UN/ECE TIMBER COMMITTEE

Forest Products Annual Market Review 1999-2000

C O N T E N T S

• Consumption of forest products in the ECE region once again reached record levels in 1999.
• Strong economies in Europe and North America in 1999 and early 2000 resulted in record production and trade although there were signs of slower growth ahead.
• The Commonwealth of Independent States had not recovered from the 1998 Russian economic crisis and although domestic consumption of sawnwood fell, it rose for panels and paper, while exports of most products increased.
• Prices were weak for some products and sub-regions, for example sawn softwood and panels in North America where new capacity outstripped the rise in consumption.
• Central and eastern European countries exported more roundwood and primary-processed products as well as increased exports of value-added products such as furniture.
• Life-cycle analysis for wood-based panels confirmed continued market penetration for OSB and MDF, moderate growth for particle board and stagnation for plywood in North America.
• The ECE region has the majority of the world’s certified forestland and new certification systems for sustainable forest management are being implemented with possibilities for mutual recognition between systems. With the new certificates, the demand for certified products is less than the potential supply.
• Windstorms in December 1999 felled 3 years’ worth of timber in Europe causing chaos in forests and forest products markets for roundwood in early 2000.
• China is rapidly increasing forest products imports with important benefits for ECE region exporters. 
• Japan began recovery from the 1997/1998 Asian economic crisis and imports from the ECE region improved.

• During 1999, fears that the world economy would slide into recession receded, and in the second half of the year, business confidence, real activity and expectations for 2000 all improved steadily.
• At end 1999, the western European economies were growing at an annual rate of about 3.5%, with similar growth expected for 2000.
• Western European construction rose by 3% in 1999, and further growth, but at a lower rate, is expected for 2000 and 2001.
• The United States economy continued to expand, for the 108th consecutive month, the longest upswing on record. For the third year in succession, growth was over 4%.
• The United States housing boom continued in 1999 and early 2000. However there are signs that the end of the boom may be in sight as starts fell, quite significantly, in March and May 2000.
• Eastern Europe grew slower than forecast, by 1.4% and the Baltic countries went into recession. 
• The Russian economy grew by more than 3%. Construction output rose by 5.4%, the first rise after three successive falls.
• The Japanese economy fell in both the third and fourth quarters of 1999, despite fiscal measures to stimulate performance.
• Japanese housing starts stagnated in 1999 at a relatively low level.

• Severe windstorms felled 193 million m3 of roundwood in December 1999, the equivalent of 2 years’ harvest in affected countries.
• Roundwood markets in Europe were in chaos with sharp falls in prices initially, although some order had been restored by mid 2000.
• Government measures intervened to stabilise markets, assist forest owners and provide necessary infrastructure. Some planned harvests were postponed outside the storm-damaged zones.
• Considerable roundwood was salvaged quickly, or stored, before the onset of attack by pathogens or fire.
• Existing trade channels within Europe were strengthened and new markets were found in central and eastern European countries and in Asia.
• Similar to the 1990 storm’s effects on wood products markets, the fluctuations in supply and price were absorbed during primary processing and there were little distinguishable effects in sawnwood, panels and pulp production, prices or sales.
• Greater market calamity was mitigated through sector solidarity.
• The crisis will have some long-term benefits for the sector due to its valuable public relations opportunities, new export and energy markets, and development of harvesting, transportation and manufacturing capacity.

 
• Poland’s wood industry is among the forerunners to emerge from the 10-year period of transition and transformations, 1989 to 1999, as indicated by dramatic rises in production and exports.
• Liberalization of foreign trade in 1995 stimulated exports, mainly to western Europe, and predominantly to Germany. In 1999 Poland exported twice as much sawnwood, 8 times more particle board, 9 times more paper and paperboard and 12 times more furniture than in 1989.
• Furniture is the fastest-growing export product, primarily to western Europe, and this sector holds tremendous potential for further development and will be the driving force behind the development of wood industry.
• In comparison with other branches of Polish economy, the forest and forest industries sector is relatively well prepared for integration into the EU.
• Positive net trade in wood products reduces the national negative foreign-trade balance.
• A certified wood market has not yet developed in Poland.
• New associations and organizations within the wood sector were established during the last 10 years of political and economic transformations.
• In Poland the per capita consumption of wood products, with the exception of particle board, is low compared to EU countries.
• Production of MDF started in 1994 and OSB in 1997 and demand by export markets has grown rapidly.
• The Polish forest and forest industries sector is characterized by a high degree of raw material self-sufficiency, however industrial roundwood imports are increasing.
• Forest cover, of which over three-fourths is state owned, is forecast to grow to over one-third of the total land.

• Access to forest products markets is influenced by a wide range of institutional measures which restrict trade, either overtly or in many cases covertly.
• Tariff levels have been declining steadily but still remain high for some ECE region markets and for some trading partners.
• Non-tariff barriers restrict trade in many ways, particularly through health and technical standards; unlike tariffs, some non-tariff barriers are increasing.
• The question of whether certification of sustainable forest management is, or will be, a barrier to trade is widely debated.
• The exact effect and direction of impediments to trade are difficult to predict, but they merit vigilance.
• Moves are underway to begin another round of multilateral trade negotiations for forest products.
• The implications of further trade liberalization for individual Timber Committee member countries will vary depending on whether they are exporters or importers.
• There is considerable opposition by many environmental groups to further forest products trade liberalization.

• Trade of secondary processed wood products (SPWPs) is growing faster than that of primary products in both temperate and tropical species.
• The United States and the EU are the world’s major producers, importers and exporters of SPWPs.
• Volumes of SPWPs traded are difficult to assess from trade statistics, however they are still small compared to primary wood products.
• Furniture is the most traded SPWP in the ECE region and overall the region is a net importer.
• While levels of intra-regional trade continue to grow, imports from outside the region, and especially tropical SPWPs are growing faster.

• Production of roundwood in the ECE region, at 1.2 billion m3 annually, is far below the volume of annual growth.
• The demand for roundwood in western European countries is increasingly dominated by an ever smaller number of large wood processing companies, leading to weaker pricing power of the traditional small private and municipal forest owners and state forest services. 
• The social demand for non-wood benefits is increasing in forests near urban areas, which leads to additional pressure on the forest owners and their incomes in these areas.
• Market forces have stimulated central and eastern European countries and the CIS to, at least temporarily, increase exports of roundwood. This is a major determinant for current developments in roundwood markets of the ECE region.
• Since 1996 exports to western Europe from the CIS and central and eastern European countries increased rapidly, by 36.2% and 9.5% respectively. These exports influence the traditional roundwood trade flows in other parts of ECE region and outside of it. 
• If indications of about 20 to 30 million m3 in illegal cuttings in the CIS countries are correct, they would mainly reduce the tax revenues, and not the sustainable level of removals.
• CIS roundwood production and consumption decreased through 1998, but turned around and increased in 1999 by 13.8% and 7.9% respectively.
• The dynamic development of roundwood exports in the CIS and central and eastern European countries should lead in the medium term to increasing income as a base for improving processing equipment, productivity and domestic purchasing power.
• Roundwood production and trade accelerated in Europe in 2000 following the extensive windthrow from the 1999 storms. 

• Consumption, production and trade of sawn softwood rose to record levels in North America and Europe in 1999 and were even stronger in early 2000.
• Consumption of sawn softwood in the ECE region grew 4% in 1999, with growth of 6% in North America, 3% in Europe and a decrease of 18% in Russia.
• Strong economies in North America and Europe are driving demand for sawnwood for construction and other uses.
• Prices moved in opposite directions in 2000, falling to near-term lows in North America and firming in Europe.
• The United States increased imports by over 1 million m3, with much of the new increase coming from Europe, as well as new sources from South America and Russia.
• Germany became the largest sawnwood producer in Europe and continues to be the greatest consumer by far.
• Central and eastern European countries are rapidly increasing domestic consumption, albeit from low levels, and are succeeding in finding new export markets in western Europe, United States and Asia.
• Russian Federation exports increased dramatically in 1999, although production fell.
• The ongoing recovery from the 1998 Asian economic crisis allowed ECE region exporters’ markets in Japan to rebound.

• Consumption of sawn hardwood in the ECE region rose in 1999, by 2.2%, due to high demand for furniture and construction-related uses as well as other uses, such as packaging and pallets.
• Trade was at record levels in North America and Europe in 1999 and in early 2000 trade continued to accelerate.
• North America and Europe each produced roughly 1 million m3 more of sawn hardwoods in 1999.
• The windstorms which felled millions of cubic metres of hardwoods at the end of 1999 in Europe resulted in higher than normal levels of production and trade in 2000.
• Following the 1998 economic crisis in Russia, the CIS continued to have weak demand and production of sawn hardwood, although exports rose slightly. 

• Overall wood-based panels consumption in Europe shows a small increase in 1999 to a new record level.
• Particle board consumption in Europe in 1999 was just above 1998 levels and reached 35.2 million m3, a new record, thanks to the recovery of markets in the second half of the year. 
• OSB in Europe is gaining market share very rapidly and consumption was up 43% to just under 1 million m3. This trend is expected to continue as new capacity comes on stream.
• Overall fibreboard consumption in Europe was 2.8% higher in 1999, and reached 10.4 million m3; of this amount, the increase of MDF consumption was stronger, up 10.7% to 7.1 million m3, despite very competitive markets.
• Production of plywood in Europe was up 2.3% from 1998, as output from the main producer Finland was over 1 million m3 for the first time. However, consumption remained near 1998 levels and markets were competitive.
• Overall wood-based panels consumption in North America reached record levels in 1999 to 55.6 million m3, a 5.3% increase.
• In the North American structural panel sector, OSB continued its strong growth and consumption increased 10.6% in 1999. Softwood plywood consumption increased marginally, up 2.9%, due to a fall in United States exports, while North American production remained at 1998 levels.
• Overall wood-based panels consumption in the Russian Federation, was up 13% to 3.0 million m3 in 1999, but overall consumption remains well below 1992 levels.

• Engineered Wood Products (EWPs) manufacture and use is expanding globally. Glued laminated timbers are being employed worldwide, while structural wood I-beams and LVL are primarily a North American phenomenon. However, LVL use is rapidly gaining popularity in Asian markets. 
• Two key forces driving North American demand are prevalence of wood-frame construction and the changing nature of softwood fibre supply. 
• North American I-beam production grew 27% in 1999 while North American LVL production grew 21%. EWPs now constitute more than 5% of North American softwood dimension lumber  (sawnwood) supply.
• EWPs in North America, Japan, and the Nordic countries are consumed primarily in structural applications in residential markets. In continental Europe, both structural and nonstructural applications drive demand in both residential and commercial markets. 
• EWPs demand in Europe and Japan is also growing with greatest potential in Japan as the Japanese industry increasingly adopts these products in the traditional post and beam housing sector. 
• Trade in EWPs is small compared with that of other wood products, but as a percentage of their production, the volume of trade is significant. North America, Japan, and Europe consume most of their own production in residential construction end uses. The largest trade flow is of glulam – primarily from North America and Europe to Japan.
• The outlook for EWPs is excellent with much of the impetus coming from the global need for efficient construction techniques, growing environmental concerns, and the universal requirement for affordable shelter. 

• Since early 1999 and through the first half of 2000 both the European and North American pulp and paper sectors sustained a strong economic recovery.
• Recovery contrasted with relatively volatile markets from 1996 through 1998, and afforded producers the best market conditions since the previous market peak in 1995.
• The recovery is attributed to stable economic growth in North America and Europe, restrained growth in mill capacity, and an upturn in Asian and global markets.
• A modest but unprecedented historical decline in paper and paperboard production capacity of -0.5% occurred in the United States in 1999. The capacity utilization rate improved.
• Domestic purchases and consumption of paper and paperboard in both North America and Europe have continued in general to follow upward economic growth trends.
• Although United States markets displayed considerable price volatility from 1996 through 1998, the trend in United States domestic purchases of paper and paperboard was steadily upward.
• Consumption of paper and paperboard was steadily increasing in both Europe and North America in recent years, reaching record levels despite intermittent market volatility.
• The resurgence of Asian and Latin American economies placed increased demand pressures on global fibre supplies, particularly market pulp and recovered paper.
• Production and consumption of pulp have risen in both North America and Europe, but pulp’s share of total fibre input continues to decline as use of recovered fibre continues to rise.
• Since early 1999, prices have generally increased for paper, paperboard, market pulp and recovered paper, along with improvements in capacity utilization rates.

• Potential supply of certified forest products is growing faster than market demand.
• Market demand for certified forest products continues to be more from retailers and not final consumers.
• The Timber Committee believes certification currently has value as a communication and marketing tool, in addition to its primary objective of encouraging sustainable forest management.
• Thus far, most certified forests are in the ECE region – only 8% are in the tropics.
• The new Pan-European Forest Certification system is coming on stream and has the possibility of doubling the forest area certified in Europe within 2 years.
• Some forestlands are achieving multiple certifications and mutual recognition between certification schemes is being initiated.

• Tropical forest products markets recovered slightly in 1999 from the recession due to the Asian economic crisis of 1997 to 1998.
• A rapid expansion of Chinese imports, spurred by shortages of domestic raw material, coinciding with a fall in Japanese imports, has made China the world’s largest tropical log importer.
• The trade in tropical secondary processed wood products, of which the majority is exported to the ECE region, is growing more rapidly than that of primary products.
• Tropical log and sawnwood prices recovered slightly from the decline caused by the Asian economic crisis although plywood prices remain lower. Teak prices, however, are rising steadily.
• Production and exports of reconstituted wood panels, particularly MDF, in tropical countries shot up and new capacity has been announced, principally in Asia.
• Indonesia continues to be by far the largest producer of tropical plywood, although its share has been declining since production in China, based on imported logs, exploded to 2 million m3 in 1999.
• Tropical sawnwood production fell during the crisis, especially in Malaysia and Indonesia, and did not recover significantly in 1999.
• Log exports are decreasing as tropical timber producers add value domestically.

• Apparent consumption tables
• Sawn softwood
• Sawn hardwood
• Particleboard
• Plywood
• Fibreboard
• Chemical woodpulp
• Paper and paperboard
• Graphic papers
• Sanitary and household papers
• Packaging materials
• Components of forest products
• Forest products terminology
• Countries in the ECE region
• Sources of information used in Forest Products Annual Market Reviews
• List of special chapters in former Forest Products Annual Market Reviews
• Some facts about the Timber Committee
• UN-ECE/FAO publications
• Reader survey