Manufacturer of wooden packaging since 1995
Chief Executive Officer
Keeping our established tradition, we’d like to respond to your request regarding our market outlook on Q1 / 2023 and share our forecasts with you.
Several market indicators show that economy is driving in rough waters and the end of this historical disruption is not yet arrived:
Prices for sawn timber are following the general market trend and continue to be under pressure from the client side.
Although demands for sawn timber are quite low, there are strong demands for fiber and energy wood in Europe caused by extremely high energy costs. Relatively high prices for energy wood especially for wooden pellets, help sawmills to run a mixed calculation on overall assortments. So, sawmills producing heating pellets can still run profitable production.
Meanwhile, the majority of the customers have made their purchases of pellets for the coming weeks and months. Therefore, producers and traders were obliged to decrease the prices for pellets significantly. For example, in Germany prices for pellets in November decreased by over 9% vs. October. According to EUWID Holz, further significant price decreases are expected for the following month. Despite the recent price declines, the values are still around 150-160% above the previous year’s level.
The good news for the pellets user is alarming news for the sawn timber users. As mentioned above sawmills producing pellets running now mixed calculation for the entire assortments.
So, high prices for pellets, energy, and fiber wood allow them to earn their profits through the so-called side products and to decrease prices for sawn timber. So, there is a direct dependency between the prices of these commodities.
Sawmills have already announced that in case of decreasing energy wood prices, an increase in prices for sawn timber will follow. Based on that it is very much possible that in Q1 /2023 we might see rising prices for sawn timber.
This possible scenario is reinforced by increased production costs driven by extremely high electricity and heating prices. Producers in the wooden industry are suffering from these costs. There are not many resources to balance these increased costs, especially considering the fact that this is a low-margin business.
In the end, demands from the market will decide about further development of the price. The law of demand and supply will balance the market prices in the end.
Nevertheless, we must conclude that the scenario of price increases in Q1/2023 is quite possible. Therefore, market experts do not recommend delaying necessary purchases to a later time, speculating on lower prices in Q1/2023. We suggest you make your purchases at a regular pace adjusted by the market situation.
Current market trends in Europe and US are meanwhile synchronized. Declining raw material prices can be seen in Europe as well as in the US.
The latest HPE index from 21.11.2022 shows a decrease of 7.4% from the previous month. The current price level is now around 2.0% above the price level from November 2021.
Prices for wooden-based panels such as OSB and Plywood continue to decrease further following the general market trend. Plywood prices decreased by 2.1% , while prices for OSB decreased by 3.8%. Birch plywood is showing a different trend. Missing supplies of birch plywood from Russia has a special standing among the assortments showing a different price trend as majority of the birch plywood came in the pas from Russia. Russia was one of the biggest suppliers of birch plywood worldwide. Therefore, undersupply of plywood coming from Russia will have to be closed by other producers which causes higher prices for this commodity.
Chicago lumber futures bottomed below the $500 per thousand board feet mark, down almost 70% since its March peak, as higher interest rates continued to depress real estate activity. The Federal Reserve’s aggressive tightening cycle has pushed 30-year mortgage rates to levels not seen since 2001, leading to slower home construction and souring sentiment among homebuilders. Adding to concerns that the housing market is facing a deep recession, sales of newly constructed homes in the US dropped 10.9% in September from August and were down 17.6% from a year ago. Still, record-low inventories and diminished production has buoyed lumber prices. The war in Ukraine and the tightening sanctions against Russia and its ally Belarus, which account for more than 10% of the global export of lumber, have squeezed global supplies. At the same time, a string of sawmill curtailments, with Interfor, Canfor, and West Fraser Timber announcing cutbacks, added to concerns about tight supplies.
However, there is no big pressure on wooden prices in the US from energy wood, as general energy costs in the US are way lower than in the eurozone. So, price development in the US might deviate from Europe in the future.
The latest Swedish price index for sawn timber for October shows a similar trend as all other available indexes for sawn timber. Due to lower demand, Swedish Sawmills are forced to adjust their prices to the current market situation.
EPAL prices started to decline in July 2022. In October EPAL prices followed the general market trend and continued to decrease. However, prices for EPAL pallets are currently still higher compared with the end of Q4/2021.
Development of pallet prices will again depend on the demands from the market which are at the moment hard to predict.
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.
Sawmills have already announced that once price for fire wood and heating pellets will decrease, increase of sawn timber prices will follow. We must consider that steady rising energy and electricity costs will have a negative impact on production costs in entire woodworking industry.
In current situation different scenarios are possible. Considering the facts mentioned above rising prices in Q1/2023 is the most probable scenario
Therefore, we suggest you working on the regular basis and to plan your purchasing orders in advance. Kronus will do its best to keep some additional capacity to manage coming peaks in orders.
The market is very turbulent right now. Decreasing prices might incite buyers to gamble on lower prices for the coming period and to hold back needed orders. Such performance could harm existing long-term partnerships between customers and suppliers. Therefore, we encourage our partners to be loyal, actively share market feedback and negotiate jointly. We are sure that in this way we will be able to overcome the upcoming challenges together and maintain our excellent partnership!
We are following the market very closely and benchmarking the situation on weekly basis. So, we will keep you updated about further market development.