WOODEN MARKET FORECAST MARCH / APRIL 2022

1. General market situation

Since January 2022 we are noticing rising price trend of raw material prices. Current tensions between Russia and Ukraine will intensify this trend further.

At this stage we must notice that Ukraine, Belarus and Russia are global players on the wooden market. Those countries supplying huge volumes of sawn timber and logs to worldwide markets. Current development in Eastern Europe will definitely have a huge impact on the wooden supply all over the world.

Customer sourced lumber in the past from Ukraine, Belarus and Russia will have to look for alternatives while demands from the market are growing. So limited supply will meet increasing demands. It is clear, that prices will for sawn timber will grow further. Due to the unpredictable situation nobody can predict further growth of the raw material price.

What we know for sure is, that European sawmills will use current market situation to increase their prices and among with this their profits.

Some of the Western and North European sawmills announced that they will wait for further development in the market and currently are not willing to close any contracts for Q2/2022. And all of them mentioned that in any case, sawmills will use the situation to increase their prices to all market participants.

So further price increase of raw material is unavoidable.

Beside the rising prices and decreasing availability of raw materials logistic might become a major issue as well. Logistic chains in Europe are well connected. So current sanctions against Russia as well as tensions in Ukraine interfere the whole logistic chains in Europe. Beside that fuel prices increasing day by date. This development makes the freight costs way more expensive.

2. Raw material and wooden packaging indexes

Almost all wooden price indexes showing increasing prices since January 2022.

a) German price index HPE

Latest index from 21.02.2022 showing further rapid increase in February 2022. Price change in February is the highest since July 2022. During the first 2-month of 2022 wooden prices grew by 12.5% already.

Furthermore, 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 price increases on the market.

b) US market data

Chicago lumber futures were trading above the $1,300 per thousand board feet in mid-February, closing in on its highest level since June 2021, supported by solid demand. Large US home builders make their purchases necessary for the looming spring construction season as housing demand is set to remain strong. Building permits in the United States rose 0.7% from a month earlier to a seasonally adjusted annual rate of 1.899 million in January of 2022, the highest since May 2006, and inventory of previously owned homes remains at a record low. On top of that, lumber supply has been facing issues as well. Canadian wood producers were hit by fire and flood, infestations of wood-boring beetles last year, while the US decided to double its duty on softwood lumber from Canada.

Lumber cost remains at the level which is more than 3 times higher as the pre-pandemic five-year average of $356. Usually, US price trend migrates to Europe with a delay of 2-3 months. So, this is another clear sign for the coming price trend in Europe:

Conclusions

After a period of declining prices, we see the turnaround coming. Further price development for wooden packaging will very much depend on the demands from the market and further development of the market situation.

Decreased volumes from Ukraine, Belarus and Russia will have a big impact on the worldwide timber market. So, further price increases are unavoidable.

Due to expected undersupplies of raw material KRONUS puts its all focus to secure the stable supply of wooden packaging to our customers. To make it happen we must accept increased raw material prices from our suppliers to ensure needed volumes of sawn timber. Also, we will be forced to cover our needs on spot market. So, healthy cash flow as well as certain flexibility from our and your side is absolutely mandatory.

Solution of this challenging situation requires a very close cooperation between KRONUS and its long-term partners and customers. We are more than sure that working closely together we can also manage the current market challenges.

Currently we are evaluating possible supply volumes from our suppliers, our stock level of raw materials. We are also in close communication with our suppliers and negotiating now about further prices for raw materials.

Once this is done you can expect from us:

• Information about prices for finish goods for coming period.
• Information about freight costs level for March and April
• Possible volumes for March and April

To manage the situation, we ask you to:

• Respect the agreed payment terms and pay the invoices in time
• Be more flexible in your requirements and specifications of the finished products to ensure stability of your supply chain
• Share your demands for April and May with your Account Manager.

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