Forest Products Annual Market Review 2000-2001

C O N T E N T S

• Contents
• Preface
• Acknowledgements
• Contributors to the publication
• Data sources
• Explanatory notes
• Symbols and abbreviations used

• Consumption of forest products continued to climb to new records in 2000 in the region covered by the United Nations Economic Commission for Europe (UNECE), despite a slight downturn in North America.
• European forest products trade and production accelerated in 2000 in response to strong demand within the EU/EFTA subregion, growing consumption in central and eastern Europe and rising demand outside Europe.
• Strong housing construction in North America fostered growth in the panel sector; however, a mid-2000 peak in sawnwood production, combined with a downturn in the paper and pulp sector, may signal an end to the long-term rise in consumption of total forest products.
• December 1999 windstorms in western Europe felled almost 200 million m3 of roundwood, the equivalent of two years’ harvest in the most affected countries, causing chaos in forests and timber markets, especially for logs and pulpwood, but lesser effects on other downstream sectors.
• Excess roundwood supply in Europe depressed prices in 2000 and 2001 and despite strong domestic and export demand, sawnwood prices moved lower too.
• North American sawn softwood prices exhibited cyclical trends, rising from near record lows in mid-2000 to shoot up again in early 2001, in part due to the expiration of the United States –Canada Softwood Lumber Agreement (however, sawn softwood prices were falling again in mid-2001).
• Russian Federation forest products consumption showed the first signs of recovery in 2000, rising 7%, despite significantly higher exports of paper and wood products, boosted partly by a weaker rouble.
• Central and eastern European countries forest products markets generally outperformed other subregions of the UNECE, but on substantially smaller volumes.
• After the peak in mid-2000 of the global business cycle, North American and European economies slowed considerably, which, together with currency fluctuations, especially the strengthening dollar and weakening euro, negatively affected international trade in the second half of 2000 and 2001.
• Certified forest land area doubled from 2000 to 2001, to reach 80 million hectares in the UNECE region.
• In Europe, PEFC-labelled certified forest products became available in 2000 in addition to FSC-labelled products; SFI-labelled products are expected in North America later in 2001.

• The global business cycle peaked in the first half of 2000, and growth rates in both North America and Europe were significantly lower in the second part of the year. 
• The outlook for 2001 is for much slower growth, with considerably uncertainty. 
• For the first time in a decade, all UNECE transition economies reported positive rates of economic growth in 2000, although so far only four countries have recovered pre-1989 levels. 
• GDP growth in Russia was at 7.7% in 2000, but like other transition economies, it slowed in the second half of the year. 
• Energy prices rose sharply in late 2000, but since then, the trend has been downward. This slowed growth in the region, but helped demand in energy exporters, notably Russia. 
• Strength in the United States residential construction continued in 2001 and may have kept the country out of recession. 
• While western European residential construction was declining slightly in 2000, central and eastern Europe was growing. 
• The December 1999 windstorms, which felled 193 million m3 of roundwood, elevated repair and remodelling expenditures in affected countries.

• Romania’s forest products industry is recovering from a serious downturn following political and economic changes in 1989 and is poised to make considerable improvements in production and trade. 
• Roundwood removals have risen slightly in the past few years, and for many important species, removals are half of their unsustainable levels in the 1980s. 
• Sawnwood production increased strongly in 2000, by roughly 20% over the levels in 1999, and now production approaches levels in 1988 (before transition to the market economy started), but remains 27% below the peak in 1985. 
• Production of many other wood products increased in 2000 although only sawnwood and furniture have exceeded 1990 levels. 
• Owing to low, but growing domestic demand, development of the Romanian wood industry is contingent on increasing exports. 
• After climbing by 75% in value since 1990, wood products exports are almost 10% of all of the country’s exports combined. 
• The wood-based panels industry has had recent capacity increases, partly through foreign investment, and although MDF exports have been initiated, higher particle board imports result in a negative trade balance for the panels sector. 
• Romania’s rich forest resources, predominantly hardwoods, supply the country’s current needs as well as for roundwood exports which have increased sharply since their liberalization in 1998. 
• Exports of sawnwood, combined with higher production of wood products, were the causes of unsustainable harvest levels before 1990. 
• Initiation of certification of sustainable forest management is planned for 2001; however, there are no certified forest products sold in Romania at present.

 
• Wood use in Japan stems mostly from residential construction, which rivals the United States market in terms of number of housing starts, and presents tremendous market opportunities for overseas producers of structural wood products. 
• Post & beam type of construction dominates, but markets for North American-style platform-frame construction are steadily growing. 
• Several trends related to wood use are driving the demand for structural wood products in Japan, including the growing importance of high-performance, aesthetically pleasing wood products, the adoption of platform-frame building technologies and engineered wood products, and the emergence of a pre-cut component manufacturing sector. 
• Changes are under way in the markets for non-structural wood products for interior applications as Japanese consumer tastes shift towards the use of lighter coloured softwoods and western styles. 
• Changing demographics (population stability and an increasing proportion of elderly persons) are having an impact on the use of wood in Japan. 
• Changes in regulatory requirements regarding housing in Japan, including the Government Housing and Loan Corporation, the Building Standard Law and the Housing Quality Assurance Law, will have a considerable impact on wood products imports and business relations. 
• The future of wood product imports to Japan will be characterized by further global competition, the potential for increased trade protectionism, the need for high performance wood products and systems, and growth in the repair and remodelling market.

• Roundwood was in oversupply in Europe in 2000 following the extensive windthrow from the December 1999 storms, which mainly affected France, Switzerland, Denmark and Germany. 
• The storm damage had these effects on roundwood markets in the EU/EFTA subregion in 2000: an acceleration of production and exports by 12% and 50% respectively, a 30% drop in prices, and a 19% increase in net imports.
• Despite the surplus windthrow volumes in 2000 in western Europe, exports of wood raw material to western Europe from CIS as well as from central and eastern European countries increased rapidly by 13% and 8% respectively.
• A change in traditional roundwood trade flows is occurring in the UNECE region as evidenced by a significant decrease in Germany's net trade with countries of the EU/EFTA subregion owing to a sharp increase in roundwood imports from the CIS since 1995.
• Roundwood production and consumption in the CIS increased significantly, by nearly 60% from 1998, although it had decreased annually since the beginning of market reforms.
• Incomes from expansion of roundwood exports from CIS and “Other Europe” countries are increasingly used to improve obsolete machinery leading to increased productivity and medium-term domestic purchasing power.
• While the United States lost some market share in Japan, industrial roundwood trade between the United States and Canada is increasing.
• Production and consumption of roundwood in the UNECE region both rose almost 5% in 2000, to reach 1.3 billion m3 in 2000, mainly because of the storm damages in Europe; however, removals remain still well below the supply potential of the forests.
• Roundwood exports and imports both increased in UNECE region in 2000 by roughly 18%, while net exports expanded same time by 22%.

• In 2000 in the UNECE region, production of sawn softwood reached a new high of 264 million m3, a 1.6% increase over 1999.
• Nordic countries’ production and exports were at record highs in 2000, and shipments of further processed sawn softwood products are increasing.
• Nordic countries' and Austria continue to see growth in exports of sawn softwood outside of the EU/EFTA region, especially to Japan.
• Growth in exports from central and eastern Europe, 13% from 1999 to 2000, is considerably higher than the export growth rate in the EU/EFTA subregion of Europe of 4%.
• Sawn softwood exports from Canada to the United States made record highs in 1999 and 2000, representing roughly 35% of total United States consumption.
• Canadian exports of further processed sawnwood products, including wood furniture, reached record levels in 2000.
• United States exports of sawn softwood continue near their decade lows of 1998, at less than 3 million m3, due to increased domestic consumption and reduced production.
• United States imports from South America and Europe are at record levels.
• Expiration of the Canada – United States Softwood Lumber Agreement in March 2001 has created much apprehension for Canadian producers, leading to a drop in shipments and higher prices.
• While Japanese import volumes of sawn softwood remain considerably below the 1997 peak of over 10 million m3, Japan remains an important market for supplier regions around the globe. Canada has maintained market share in Japan, while the United States lost market share, and Sweden, Finland and Austria enjoyed spectacular gains.
• Sawn softwood production and trade increased sharply to record levels in France, Germany and Switzerland following the December 1999 windstorms and sawnwood prices weakened.

• Consumption of sawn hardwood in the UNECE region continued to rise to an all-time record through 2000, driven by improved economic conditions, particularly in the United States. 
• Sawn hardwood production in the UNECE region increased by 4.1%. 
• Sawn hardwood production in the United States reached an all-time record level in 2000 but, based on early reports, may have fallen by up to 25% in the early part of 2001. 
• Trade in hardwoods was at record levels in 1999 and continued to accelerate during most of 2000 throughout the UNECE region. 
• Prices of logs and sawnwood produced in the region advanced, although much more so in North America where the domestic and export demand was exceptionally strong and only towards the end of 2000 showed any sign of easing. 
• European production of sawn hardwood in 2000 responded to increased demand and improved prices and swelled with the recovery of storm-blown timber at the beginning of the year and demand from Asia. 
• Eastern Europe emerged as a more significant supplier of sawn hardwoods greatly assisted by the continued strength of the dollar and weakness of the euro currency. 
• Globalization of hardwood markets continued to play an increasingly important role, well demonstrated by the influence of such countries as China in the global supply and demand equation. 
• Rationalization in the furniture industry within and outside the UNECE region is changing the supply and demand profile for sawn hardwood. 
• The first half of the 2001 market saw a sharp downturn in demand levels and prices in North America and Europe.

• Panel markets in the UNECE region out-performed all other forest products market sectors in 2000.
• A price collapse hit the structural panel markets in North America and Europe in 2000.
• In the EU/EFTA countries, total consumption of wood-based panels increased 6.7% to a record high of 45.2 million m3, confirming the recovery of the sector.
• In the Russian Federation, consumption of wood-based panels was up by 19.3% and reached 3.6 million m3, confirming the recovery of the sector.
• Although North American structural panel prices staged a rebound in the spring of 2001, the economic recovery of the sector is overshadowed by sluggish demand and further capacity additions.
• In 2000 and 2001, a strong dollar disadvantaged North American structural panel exporters vis-à-vis European and South American suppliers.
• High profits in oriented strand board (OSB) in the past and predictions of further gains in market share vis-à-vis plywood have induced North American and European interests to build more capacity, fostering conditions of oversupply.
• OSB market share in North American commodity sheathing (for roofs, floors, and walls in homes) passed the 75% level at the expense of softwood plywood.
• Future market growth of OSB in North America is increasingly predicated on gains in residential remodelling, do-it-yourself purchases and other non-housing applications.
• European OSB production rose about 20% from 1999 and four more plants are being built.
• Turnover in capacity is occurring in all branches as newer, high-capacity plants drive out older, smaller operations with higher unit costs.
• European particle board markets are recovering as new capacity is absorbed and several older plants are phased out.
• European production of MDF rose by 15% in 2000, but capacity growth will ease in 2001 following major expansions.

• Economic recovery was the hallmark of pulp and paper market trends in 1999 and 2000, but a slowdown in global economic growth led to a more recent market reversal. 
• European producers sustained record levels of paper and paperboard output in 2000, benefiting from regional GDP growth, a strong United States dollar and weak euro. 
• Although prices had been climbing from early 1999 into 2000 for paper, paperboard, market pulp and recovered paper, they fell from peak levels during the first half of 2001. 
• Market and profitability peaks attained earlier in the year 2000 gradually eroded, at first in North America and subsequently in Europe as well. 
• The North American market reversal reflects impacts of a record United States trade deficit, a recession in the United States manufacturing sector, and weak economic growth in Asia. 
• Monthly paper and paperboard purchases declined in the United States from early 2000 into the first quarter of 2001, the first protracted decline since the early 1990s. 
• United States paper industry profits fell from the first quarter of 2000 to the first quarter of 2001, with weak exports, declining domestic purchases, and higher energy costs. 
• Globally, net capacity growth remains subdued, well below historical growth rates, particularly in North America where many mills have been shut down in the past several years. 
• A weakening of growth in Asian economies reduced pressures on global fibre supplies, further contributing to weakness in pricing for market pulp and recovered paper. 
• Russia’s pulp and paper sector experienced a significant recovery in 1999 and 2000, boosted by the devalued ruble along with growing domestic and export demands.

• Markets for certified forest products (CFPs) continue to be mainly located in western Europe, especially the United Kingdom, Netherlands and Germany, and in the United States. 
• The CFP market continues to grow exponentially in some markets. Market share of CFPs is claimed by proponents of certification schemes to be over 25% in the United Kingdom, around 4% in the Netherlands and less than 1% in Germany. 
• Awareness by final consumers of CFPs continues to be low and there are few signs that private consumers actively ask for CFPs or are actually paying premiums. However, several large retail chains are actively promoting CFPs. 
• Public procurement plays an important role as a driver of demand in several countries. 
• In the business-to-business markets most of the CFP marketing has been based on its potential competitive advantage, market access, image building and environmental pressure. 
• On the supply side the area of certified forests has also grown exponentially, reaching about 80 million hectares by mid-2001, due to several new certification systems now operational, notably Pan European Forest Certification (PEFC) in Europe and Sustainable Forestry Initiative (SFI) in North America, in addition to the existing Forest Stewardship Council (FSC). 
• In Europe around 28.5% of the forest area is already certified, compared with about 6.7% in the United States. 
• Today, a wide range of CFPs are available mostly with a FSC label as in the past, but also increasingly with a PEFC label. 
• Forest certification remains highly controversial, with conflicting stakeholder interests, divergent views on certification as well as differences of opinion on the issue of mutual recognition between major schemes. 
• The coming year will see further growth of CFP markets and further intense discussions.

•  World trade of secondary processed wood products is expanding at a faster rate than trade in primary wood products.
• United States, Germany, France, United Kingdom and Japan account for 60% of world imports of secondary processed wood products.
• Changing import supply patterns to these markets differ by product and by country.
• Imports of secondary processed wood products from tropical producers are replacing primary product imports from these producers.
• Comparative advantage in the manufacture of secondary processed wood products is likely to shift increasingly to regions with low production costs.
• Engineered wood product markets are gaining market share in North America; for example, 33% of wood floor area is now built with wooden I-beams.
• North American glulam production increased by 14% in 2000.
• Laminated veneer lumber (LVL) production in North America declined by 6% in 2000.
• The value of world trade in wooden furniture ($29 billion) exceeds that of sawnwood ($25 billion) and wood-based panels ($16 billion).

• In 2000, the global tropical timber sector continued to recover from the sharp downturn due to the 1997 and 1998 Asian crises. 
• China is driving the tropical log trade and will likely soon become the largest importer of primary topical timber products. 
• With increased orientation towards value-added processing, the value of the trade of secondary processed tropical wood products is approaching that of the declining value of primary product trade. 
• The United States is the single largest importing country of secondary processed wood products, and imports the greatest value of tropical secondary products. The EU 15-country bloc imports the largest value of secondary products, mostly furniture. 
• Tropical log production and exports continued to decline in 2000, while sawnwood, veneer and plywood production and trade expanded. 
• Reconstituted panels, such as MDF, will become increasingly important for tropical countries in utilizing tropical raw materials efficiently and as substitutes for plywood and sawnwood. 
• Tropical sawnwood imports by EU countries fell by 3% in 1999 but rose by 7% in 2000. Imports of other primary tropical timber commodities by the EU fell during 1999 and 2000. 
• Certification of sustainable forest management is a hot topic and tropical countries are producing some certified forest products, either under a national label or under an international scheme’s label. 
• Tropical timber prices have recovered generally from the 1997 and 1998 crises, and in the case of mahogany sawnwood, have reached record levels. 
• Several major discrepancies between exporters' and importers' reports of trade flows indicate significant volumes of undocumented trade in logs and sawnwood. 

1. Apparent consumption tables

1.   Roundwood apparent consumption
2.   Sawn softwood apparent consumption
3.   Sawn hardwood apparent consumption
4.   Particle board apparent consumption
5.   Plywood apparent consumption
6.   Fibreboard apparent consumption
7.   Chemical woodpulp apparent consumption
8.   Paper and paperboard apparent consumption
9.   Graphic papers apparent consumption
10. Sanitary and household papers apparent consumption
11. Packaging materials apparent consumption
12. Other paper and paperboard apparent consumption


2. Components of wood products groups
 

1. Roundwood flow chart
2. Wood-based panels flow chart
3. Wood pulp flow chart
4. Paper and paperboard flow chart
3. Forest products terminology
 
1. General terms and transactions
2. Primary products
3. Secondary processed wood products
4. Engineered wood products
4. Countries in the UNECE region and its subregions

5. Sources of information used in the Forest Products Annual Market Review

6. Special chapters in former Forest Products Annual Market Reviews

7. Some facts about the Timber Committee

8. UNECE/FAO publications

9. Reader survey