MARKET REVIEW: OUR FIRST FORECASTS FOR 2022

1. General market situation

As already announced in our latest market overview decreasing price trend in Europe started already in September. Same trend can be noticed also during November. Also, for December we expect further decrease of the raw material prices.

However as of now one of the main challenges is to predict further price development for Q1/2022. Here several scenarios of price development are possible.

One of the main reasons for the current development of raw material prices are lower demands for wooden packaging from different industries. Especially automotive industry including its suppliers struggling with the very limited supply of semi-conductors and other spare parts. Due to huge disruptions in supply chain automotive industry had to slow down their production and reduce number of shifts.

Because of decreased production in automotive industry as well as in its connected industries, demands for the wooden packaging is lower than months before. As automotive industry is one of the biggest users of wooden packaging, such trend has a big influence on the whole packaging market.

Another reason is for the current trend is the fact that months before majority of the wooden packaging users placed double orders to suppliers to fill up their stocks. We’ve informed about it in our previous letters. So now, lower production volumes meet quite big packaging stocks. Which certainly leads to lower demands on the market and therefore also decreasing raw material prices.

But this statement is valid only for Q4/2021. As already informed above there are several possible scenarios for price development in Q1/2022.

One possible scenario for Q1/2022 is that we will see further decrease of raw material prices also in Q1/2022. If issues in the global supply chain won’t be solved and spare parts especially for automotive industry won’t become available again, we might see further decrease in raw material prices. However, majority of the market experts don’t expect that price will go down to a pre-covid era.

Another possible scenario is a bounce back or stabilization of the prices at the current level. From our point of view this is the most likely scenario. Our assumption is based on several insights from the current market:

• Disruption of the supply chains isn’t a new issue. So, once it’s solved, packaging demands from automotive and related industries would bounce back. Higher demands for wooden packaging would increase or at least stabilize raw material prices at a high level.
• Sawmills started to reduce their production capacity to adjust it to the current demands. This step will stabilize or even increase prices of raw material.
• Chinese buyers started to purchase logs in Europe at a price level which is very close to all times high prices from May 2021.
• Higher demands from DIY sector are expected in Q1/2022 as well. As usually Q1 is a busy quarter also for DIYers and Gardening shops. In preparation of the coming season buyers from these sectors purchasing also bigger amounts of sawn timber and wooden products. This is a usual trend which would lead to stabilization or even increase of the prices in Q1/2022.
• Prices of corrugated paper climbing up month by moths. Due to very busy online sales and huge demands for corrugated boxes in that sector a lot of users are in lack of packaging material. Therefore, for some of the users it would make sense to think out of the box and replace some of their corrugated boxes with light weight wooden packaging.
  
  Lightweight & cost-effective pallet collars made of 15mm planned boards – ECO solution – could be a perfect match to replace Your corrugated boxes.
• Rapidly increasing electricity prices may also have a negative effect on lumber production and force the bounce back of the wooden prices.

All these assumptions are based on facts described above. Nevertheless, it is hard to predict further development of raw material prices. Wooden market keeps us excited as never before.

2. Raw material and wooden packaging indexes

Basically, all European indexes showing a decreasing trend.

a) German price index HPE

Latest index from 22.10.2021 showing further declining prices in October.

The HPE price index for sawn timber and wood-based products for wooden packaging and pallets

Prices for wooden-based panels such as OSB and Plywood slowing down as well. However, price for the birch plywood – especially from Russia – are stable at a very high level due to low availability of birch logs, disruptions in supply and anti-dumping policy from EU against Russian producers.

b) US market data

Chicago lumber futures rebounded from a six-week low to trade above $600 per thousand board feet at the beginning of November. It was forced by a pickup in homebuilding, tight supply, and higher US import tariffs for Canadian softwood. Lumber cost remains well above the pre-pandemic five-year average of $356 as the sawmill in

the southern US and British Columbia struggling with lower levels of production. In the United States, sawmills are facing a labour shortage as workers are unwilling to work in such dangerous conditions at low wages. Meanwhile, in British Columbia local government has settled the cost of logs four times higher in November as it was one year ago:

c) Swedish wooden index

As one of the major players on the worldwide wooden market Swedish sawn

timber prices are also an important indicator for the overall situation on the market. The latest available index from October 2021 showing similar price trend (-8,7%) as for instance German HPE index:

d) Wooden pallets

For the first time since March 2020, we see a declining trend also for the wooden pallets. That was expected as price level reached in late August 2021 was the highest ever noticed price for EPAL pallets. However, current price level for EPAL pallets lays still over 150% higher than prices in November 2019.

As stated above in regards or prices for lumber, further development of packaging prices will very much depend on the demands from the market:

3. Conclusions

Although we see declining prices in Q4, it is very much possible to see a bounce back of the prices in Q1/2022.

So, we do not recommend to delay needed purchases for wooden packaging to Q1/2022. Due to uncertain situation on the market, we might see higher prices at the beginning of 2022.