News Forestry

Labour disputes in the Finnish forest industry early in the year, decreased exports due to the COVID-19 pandemic and the closing down of paper machines will cut back the production and export volumes of forest industry products in 2020. Meanwhile, felling volumes of industrial wood diminish, stumpage prices decrease, and profitability of the forest industry and forestry deteriorate. With the exceptions of printing and writing paper, the production and exports of the forest industry will recover in 2021, according to a review of economic cycles in the forest sector by the Natural Resources Institute Finland (Luke).

 

Decreasing trend of sawn timber export prices has changed 

The forest industry strike and the COVID-19 pandemic decreased sawnwood production and export volumes in Finland at the beginning of the year 2020. The effects of the pandemic seem to be smaller than originally feared, however. Construction activities have been kept going in many of Finland’s key export countries, and increased popularity of DIY has supported the demand for sawn goods.

Export volume of sawnwood is expected to decrease by 12 per cent and the production volume by 9 per cent in 2020. Even though the decreasing trend of sawnwood export prices has changed, the average export price in 2020 will remain slightly below the previous year. Next year the recovery of economies and construction is reflected in the production of sawnwood by an increase of six per cent and in exports by an increase of eight per cent. This year, profitability of the sawmill industry will remain at the average level for the 2010s.

The pandemic reduced the demand for exported birch plywood for industrial applications in 2020, while the demand for softwood plywood remained more stable. As a whole, production and exports of plywood are expected to decrease by 12 per cent this year when compared to the previous year. As the economies of the key export countries recover in 2021, plywood exports are expected to increase by nine per cent and the production volume by three per cent. A slight increase of the average export price of plywood is also expected.

Measured by export value, paperboard will overtake paper in 2021

The demand for printing and writing paper has drastically deteriorated in Europe. In Finland, the decrease of production volumes and exports was boosted by labour disputes early in the year and a reduction in production capacity. Next year, the production volumes of paper will decrease due to the diminishing demand and also due to the closing of paper machines. The production of paper is expected to decrease in Finland by almost 40 per cent from the level of 2019 in 2020–2021. The average export prices of paper will drop this year and next year.

Even though an increase in the demand for paperboard was one of the immediate effects of the pandemic, the production and export volumes of paperboard will remain slightly lower than last year. A kraftliner machine at the Stora Enso mill in Oulu, to be commissioned at the end of 2020, will clearly increase next year’s production volume. The average export price of paperboard will slightly decrease next year when the share of exported kraftliner, which is cheaper than folding boxboard, increases. Overall, the outlook for paperboard remains positive. Measured in export values, paperboard will overtake graphic papers and become Finland’s most important forest industry product in 2021.

The export volume of wood pulp will decrease by five per cent this year due to the poor market situation. As Finnish companies will require less pulp as the result of the closing of some paper machines and declining demand, the production volume of pulp will decrease in Finland even more than export. The higher global demand will increase the export of pulp by five per cent in 2021. This year, the average export price of pulp is clearly lower than last year. The price will increase next year, but will still remain far behind the peak years.

Commercial felling volumes and stumpage prices to slump

The COVID-19 pandemic has changed the demand structure also in the roundwood market in Finland. Demand for logs has remained stable due to the good sales volumes of wood products, but the demand for pulpwood has decreased due to diminished paper and pulp production volumes.

Felling in private forests will decrease by 13 per cent this year. Felling by forest industry companies and the state will experience a slightly more moderate decrease,and felling of industrial wood will decrease by a total of 12 per cent to 56 million cubic metres. Despite the extremely steady development of stumpage prices starting from late 2019, the annual average stumpage prices of logs will decrease by two to four per cent. The stumpage prices of pulpwood will remain close to the level of 2019. Roundwood import will grow by eight per cent.

Led by the growth of the wood product industry, the wood market is expected to recover in 2021. The felling of industrial wood will increase by four per cent. The stumpage prices of logs will increase by three to four per cent from the 2020 level. In addition, the increase in pulp and paperboard production will raise the stumpage prices of pulpwood by zero to three per cent. Roundwood imports are expected to remain at the 2020 level.

This year, gross stumpage earnings from non-industrial private forestry will decrease to EUR 1.8 billion, but the total amount is expected to slightly increase next year as the demand for wood recovers. The operating profit of non-industrial private forests is expected to decrease to EUR 110 per hectare in 2020. Increased felling will cause an increase of the operating profit in 2021, at which time the profit will increase to EUR 120 per hectare.

Slight increase in the consumption of forest chips and wood pellets

Early 2020 was warmer than normal, which is why the consumption volume of forest chips is not expected to increase from last year. The higher price of emission allowances in heat production supports the competitiveness of forest chips and by-products. Consumption of forest chips is expected to increase by a couple of per cent in 2021.

Consumption and production of wood pellets in Finland is expected to increase at an annual rate of a couple of per cent as new pellet plants are commissioned to replace fossil fuels.

 

Key forecast variables in the forestry
sector 2019–2021f.

2019 2020f 2021f
change from the previous year (%)
Sawn softwood production -4 -9 6
exports 3 -12 8
export price -9 -1 3
Plywood production -11 -12 3
exports -9 -12 9
export price -1 -3 1
Pulp production 2 -10 4
exports 12 -5 5
export price -20 -14 3
Paper production -14 -25 -18
exports -10 -25 -18
export price 4 -4 -2
Cardboard production -3 -1 13
exports -2 -1 13
export price 1 -1 -2
Industrial roundwood removals -9 -12 4
Roundwood imports -1 8 0

*) Nominal price changes. Sources: Finnish Forest Industries
Federation, Finnish Customs; forecasts by Luke.

 

Average stump prices in privately-owned forests 2019–2021f.

Timber assortment 2019 2020f 2020f/2019 2021f 2021f/2020f
€/m³ €/m³ % €/m³ %
Pine logs 56.5 54.1 -4 56.5 4
Spruce logs 59.9 58.1 -3 60.0 3
Birch logs 43.9 43.1 -2 44.2 3
Pine pulpwood 17.7 17.5 -1 17.8 2
Spruce pulpwood 19.5 19.7 1 19.7 0
Birch pulpwood 16.8 16.7 -1 17.2 3

Sources: Finnish Forest Industries Federation and Luke; forecasts by Luke.

Photo: Metsä Group.