WOODEN MARKET FORECAST Q4 / 2022

1. General market situation

We are all aware about the current economic situation worldwide:

• Inflation which climbed up to 9.1% in August in eurozone;
• Historical increase of ECB mortgage rate, for the first time since the introduction of the EUR, the European Central Bank (ECB) raised the key interest rate (= interest rate for the main refinancing operation) by 0.75 percentage points. Since September 14, 2022, the ECB has applied an interest rate of 1.25 percent for the main refinancing operation in the euro area.
• Disruption of supply chains, worldwide supply chains disrupted during COVID still didn’t fully recover and having a negative effect on the overall market situation.
• All times high prices for electricity, fuel and other energy costs force all market participants to decrease their spending and investments due to uncertain further economy development.
• Ongoing war in Ukraine puts additional pressure on already tough market situation.
• Lower demands from the market are the results caused by the reasons mentioned above.

Driving in such rough water, prices for sawn timber on all major markets worldwide started to decline already in early summer. This trend can be seen in August as well.

On the other hand, there are strong demands for fiber and energy wood in Europe caused by extremely high energy costs. Customers all over Europe trying to cover there needs for heating during the winter period with firewood, pellets and wooden briquets. So, prices for these commodities more than doubled during the last weeks. Market experts consider that energy wood prices may still have room to rise.

Sawmills all over the world have to manage current situation considering these market trends. Therefore, majority of sawmills have already reduced or going to reduce sawing. Besides that, there is one trend which can be seen on almost all European markets and this is:  noticeable demands and initial shortage of side boards. This trend has the following reasons:

• Reduced sawing of core assortments leads to lower availability of sideboards;
• Small and medium diameter logs going directly to energy wood without being sawn as before;
• Satisfying demands for side boards in packaging and gardening industries.

Since couple of weeks we’ve noticed increase in demands for side boards from our Raw Material Sales Department on almost all European markets. At the same time our Packaging Department reported about increased number of RFQs for pallets and 2 board pallet collars as a cost-efficient alternative. Also, our Gardening Sales Department register stable demands for gardening products made of side boards. This is reinforced by the fact that Belorussian and Russian gardening item suppliers are cut off the market for the next season.

Although raw material prices are decreasing, further decrease in prices for final products is not expected. There might be slight corrections, but our market analysts do not expect any sharp price corrections in coming weeks and months.

Extremely high energy prices lead to a noticeable increase of production costs for both sawm timber and final products. As announced by the largest Swedish sawmill group VIDA Group, latest increase of SEK 1/kWh on the electricity prices means an increase of around 16 Mio EUR per year. This corresponds to a cost increase of 10%. Woodworking companies as KRONUS are also affected by extremely high energy costs. Due to existing contracts with electricity suppliers, increased energy costs will impact the prices in a short while.

Analyzing and summarizing above said, market experts conclude that raw material prices might have reached its temporary bottom and it is not recommend delaying necessary purchases to a later time.

2. Raw material and wooden packaging indexes

Current market trends in Europe and US are meanwhile synchronized. Declining raw material prices can be seen in Europe as well as in US.

a) German price index HPE

Latest HPE index from 26.08.2022 showing a decrease of 6.9% to the previous month. Current price level is now around 3% above the price level from August 2021.

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 showing meanwhile similar trend as sawn timber. Plywood prices decreased by 1.1 %, while prices for OSB decreased only by 0.9%. While prices for main assortments of plywood decreasing, birch plywood is showing a different trend. Missing supplies of birch plywood from Russia has a special impact on the prices all over Europe. 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 especially for this commodity.

b) US Lumber

Chicago lumber futures bottomed below the $500 per thousand board feet mark, close to levels not seen since September 2021, as the housing market is experiencing a sharp slowdown amid soaring rates. The new-home sales report, which provides a snapshot of housing demand, showed that sales in July plunged to their lowest level since January 2016 as soaring mortgage costs and record-high selling prices continued to spook potential buyers. On top of that, sawmills in US and Canada choose to take seasonal and maintenance curtailments during this time of the year as most of the large US home builders have already made their purchases for planned autumn construction projects. So, we see basically the same situation in US as in Europe.

However, there is no pressure on wooden prices in US from energy wood, as general energy costs in US are lower as in eurozone. So, price development in US might deviate from Europe in the future.

c) Wooden pallets

EPAL prices started to decline in July 2022. However, prices for EPAL pallets are currently still higher compared with Q4/2021.

Conclusions

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 already reacted on the current situation with reduced sawing activities. This decision will partly balance supply vs. lower demands. Steady rising energy and electricity costs will have a negative impact on production costs in entire woodworking industry.

Therefore, we would like to point it out once again: we assume that wooden prices reached temporary bottom and further substantial price declines in raw material prices are not expected.

Therefore, it is not suggested postponing majority of orders to a later time. Market experts recommend making your necessary purchases for the coming period now, to secure supply of needed products to you and ensure good sales level to your customers.

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