which will lead to higher prices for birch plywood.

b) US Lumber

Chicago lumber futures were trading above the $650-per-thousand-board-feet mark, a level not seen in over a month, as signals of strong demand prompted investors to open new positions after an impressive selloff that pushed the commodity to levels not seen since September 2021. The new-home sales report, which provides a snapshot of housing demand, showed an unexpected increase in housing sales in May even against higher prices and rising mortgage rates. Still, prices remained down roughly 60% from their March peak of $1,470, as rising borrowing costs and sky-high inflation helped cool the red-hot real estate market.

However, strong USD vs. EUR making imports from Europe for US-buyers interesting again. We must monitor the development on US wooden market and understand if we are at the beginning of a trend change or the recent increase is just a short-term trend.

c) Wooden pallets

EPAL prices stabilised meanwhile during June. However, prices for EPAL pallets are currently all-time high records during the last months. Due to ongoing shortage of used EPAL pallets forced users to close the supply gaps with new pallets. This intensified further shortage of EPAL pallets on the market and will keep the prices at a higher level. Even if some decreases are expected.

Conclusions

As described above situation on the wooden market is extremely volatile. Further development of the prices will depend on the general economic situation and demands from the market. Now it is hard to predict further development of the prices and availability.  

For sure is, that sawmills will react on this situation with decreased production volumes to keep the prices at highest possible level. Together with the ban of Russian timber shortage might appear among with the price increase.

Recently we are noticing that some customers started to postpone their orders to September / October. Considering points mentioned above it might give an additional pressure on availability of sawm timber as well on available capacity at producer’s side.

Therefore, we do not recommend postponing majority of orders to a later time as it can’t be said for sure that prices will be continuously decrease till end of the year. So, we suggest keeping a proper stock level to be prepared to possible market changes and to ensure reliable supplies to your customers.

We are following the market very closely and benchmarking the situation on weekly basis. So, we will keep you updated about further market development.