FOREST PRODUCTS MARKETS
STRONG IN 1997 AND 1998, UNCERTAINTY OVER THE
SHORT-TERM OUTLOOK
12 October 1998
Consumption of many forest products in Europe and North
America were at record levels in 1997, and initial forecasts were
for similar levels for 1998 and 1999. Final demand was relatively
strong in 1997 and early 1998, especially in North America, but
high-capacity and over-supply have affected some markets. Markets
for tropical timbers were disrupted by political and economic
events in Asia. Developments on world financial markets in autumn
1998, arising from the "Asian crisis", reduced world
trade flows and the financial crisis in Russia, have created an
exceptional degree of uncertainty about the outlook for 1999.
The first exports of sawnwood certified as coming from
forests which are sustainably managed occurred in the ECE region.
At the moment the market for certified forest products is small.
The Committee discussed a number of supply- and trade-related
concerns.
The official text adopted at the UN/ECE Timber Committee
Session is attached and includes forecasts for production,
consumption and trade of forest products at the regional level.
The text will be combined with full statistics and forecasts for
1997-1999 in "Forest products markets in 1998 and forecasts
for 1999," number 6 of the Timber Bulletin. Most of this
information is available on the Timber Committee Website.
For further information please contact:
Mr. C. Prins
Chief, Timber Section
Trade Division
United Nations Economic Commission for Europe
Palais des Nations, room 388
CH - 1211 Geneva 10, Switzerland
Telephone: +41 22 917 2874
Fax: +41 22 917 0041
E-mail: [email protected]
Website: http://www.unece.org/trade/timber
TIMBER COMMITTEE MARKET
STATEMENT
The official text below was
adopted by the UN/ECE Timber Committee
at its fifty-sixth session
28 September - 1 October 1998
FOREST PRODUCTS MARKETS STRONG IN 1997 AND
1998,
UNCERTAINTY OVER THE SHORT TERM OUTLOOK
Overview
In western Europe, GDP growth averaged 2.7% in
1997, and no less than 3.8% in North America. Initial
forecasts were for similar rates of growth in 1998, but these
forecasts as well as those for 1999 have in some cases been
revised downwards, under the influence of the Asian crisis.
Although the direct exposure, through trade, of most European and
North American economies to Asia is quite small, it is feared
that recent financial events, notably the increased volatility of
world capital markets, the fall on stock markets, which has
created uncertainty could severely weaken consumer and business
confidence, and significantly lower economic growth rates in
Europe and North America. This uncertainty should be borne in
mind when reviewing the forecasts for the forest sector set out
below.
Many countries in transition saw relatively
high growth rates in 1997. The average rate of growth for the
transition economies of central and eastern Europe and the CIS
was positive in 1997 (+1.7%), for the first time since 1989.
Initial expectations were for a continuation of this growth in
1998 and 1999. In addition, there are wide variations between
countries in the speed and nature of the transition process.
However, because of the financial crisis in Russia in August
1998, it is at present difficult to evaluate the rate of change
of indicators of production.
New residential construction in western Europe
is expected (by EUROCONSTRUCT in summer 1998) to fall by just
under 1% in 1998, drops in Austria, Germany, Italy and
Switzerland counterbalancing rises elsewhere. For 1999 , an
increase of 1.4% is forecast. The growth in the renovation
sector, a major end-use sector for sawnwood and panels is
expected to be over 3% in both 1998 and 1999. Strong rates of
growth in construction are also expected for several transition
economies. US housing starts were expected to reach the high
level of 1.54 million units in 1998, encouraged by low mortgage
interest rates and high disposable income (in fact the seasonally
adjusted annual rate of housing starts reached 1.72 million in
July 1998). Japanese housing starts have been very weak since
early 1997: in the first seven months of 1998 they were 14% below
the rate of the previous year.
Forest products markets are increasingly global
and large scale. Developments in one country may influence trade
flows and prices on the other side of the world. This was
demonstrated by the aftermath of the Asian crisis when collapses
in demand, notably in Japan, (where imports of both logs and
sawnwood in the first 7 months of 1998 are about 40% lower than
in the same period of the previous year) and severe supply
problems in several south east Asian countries affected European
and North American markets.
The process of concentration within the sector,
through mergers and acquisitions, continues, and the average size
of production units, even in hitherto smaller scale sectors such
as sawmilling, is increasing.
Several sectors, including sawmilling and
several panels are experiencing excess capacity. Currently, some
sectors are experiencing downward pressure on prices and
profitability on a regional basis. There is a continuing and
increasingly urgent need to encourage the use of forest products,
by improving public relations and promotion activities and by
product development. It is important to communicate the basic
message that wood, unlike almost all other raw materials, is a
renewable and environmentally friendly raw material.
Certification of forest products from
sustainably managed forests is the subject of an intense policy
debate. The Committee considered the state of markets for
certified forest products, and noted that, as yet, only small
volumes are available, and that relatively few markets are
concerned, mostly in north west Europe. Concern was broadly
expressed about the potential impact of certain certification
schemes proposed on small forest owners and industries in certain
countries.
Softwoods
After a strong 2-year rise, European
consumption of sawn softwood was forecast to level out in 1998 at
79.2 million m3 and to rise slightly in 1999. Production
continues to grow faster than consumption creating a need to
expand export markets in order to maintain profitability.
Indeed European exports (to destinations
outside Europe) grew in 1997, especially to Japan, where they
became the second largest supplier after North America. However
with the downturn in many Asian markets, and the forecast
downturn in European imports in 1998, exporters expanded other
markets in mid 1998, for example North Africa, and to a lesser
extent, the United States. European exports could hit record
levels in 1998 of 32.9 million m3, with imports at 30.5 million
m3.
Sawnwood prices in Europe weakened at the end
of 1997. As stocks have been drawn down in 1998, both in Europe
and Japan, there were some rises in sawnwood prices.
The Baltic Country exports, mainly to Europe,
were forecast to grow slower due to rising domestic consumption,
and constraints imposed by resource limitations. The export
forecasts are not homogenous in the Baltics: decreases from
Lithuania, stability in Latvia, and increases from Estonia. Some
other countries in central and eastern Europe forecast rising
sawnwood consumption in 1998 as economies improved, for example
Croatia, Hungary, Romania and Slovakia.
In the Russian Federation production and
exports of sawn softwood were forecast to decline somewhat in
1998, but then to regain 1997 levels in 1999.
Stimulated by active housing construction in
the United States, North American consumption of sawn softwood
was forecast to rise strongly in 1998 to record levels of 140.9
million m3. Production, at 145.7 million m3, neared the records
set a decade earlier, but was forecast to fall in 1999. Sawnwood
was said to be in good supply in 1998 as evidenced by falling
prices, largely because production formerly destined for Asia
became available for domestic consumption. In North America,
sawnwood prices have declined generally since mid 1997.
Total United States sawn softwood imports were
forecast to continue rising in 1998, by 6.3%, and again by 2.1%
in 1999, to reach almost 45 million m3. After record exports in
1996, Canada, which exported 75% of its 1997 production, forecast
strong declines in exports, especially to Asian destinations in
1998; in 1999, total exports were forecast to be 45 million m3.
Corporate restructuring and increasing sawmill
sizes in both Europe and North America, in order to gain
efficiencies of production, have the potential of creating an
oversupply of sawnwood in some markets. Countries considered it
desirable to cooperate in promotion efforts in order to recapture
market share lost to wood substitutes.
Sawlog and veneer log production and
consumption are forecast to rise in Europe to record levels in
1998, and again in 1999, to reach 152.6 and 156.9 million m3
respectively. Trade of logs, at much lower volumes, was
relatively stable. Log prices have increased in some European
countries.
United States production and consumption of
softwood logs could rise to reach 181.3 and 172.0 million m3
respectively in 1999. North American exports of logs, which have
halved in the last 10 years to a level of 10 million m3 in 1997,
were forecast to rise in 1998 and 1999.
Hardwoods
European sawn hardwood consumption may have
ended a long-term decline with the Committee's forecast of slight
rises in 1998 and 1999 to reach 16.9 million m3. The movements
are not universal: France, the largest consumer with a forecast
increase of 4.1% to 2.9 million m3 in 1998 contrasted to Italy,
the second largest consumer, with a forecast decrease of 4.3% to
2.4 million m3.
European production was also forecast to
increase following a long decline. Net imports, of which
approximately two-thirds are temperate, have remained
consistently around 3 million m3. The decline in tropical
sawnwood imports appears to have ceased: they are expected to
remain at a level of 2.0 million m3 to 1999.
In contrast to Europe, North American
production and consumption have been steadily climbing, and were
forecast to rise steeply in 1999, by an average of about 7%, to
reach the record levels of 33.0 and 29.3 million m3 respectively.
Domestic consumption is not only influenced by housing-related
demands, for example millwork and furniture, but also the 40% of
sawn hardwood which is used in pallets, packaging and railroad
ties (sleepers).
United States exports of sawn hardwood to both
European and Asian markets were at record levels in 1997 and a
further increase was forecast for 1998 to reach 4.8 million m3.
(However, the most recent forecast of US hardwood exports show a
sharp decline in 1999.) With the exception of those to China,
most exports formerly intended for Asian destinations were
forecast to be absorbed by alternative markets, including Europe.
Light coloured species, especially beech, are
in demand; although white oak has declined in furniture markets,
it has increased in joinery and barrel manufacturing. Price rises
have followed demand for these species. Hardwood flooring
consumption for new houses in North America and renovations in
Europe have tripled over the last decade.
Production of tropical forest products is in
complete chaos due to the Asian crisis. Production and export
volumes have fallen by an average of about 25%, despite a drop in
prices by up to 50% for some products partly as a result of
massive currency devaluations. The collapse in the tropical
timber market has had consequences throughout the entire forest
sector, from the forest to finished products.
In Europe, hardwood log consumption was
forecast to rise in line with sawnwood production requirements.
With slight rises in 1998 and 1999, tropical log imports are
forecast to end their steady decline.
Wood-based panels
Consumption of wood-based panels (particle
board, plywood and fibreboard) in Europe is expected to
continue to expand by 3% in 1998 and a further 2% in 1999 to a
new record level of 46.3 million m3. Important production
increases are forecast for the same period as a consequence of
new installed capacity of medium density fibreboard (MDF),
particle board and oriented strand board (OSB).
In North America a very slight drop in
consumption of panels of -0.7% is forecast for 1998 and almost no
change for 1999. The continued decreased production capacity of
softwood plywood had been offset these past years by the very
rapid expansion of OSB. The favourable market conditions for the
housing sector have reversed the OSB overcapacity situation of
1996 when supply grew much faster than demand, as evidenced by
rising prices for structural panels.
Russian production of wood-based panels
is forecast to expand by 11.4% in 1998 and 8.7% in 1999 to 4.7
million m3. Most of this increase is expected to be consumed
domestically.
Particle board production in Europe, is
foreseen to increase by 5.2% in 1998 and 2.6% in 1999 to 32.2
million m3. Among the major producing countries Germany, France
the United Kingdom and Poland expect significant increases. Only
in Turkey are important cutbacks announced. Production increases
are also expected for OSB as newly installed mills in
Ireland, Luxembourg and Poland attain optimum production levels.
Few changes are forecast for plywood production as the major European producer and exporter, Finland
has completed its capacity expansion during the last few years.
Tropical imports from south east Asia and also softwood imports
from North America are expected to increase in 1999 as a
consequence of more favourable exchange rates.
European MDF production, which now represents
almost 70% of total fibreboard production is expected to
further increase in 1998 to 6.5 million m3, or 18.2%. New
capacity expansions, 19 production lines, are expected to come on
stream by the year 2000 raising total capacity to over 10 million
m3. MDF is also facing the competition of cheaper imports from
south east Asia, which are believed to be of lower quality in a
market of speciality products.
Several delegations remarked on the danger of
oversupply in Europe for MDF, particle board and OSB. European
exports of MDF and particle board had developed during the last
few years to the near and far East, when demand was strong and
the industry of composite panels expanding. The present difficult
economic situation in south east Asia has forced the industry to
find new outlets in the emerging economies of transition
countries and also MDF exports to the United States. But there is
an uncertainty that these markets can absorb all the excess
production announced.
Production of softwood plywood in the
United States is expected to further drop by 700,000 m3 in 1998
and 305,000 m3 in 1999, as OSB continues to substitute for
softwood plywood. Production in Canada will also drop by 4.3% in
1998 as a consequence of reduced exports to Japan and reduced
capacity.
The outlook for OSB production in North
America is a continued expansion of 5.6% in 1998 and 2.9% in
1999, when US production will reach 10 million m3 and Canadian
6.2 million m3 . Some 90% of Canadian production is exported,
mainly to the United States and exports to Japan have been
affected by the Asian crisis. OSB prices which had been depressed
since 1996 saw a spectacular and rapid growth in June/July 1998
as new residential construction boomed, reaching levels higher
than that of the other structural panel softwood plywood. Since
early September the upward trend in structural panel prices has
reversed.
Particle board production in the United
States is expected to drop slightly by 1.3% in 1998. In Canada,
the industry is running at near full capacity.
As in Europe, changes in the North American
fibreboard industry are due solely to MDF. Production of
hardboard and insulating board are forecast to maintain the 1997
levels. North American MDF production is expected to increase by
270,000 m3 in 1998 and by 140,000 m3 in 1999.
The discussion showed the dramatic growth and
prospects for the future of engineered wood products (beams and
panels) in North America and Europe. Glu-Lam, I-joists and LVL
are substitutes for sawnwood and partly use lower quality raw
material for similar or superior strength characteristics.
Roundwood (pulpwood and fuelwood) and wood
pulp
In line with the satisfactory economic
conditions, pulp production was at high levels in 1997 and early
1998, and prices rose until June 1998, only to fall thereafter as
pulp stocks rose. Waste paper continued to increase its share of
the fibre furnish, and to influence prices for virgin pulp.
European pulpwood consumption is expected to
rise moderately, by 1.7%, to nearly 189 million m3 in 1998,
with a further small increase in 1999. A rather stronger rate of
growth is forecast by Finland (just over 3% in 1998). Consumption
of non-coniferous round pulpwood is expected to rise faster than
that of other assortments. US pulpwood consumption will show a
marginal (+0.6%) increase in 1998, and then remain around
233 million m3. Russian pulpwood consumption however is
forecast to drop by nearly 8% in 1998, before recovering most of
the lost ground in 1999.
European pulpwood imports (of which 47% is
accounted for by two countries, Finland and Sweden) are forecast
to rise by about 3% in 1998, and then to fall slightly in 1999.
European pulpwood exports will continue the steady decline
visible since the early 1990s, to just over 14 million m3 in
1999. Estonia and Latvia each account for about 2.5 million m3 of
pulpwood exports, mostly to the Nordic countries. North American
pulpwood exports, mostly to Japan, will remain roughly stable
around 15.5 million m3.
Although data on volumes and prices are
available from only a very few countries, there are clear signs
of emerging wood energy markets in some countries. In some cases,
wood is already competitive on price with coal, for large scale
combined heat and power plants, even without fiscal advantages.
The existence of a carbon tax in Sweden has strongly stimulated
the growth of a modern wood energy sector which also imports
energy wood (e.g. demolition wood from Germany).
Total European removals are forecast to rise by
about 1% to reach 370.7 million m3 in 1998 and marginally in 1999
to reach 375 million m3. A similar picture is visible for USA,
where total removals in 1998 are expected to be 482 million m3.
Russian removals are forecast to fall to 78 million m3 in 1998,
and then to recover slightly in 1999.
Certified forest products
For the first time during its market
discussions, the Committee discussed the certified forest product
marketplace. Certified forest products are wood-based products
which can be identified as coming from forests which have been
certified, generally by a second or third party, to be managed
sustainably. There is a wide variety of concepts and schemes. As
there are no separate statistics collected for these products,
which can be either primary or secondary products, descriptions
of individual markets were obtained from country market
statements.
Current demand for certified forest products is
mainly expressed through buyers groups in some western European
countries, for example the United Kingdom. Final consumers are
not the current driving force of demand.
In general, price premiums are not received for
certified forest products, despite the additional direct and
indirect costs of the certification process. Despite the absence
of premiums, other benefits of marketing certified products could
be to maintain or to increase market share, to improve corporate
image and to incorporate environmental concerns into a company's
marketing strategy.
In the discussions, many of the problems of
certification of sustainable forest management were raised.
Countries expressed concern that certification and labelling
could be a trade barrier and could lead to further loss of market
share to competitive materials which are neither sustainable nor
renewable. Concern was broadly expressed about the potential
impact of certain certification schemes proposed on small forest
owners and industries in certain countries.
The Committee will continue to follow the
developments in these markets in both its annual market
discussion and country market statements.