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Forest product markets across the UNECE region rebound in 2010 after two years of falling production and consumption

Published: 03 August 2011

Geneva

A revival in demand for forest products across the UNECE region in 2010 (+5.6%), following two years of falling production and consumption, is leading to moderate optimism that the industry may have turned a corner, according to the UNECE/FAO’s Forest Products Annual Market Review 2010-2011 released today. Trends in the first half of 2011 lend support to a continued, albeit modest, rise in consumption.

The sector, which already makes a significant contribution to the green economy, has much more to offer, but the industry needs to redouble its efforts to market itself more effectively, to ensure that wood shakes off its somewhat old-fashioned image and takes its place as a thoroughly modern material that combines beauty and durability and has one of the lowest carbon footprints of any major raw material.

Consumption and production rebound

Consumption of forest products in the UNECE region rose by 5.6% overall in 2010, with small differences between the three subregions: consumption rose by 4.1% in North-America, by 6.6% in Europe and 6.3% in the Commonwealth of Independent States (CIS) (see graph 1).

In line with the increases in consumption, production also rose: industrial roundwood (the starting material for all further processing and manufacture), saw production climb to 950 million m3, 8% higher than in 2009, though this still remained 15% below the peak year of 2006. However, patterns varied significantly in the 3 subregions: the harvest was up almost 10% in Europe with about 380 million m3 (480 million m3 including fuelwood), the highest since 2007, and in the CIS, +17%, where the Russian Federation is the principal producer, with 148 million m3 (202 million m3 including fuelwood) harvested. By contrast, North American production was the second lowest for 30 years (the lowest was in 2009) at 430 million m3 (473 million m3 including fuelwood).

As the main driver for forest products markets, especially for sawn softwood (lumber) and wood-based panels, housing construction is a key indicator of likely demand and production. After the decline in new construction registered since the peak of 2006, data for 2010 indicate a small recovery in both Europe and North America (see graph 2). It is uncertain if this trend will continue, though data for the first half of 2011 show a steady rise in house construction. In the US, data released on 19 July 2011 by the US Census Bureau show that building permits in June were at a seasonally adjusted annual rate of 624,000. This is 2.5 per cent (±1.3%) above the revised May rate of 609,000 and 6.7 percent (±2.0%) above the June 2010 estimate of 585,000.

In sharp contrast to the previous two years, all wood product sectors in the UNECE region have witnessed a recovery in demand, including sawnwood (+8.3%), wood-based panels (+4.8%) (see graph 3), and paper and paperboard (+4.2%). The paper and paperboard sector showed good recovery in 2010 in almost all categories in all three subregions of UNECE (see graph 4). After several years of decline, production of newsprint, the paper that newspapers are made from, increased by 10% in Europe in 2010, compared with 2009. Even in the US, where the decline in newsprint has been steepest, with consumption in 2010 only one-third of what it was in 2005, consumption has now flattened out.

Prices on the rise

In spite of relatively subdued demand, prices for many forest products have risen sharply. Sawlog prices (sawmilling is the largest single consumer of industrial roundwood, and its co-products are a vital source of material for the wood-based panel sector) had climbed by March 2011 to almost match an earlier all-time high, having risen continuously over the past two years (see graph 5). Prices have not risen evenly across the region. Price rises have been steepest in central and eastern Europe, where it now seems that sawing capacity, as a result of investment over recent years, may have exceeded the available supply of sawlogs. In North America, there is now a clear divide between wood prices on the western seaboard, where prices have been strongly influenced by growing demand for roundwood from China, and the US South, where prices have even fallen. The US South has suffered from storms and flooding, which have resulted in a glut of timber that will need to be salvaged before it deteriorates, and this has led to depressed prices.

Wood energy markets continue to grow

The wood energy sector has enjoyed continued growth as public policies and financial incentives have pushed the expansion of modern technology for producing heat, heat and electricity or electricity alone. One factor that is expected to drive up demand for wood energy is the impact of the nuclear disaster in Fukushima, Japan, which has caused governments around the world to reconsider their policies on nuclear energy, including Germany’s decision to close all its nuclear energy plants by 2022. Rising oil and coal prices add to the incentive to switch to wood, which is generally recognized as a carbon-neutral renewable energy source.
Global pellet capacity in 2010 was in the order of 18 million tonnes, with more than half the capacity located in Europe. Pellet production has increased rapidly in recent years, rising from 9 million tonnes in 2008, to 12 million tonnes in 2009 and 16 million tonnes in 2010. With planned capacity increases, it seems possible that production could rise to 20 million tonnes in 2011. Growth in consumption worldwide is forecast to increase by 11% annually until 2020. Understandably, other wood-using industries, view this rate of growth with some concern, in view of the potential impact on wood supplies and prices.
Europe is the largest consumer of wood pellets, while Canada, currently the single largest exporter is the main supplier, though this situation may well change given the capacity developments in the Russian Federation. Sweden is the main consumer of wood pellets, estimated at 20% of global production.

Such has been the demand for feedstock that a wood energy commodity contract exchange market is expected to be launched in the second half of 2011 based on the Port of Rotterdam, through which 15% of the global trade in wood pellets passes. This will allow global trading of, primarily, wood pellets, and the opportunity to forward-buy feedstock for a month, year or possibly up to three years ahead. This would be the first time that wood had become a globally-traded commodity in this way.

China’s influence grows

The growth of China’s forest sector in the past 10 years has been remarkable. The value of China’s forest products’ output has more than doubled in only five years (graph 6) to $300 billion in 2010. From 2009 to 2010 alone, China’s forest products’ output increased by 29.3%. In 2005, China overtook Italy to become the major world furniture producer. China is now also the largest producer of wood-based panels, production of which has doubled in only four years. In only 10 years, it has more than doubled its production of paper, pulp and paperboard, which now accounts for almost 25% of global production.
As a major consumer of wood, in its raw form as well as wood products, and as a major exporter of processed wood products, China exercises considerable influence on world markets for forest products, including the UNECE region. The UNECE annual production of wood panels is about 120 million m3 compared with China’s production in 2010 of almost 160 million m3.
The Review highlights wood’s versatility as a raw material and the products that can be manufactured in addition to the more obvious, such as paper, sawnwood and panels: they range from textiles, to food additives (based on cellulose); optical screens for laptops; casings for televisions; computers; mobile telephones; and even computer keyboards.

For further information please contact:

Douglas Clark
Forest Products Marketing Specialist
UNECE/FAO Forestry and Timber Section
UNECE Trade and Sustainable Land Management Division
Palais des Nations
CH - 1211 Geneva 10, Switzerland
Phone: +41 (0)22 917 2773
Fax: +41 (0)22 917 0041
E-mail: info.timber@unece.org
Website: http://www.unece.org/forests

Notes to editors:
The United Nations Economic Commission for Europe (UNECE) Timber Committee and the Food and Agriculture Organization (FAO) European Forestry Commission have been releasing their Forest Products Annual Market Reviews since the 1950s. The Forest Products Annual Market Reviews are one of the inputs to the annual Timber Committee Market Discussions.
The Review covers forest products markets and policy developments in the three UNECE subregions (North-America Europe and the Commonwealth of Independent States), as well as their major trading partner, China.  The theme of the  Forest Products Annual Market Review, 2010-2011  is “Forest Products – contributing to a green economy”
Forests in the UNECE region account for 42.5% of the global total forest area. 

Definitions:
Roundwood is basically the stem of the tree after it has been cut and the branches have been removed – it is the basis of all the wood products derived from this source material.
Industrial roundwood is material that is used for industrial processing to make wood and paper products: it excludes wood used for energy.

GRAPH 1: Consumption of forest products in the UNECE region, 2006-2010

Note: Based onroundwood equivalent for sawnwood, panels and paper and paperboard.
Source: UNECE/FAO TIMBER database, 2011.

 

GRAPH 2: Housing starts in Europe and North America subregions , 2006-2010




Sources:
US Census Bureau, Canada Mortgage and Housing Corporation, Euroconstruct, 2011.

 

GRAPH 3: Consumption of wood-based panels in the UNECE region, 2006-2010



Notes: f = forecast.The Timber Committee's forecast trend for 2010 to 2011, made at the October 2010 session, was applied to the 2010 figure.
Source: UNECE/FAO TIMBER database, 2011.

 

GRAPH 4: Consumption of paper and paperboard in the UNECE region, 2006-2010



Source: UNECE/FAO TIMBER database, 2011.

 

GRAPH 5: Global softwood sawlog price index, 2000-2011



Note: Price Index based on delivered sawlog prices in 19 key regions worldwide. Unadjusted for inflation or currency fluctuations.
Source: Wood Resource Quarterly, Wood Resources International LLC, 2011.

 

GRAPH 6: Value of Chinese forest products’ output, 2006-2010



Note: Includes roundwood, sawnwood, panels, paper and pulp.
Source: International WOOD MARKETS Group, 2010.

We have not been able to source reliable data for the CIS and have therefore excluded it from this graph. Last year’s Review estimated starts in the region of 0.7 million (Russian Federation and Ukraine only)

Ref: ECE/TIM/11/P05


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