THE WOOD AND STEEL MARKET: Q2 WILL BE THE MOST CHALLENGING QUARTER IN HISTORY

1. Raw Material Availability (wood)

The current availability of sawn timber is very limited. Sawmills do not have enough logs for their production. There are several reasons for this, including:

• Relatively low prices for forest logs. While sawmills earn sky high margins, forest owners are not receiving noteworthy increases for their timber. So, their willingness to increase volumes is very limited.
• There is almost no storm wood on the market compared to last year. So, no additional volumes are available via that channel either.

Covid is also negatively affecting production capacity.

Demand from the US and China is still increasing while availability is decreasing. Especially in the US, sawn timber is used for construction and home improvement and the industry will pay any price just to receive its raw material. Moreover, demand from China is also high and prices are far above those in Europe.

In addition, most sawmills refused to conclude any contracts for Q2 without the certainty that they would be able to meet these obligations.

Another reason is that sawmills switched their focus to spot sales, where the best price receives the highest volumes.

After finalising negotiations for Q2, Scandinavian sawmills reduced contractual quantities for customers by 25-30%. Most sawmills are still behind their delivery schedule for Q4 and Q1, which is one of the reasons behind the quantity reduction.

2. Raw Material Prices (wood)

During Q1/2021, sawmills were at least willing to agree to fix volumes for the whole quarter. Prices had to be negotiated every month. In Q2, most sawmills refused to fix either volumes or prices.

At the moment, the situation is the same throughout Europe and some packaging manufacturers have decreased the number of shifts as well as production capacity due to shortages of raw material.

For Q2, we were only able to confirm ca. 50% of the necessary volume on a contractual basis; all other volumes had to be sourced on spot markets. However, neither option offered the possibility to fix purchasing prices for longer than a month.

For the moment, it looks that this price rally will persist throughout Q2.

3. Steel Prices & Availability

Another fact that worries many pallet collar producers is trends on the steel market, where sharp increases are also visible. In March alone the prices for hot rolled coil steel increased by over 20%! Moreover, according to the latest market information, leading hinge manufacturers in Latvia and Sweden have announced supply shortages for May. As a result, shortages in the production of pallet collars are also expected in May.

Overall

This picture could not be more complicated or interesting for the future of wooden packaging. There is no doubt that Q2 will be the most challenging quarter in history. And the only question is: ARE YOU READY?