As market situation keeps us excited and challenges us day by day, we’d like to keep you informed about the ongoing situation on the market and support you in your decision process for packaging purchases.

1. General market situation

In our last market overview from March 2022, we’ve already informed you about the importance of raw material exported into EU from Russia, Belarus and Ukraine. As already mentioned, some countries sourced up to 25 per cent of their pallet and packaging timber from the three countries. Alternative timber sources including Scandinavia, Germany and the Baltic States are only capable of covering a small proportion of the shortfall. So, this situation remains to be the same. European users heavily missing sawn timber came from Russia, Belarus and Ukraine. For some specifications situation became even worse.

This can be seen on example of EPAL pallets. EPAL pallets are made of exactly specified material. Quality criteria in terms of sizes and wood quality are very strict. As prices for EPAL pallets in the past 5 years were on a very low level, a lot of producers switched their purchases to Eastern Europe especially Belarus and Ukraine. Sawmills from these countries could manage the balance between needed quality and prices. For these pallet producers such purchasing strategy didn’t pay off as European sawmills can’t really close the gaps in supply and therefore prices are skyrocketing month by month.

Market experts do not expect fast recovery of supply chain. It should be considered that imports from Belarus will be completely banned started from 4th of June 2022 while exports from Russia from 10th of July. Before these dates older contracts might be fulfilled. Although volumes of sawn timber still coming from Russia and Belarus decreased rapidly compared to previous years, there are still some volumes coming from these countries. So, starting from June these volumes will be successively taken away from European markets.

Further development of the situation on wooden market will very much depend on the general economic situation worldwide. Ahead of all, construction industry is one of the crucial industries for the wooden market. So, when construction industry is running well, a lot of sawn timber is absorbed by this industry.

For example, US slowdowns in construction industry have an impact on the wooden prices on North America’s markets. Higher interest rates in US making currently purchases of new homes for private buyer unaffordable. New home sales in US are falling 3rd month in a raw and are currently also below market expectations.

Meanwhile there are some signs on the market that similar situation could be possible also in Europe. Interest rates started to grow already in EU. When the ECB will decide on increase of European Interest Rate in summer 2022, this trend might be accelerated by this decision.

However, slowdowns in construction industry would lead to a better balance between supply and demands on the wooden market. While market experts expect that prices might stabilize in coming months still on a high level, so similar scenario as in US.

2. Logistic Issues as one of the main challenges for the market

Beside the challenges in supply and prices of raw materials, logistic issues

became now a serious problem for basically all industries and commodities. The Upply x Ti x IRU European road freight rates index for Europe hit an all-time high in Q1 2022 as rising cost pressures, supply and capacity disruptions, regulatory change and war in Ukraine created a potent mix of rate drivers. The Benchmark index rate rose by 4.3 points over the previous quarter, while it increased 7.5 points over the first quarter of 2021.

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War in Ukraine also intensified the general shortage of drivers in EU. The availability of labour, most notably HGV drivers, has long been an issue in the European road freight market. At the end of 2021, before the Russia-Ukraine conflict, over 380,000-425,000 truck driver positions were unfilled in Europe according to IRU estimates which can be seen on the map below, from which 80,000 are in Poland and 10,000 in Lithuania.

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Poland and Lithuania are the countries in the EU employing the highest number of non-EU drivers: from the total of 228,000 driver attestations in road freight transport in circulation at the end of 2020, 103,000 (45%) had been issued in Poland, with 67,000 (29%) in Lithuania.

Due to the war in Ukraine and declared state of emergency Ukrainian drivers had to return to Ukraine. On the other hand, resident cards or working visas of Russian and Belarusian drivers were not extended, while some employers in Europe have terminated labour contracts with Russian and Belarusian drivers.

This means that on top of the drivers that were missing at the end of 2021, more than 166,000 truck drivers from Ukraine, Belarus and Russia that were working in Europe, could have left their jobs due to the conflict, making the driver shortage problem in Europe even worse.

Such development had a serious impact on prices for all commodities, ahead of all for pallets, as this commodity is a very freight costs sensitive one. Further costs increase in freight costs are expected.

3. Raw material and wooden packaging indexes

As expected, current market situation trends can be clearly seen on the latest available indexes. So, the latest available indexes showing an increasing trend.

 a) German price index HPE

Latest HPE index from 25.04.2022 showing again a double-digit increase during a month. Latest price increase drives the wooden price once again to all times high value. Compared to last year price changed by more than 102%.

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Prices for wooden-based panels such as OSB and Plywood showing meanwhile similar trend as solid wood. Plywood grew further by 2.9 %, while prices for OSB increased even more by 4.8%. 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 extremely high prices especially for birch plywood.

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b) Wooden pallets

EPAL prices remain growing due to the above-described reasons. Prices for EPAL pallets hitting all-time high records during the last months. Especially for this commodity further prices increases are expected. 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.

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As described above situation on the wooden market is extremely challenging and outstanding. Further development of the prices will depend on the general economic situation and demands from the market. In case demands for sawn timber would decrease it could balance the shortage in supply from Russia, Belarus and Ukraine.  

To support you in this outstanding situation we’ve decided to keep actual prices level for those raw materials, where it is possible, and not to pass these costs to you. At this stage we for sure must adjust prices for EPAL and related products due to the above-described shortage and extreme price level for raw material.

On the other hand, we must ask for your understanding regarding price adjustment because of the increased freight costs. Freight costs to some destinations – especially Central and South Europe – increase by more than 50% among with the shortage of trucks. These are costs which we can’t take additionally to the increased raw material costs on our account. We can assure you that the adjustments will be done to the absolutely necessary level.

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

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