Forest sector also faces uncertainty: Luke

Accelerating inflation, rising interest rates, the energy crisis, the threat of a recession, the potential escalation of the war in Ukraine, and the general decrease in trust have an impact on forest industry products’ demand, production and export, according to the Natural Resources Institute Finland’s (Luke) outlook of economic cycles in the forest sector.

The impact is reflected in domestic felling volumes and stumpage prices. However, there are significant sector-specific differences in the impact.

Demand for sawnwood decreasing

At the beginning of 2022, demand for sawnwood was high in export markets and prices were rising. However, global uncertainties will be reflected in construction in many important export markets during the rest of this year and in the following year.

This year, the volume of exported sawnwood is expected to decrease by three per cent and that of production by one per cent.

Even though the price of sawnwood exported from Finland is expected to decrease during the rest of this year, the average export price in 2022 will increase by five per cent from the previous year.

The launch of new sawing capacity later this year and during next year will increase the production and export of sawnwood by 3–4 per cent in 2023. The average export price for sawnwood in 2023 is expected to decrease by almost a quarter from this year.

The export price of plywood increased during the beginning of 2022, and the increase is also expected to continue this autumn.

This year, the average export price for plywood is expected to increase by nearly a third from the previous year. In 2023, the average export price for plywood will decrease by five per cent, while production and export volumes will remain close to the 2022 level.

High prices for chemical forest industry products

Demand for paperboard has remained high despite the uncertain economic situation. Even though the steep increase in export prices at the beginning of the year will slow down during the end of the year, the average export price for paperboard will increase by 19 per cent this year from the previous year.

The production and export volumes of paperboard will increase by two per cent. In 2023, the paperboard production capacity in Finland will increase slightly driven by new investments, and paperboard production and export are expected to increase by roughly two per cent.

This year, paper production will be significantly lower than in the previous year. This can particularly be explained by industrial actions at UPM’s mills in Finland during the beginning of the year, but also by the shutdown of Stora Enso’s mill in Veitsiluoto last autumn. Next year’s production and export volumes will be higher than this year.

The decreasing trend in demand for paper will continue in main export markets. In Europe, paper prices have been unusually high as a result of increased production costs and decreased supply. The average export price for paper will increase by nearly 40 per cent this year. The price level is expected to decrease next year, while still remaining high.

The industrial actions at the beginning of the year also affect this year’s pulp production and export volumes, which will be 15–17 per cent lower than in the previous year. Next year, Finland’s export volume will recover after this year’s decline, while falling slightly short of the 2021 volume. In Finland, the increase in production and export volumes will be driven by the start-up of Metsä Group’s new bioproduct mill in Kemi during the autumn of 2023. This year, the average export price for pulp will be some 20 per cent higher than last year. The price will decrease next year, while still remaining high.

Pressure to increase pulpwood stumpage prices, felling volumes to increase next year

The switch from last year’s coronavirus situation to the consequences of the war in Ukraine drove the roundwood markets to a peak in 2021 and 2022. As a result of the high initial level and the industrial actions in the forest industries at the beginning of the year that reduced the consumption of wood and increased wood stocks, this year’s industrial roundwood fellings are expected to decrease by six per cent from the previous year to 61.9 million cubic metres.

Roundwood trade will pick up the pace at the end of the year, increasing the average stumpage prices for logs by 6–8 per cent and for pulpwood by 3–8 per cent. Roundwood imports will drop by 70 per cent to 3.5 million cubic metres now that the import of Russian roundwood has stopped.

In 2023, demand and prices for forest industry products will decrease, while the increasing processing capacity and fiercer competition will increase pulpwood prices by 2–6 per cent. The felling of industrial pulpwood will increase by 13 per cent as a result of more active thinning. The average stumpage prices of pine and spruce logs will decrease by 2–4 per cent in the wake of lowering prices of sawn goods.

The wood volumes imported from Russia are difficult to replace by imports from other countries, and roundwood imports are expected to decrease further to 2.5 million cubic metres. Industrial roundwood removals are expected to increase next year to 66.4 million cubic metres.

The increase in standing sales prices in 2022 and the growing felling volumes in 2023 will increase gross stumpage earnings from non-industrial private forests to nearly EUR 2.5 billion. Even though the earnings will be higher than in 2021 when denominated in euro, they will decrease in real terms.

Increases in the consumption of forest chips and wood pellets

Even though the total consumption of wood fuels is expected to decrease in 2022, the stopped import of Russian energy will keep the consumption of forest chips at the previous year’s level in Finland. In 2023, the consumption of forest chips will increase by 2–3 per cent. The production price of forest chips is expected to increase by 20–30 per cent this year.

The stopped import from Russia will also be reflected in Finland’s pellet markets, as the imported volumes cannot be quickly replaced by increasing domestic production. This may increase prices and cause problems in the availability of pellets during the 2022–2023 heating season.