What are the key drivers and developments in the European sawn softwood market? How did the Covid-19 pandemic impact the market? How attractive is the market for Russian producers? Indufor’s Consultant, Mr Sergei Senko gave his answers to these questions in his presentation “Sawn Softwood Market in Europe” at the Russian WOODINDEX Conference for Wood Harvesting, Sawmilling, and Biofuel Companies in late November.
The overall sawn softwood production in Europe reached 105 million m3 in 2019 following an upward trend from the previous year. The main producers were in Germany, Sweden, Finland, and Austria, with about 60% of the total production. Before the coronavirus outbreak, the sawn softwood export was steadily growing, at an average rate of 2.7% a year since 2010. Major volumes are exported within Europe, and the US, China, the Middle East and Northern Africa (MENA) area are among the main export destinations outside Europe. Sweden is the largest trader of the sawn softwood in Europe, exporting annually over 12 million m3 (about 25% of the total European export volumes). The UK, Germany, Italy, the Netherlands, and France are the main importers, who receive as much as 50% of the total import volumes. The suppliers are mainly European, and the share of non-European sawn softwood supply was 37% in 2019, a clear increase from 24% in 2010. Russia continues to be the largest non-European sawn softwood supplier, followed by Belarus and Ukraine.
Among the main sawmilling companies in Europe are Stora Enso, Binderholz (incl. Klenk Holz), Pfeifer Holz, SCA, Moelven, Södra, Mayr-Melnhof, Metsä, HS, Rettenmeier, Setra, and Vida/Canfor. Together the companies produced over 27 million m3 of sawnwood in 2019. Stora Enso is the largest, with a total of 18 sawmills (two of them are located in Russia) which produced almost 5 million m3 in 2019. Despite the significant volumes, the company covers only 5% of the total market. The largest single sawmill is the Ziegler mill located in Germany, with its 1.2 million m3 sawnwood production in 2019.
Based on the announced investments on additional sawmilling capacities, over 4.5 million m3 are expected in Europe in the next five years. The biggest projects are Metsä Group’s Rauma sawmill in Finland and UAB Juodeliai in Lithuania. In the latter, mainly sawn hardwood production is planned. More and more investments are getting focused on further processing of sawnwood to produce value-added engineered wood products (EWP).
Consumption Crashed but Recovering
Up to recently, the total annual sawn softwood consumption in Europe was steadily growing and in 2019 it reached 85 million m3. At the beginning of 2020, however, this long-term growth ended due to the coronavirus outbreak and the sawn softwood market experienced a sharp decline. Due to the unpredictable course of the pandemic, it is expected that the overall consumption will be about 80 million m3 in 2020. Despite this significant decline, 2020 cannot be described as unsuccessful for most of the market players. Late this summer, the market surprisingly gained momentum and showed strong signs of recovery led by the strong increase in the DIY market and, hence, bolstered demand for construction materials.
European Sawnwood Consumption to Grow in the Long Term
European sawnwood consumption is traditionally driven by the construction and furniture sectors. The biggest sawnwood markets are in Germany, France, and the UK. The consumption is expected to keep growing in the coming years, thanks to the development of wood product markets and the related industries worldwide. The EU’s Climate and Energy Framework implies at least a 40% reduction in greenhouse gas emissions already by 2030. To make this happen, industrial wood construction should play a key role in increasing carbon stocks. Therefore, the demand for value-added wood products (such as CLT, I-joists, and other EWPs) is expected to grow, boosting also the sawnwood consumption. The wood construction is to be one of the key driving forces for the sawnwood market in the future. Currently, the wood construction is provided with significant public support in Europe through policies such as the European Green Deal. Similar support is provided in other countries, for example in the US. The wooden housing sector in the US is expected to grow during the next five years, and this would also impact the European sawmilling industry. Several experts note that export volumes to the US, especially from Germany and Sweden, can be significantly increased in the coming years to satisfy the local demand.
Shortages of Quality Sawn Softwood due to the Bark Beetle Damages
In the growing market, the industry should continue to be supplied with high-quality raw material. This has been an issue for some countries in Europe. In recent years, the availability of high-quality spruce logs in Central Europe has been decreasing. The main reason for the decrease has been the damages caused by the bark beetle; the estimated volume of timber damaged was around 120 million m3 in 2019. An oversupply of damaged logs has decreased the prices of low-quality sawn goods sold in Europe. The overall availability of spruce is likely to decrease in Central Europe as foresters have already started replacing the damage-prone species with more resilient species and forestry practices.
Opportunities for Russian Producers
In the light of ongoing changes and developments in the European sawn softwood market, the Russian producers may reap significant benefits. To increase their share on the growing market, Russian companies would need to increase their involvement in the EWP sector, either by establishing their EWP capacities in Russia or supplying European producers with high-quality raw material. The latter is an especially important and attractive option in the short-term as a response to the bark beetle damages in Central Europe. The availability of high-quality raw material (including spruce logs) in Russia may give a competitive advantage to domestic sawn softwood producers in the long-term. A potential export ban of roundwood from Russia in 2022 may bring more room for considering sawnwood and EWP investments in the country. The possible increase of European exports to the US may bring more possibilities for the Russian producers, which could satisfy the growing European demand. The US market should also be evaluated by Russian sawmillers. In addition to the massive framing market, the country has significant other opportunities, for example a sizable decking market, where Siberian larch could be an alternative for local Western red cedar. The weakening Ruble makes export of sawn softwood products from Russia more attractive for traders.
Overall, the outlook for the European sawn softwood market looks promising, also for the Russian producers, and a continued strong demand exists. New opportunities lie in the growing demand for both sawnwood and EWPs in the wood construction market. Planned sawmilling investments will strengthen the position of European producers on the world stage, and the Russian sawmilling sector can compensate the European production and can be more involved in the growing business. Considerable investments and close cooperation with European partners are required.
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