Region’s forest and forest industry sector development influenced
by government and industry policies
Together the UNECE Timber Committee and the FAO European Forestry Commission analyzed the current forest products market situation in 2004 and forecast markets for 2005 in light of current policy issues. The full text of the Committee’s approved market statement is attached, along with summary tables of forecasts. Key points from the statement are summarized below.1 (See also FAO companion press release on wood production shifting east (www.fao.org/newsroom/en/news/2004/51034/index.htm)).
- Forest products markets in the UNECE region were forecast to remain at high volumes in 2004 and 2005. Russia and many central and eastern European countries (CEECs) forecast full recovery to pre-transition levels for some market sectors.
- Healthy forests need healthy markets and vice versa.
- Forest products markets are global, and becoming increasingly competitive due to new sources of low-cost wood and labour and international forest product corporations.
- Corporate survival requires improved competitiveness, including radical restructuring if necessary to take advantage of global markets.
- China’s forest products sector developments are spectacular and increasingly affecting world trade and effecting structural changes in North America, from furniture manufacturing back to the forest.
- North American wood products demand is at a high level due to the strong housing construction which approached 2 million (mainly wooden) houses in 2003 and is forecast at a similar level in 2004.
- Governmental policies are creating a climate for international investment in Russia and many CEECs with the result of increased capacity and exports, however not universally increased domestic consumption yet.
- A new Forest Code for Russia which may provide for private ownership of forest land in the future is under consideration by the Duma.
- Illegal forest activities and trade of illegally derived forest products occurs in every country in the UNECE region. Illegal logging ranges from less than 1% to 35% of annual harvests. Governments policies and intergovernmental measures are being established to deal with the problem.
- Forests mitigate climate change by sequestering carbon in trees and after harvest in forest products. Manufacturing and use of forest products consumes less energy than other construction materials.
Certified forest products
- Certified forestland now approaches 200 million hectares worldwide, of which most is in the UNECE region.
- Certified forest products markets are driven at the business-to-business level, but not yet from final consumers.
- Government procurement policies specifying certified forest products are a market driver, however specifications must be careful not to preclude wood use.
- Despite cooperation between some certification schemes, lack of mutual recognition may confuse consumers.
- Consumption of sawn softwood was at record levels in the UNECE region and forecast to expand in 2004 and 2005.
- Russian exports of sawnwood have fully recovered to pre-transition period levels and are forecast to grow by 7% more in both 2004 and 2005.
- Low interest rates drove housing construction in North America and sawnwood consumption is forecast to grow in 2004. In autumn 2004, sawn softwood prices spiked to near record highs.
- The mountain pine beetle attack in British Columbia (Canada) led the province to ramp up the annual allowable cut by 27% to preclude stain, rot and fire hazards from dying trees.
- Sawn hardwood markets are forecast to grow in Europe, confirming market recovery.
- Trade is active and forecast to grow in 2004 and 2005, with US exports approaching 3 million m3.
- Some European producers, e.g. Romania, are forecasting fast growth in production and exports.
- Certified hardwood markets are driven by architects demand, especially for publicly-financed projects.
- Production advances to new record levels in 2004 and 2005 according to forecasts.
- Demand from North American wood-framed housing construction drove OSB prices to record highs in autumn 2004.
- Russia’s panel industry is dynamic with capacity increases and hence, production and export increases. Consumption is forecast to rise by 5-6% in 2004 and 2005.
Paper, paperboard and woodpulp
- Paper and paperboard consumption are rising in Europe and Russia along with general economic recovery. In contrast, United States consumption and production are stagnant.
- Increased foreign investment in CEECs in the pulp and paper sector have resulted in increased production and exports.
- Russia is a net exporter of paper and paperboard based on weight, but a net importer based on value, due to a lack of production of higher-value paper grades.
Wood raw materials, including wood fuel
- Wood raw material consumption increases with demand from the products above.
- Wood energy promotion policies in Europe are bearing fruit, and along with the record price for oil, Europe’s consumption of wood for energy is rising.
UNECE TIMBER COMMITTEE AND FAO EUROPEAN FORESTRY COMMISSION
STATEMENT ON FOREST PRODUCTS MARKETS
IN 2004 AND PROSPECTS FOR 2005
The UNECE Timber Committee and the FAO European Forestry Commission adopted the entire official text below on 8 October 2004.
Overview of forest products markets in 2003 and 2004
1. The UNECE Timber Committee and the FAO European Forestry Commission discussed the links, interactions and the impacts that forest policy and market policy have on each other. As the forest sector in the UNECE region strives to enhance the economic viability of sustainable forest management, success in the market for producers who do not practice sustainable forest management poses a threat to the ability of forests to supply multiple benefits. Healthy forests need healthy markets (and vice versa). In this climate the influence and impact of policies made outside the sector must also be carefully addressed.
2. Global forest products markets are becoming ever more competitive: new sources of low-cost wood supplies are emerging, forest product companies are becoming increasingly international in scope, and trade flows are changing rapidly. Low-cost producers in every market sector are putting severe price pressure on their competitors worldwide. If they are to survive, companies have to maintain and improve their competitiveness, making radical strategic changes as necessary, and taking full account of trends in global markets.
3. Spectacular developments are taking place in China’s forest products sector, which is importing and processing roundwood and sawnwood from many sources, including from the UNECE region and particularly Russia. Products are either for the rapidly expanding Chinese domestic market or for export as further processed products, including furniture, mouldings, doors, etc. Low-cost raw material, transport and labour with 17 million additional workers per year, combined with favourable government policies to promote foreign investments in large modern mills, have already enabled Chinese exporters of value-added forest products to gain large market shares in North America, forcing domestic companies to close or take radical measures to improve their competitiveness. In some cases this has had negative consequences for local communities, as well as for the economic viability of forest management in affected areas. Concerns were expressed about similar impacts on European markets in the future.
4. Russia’s economy continues to expand strongly and government policies have facilitated foreign direct investment in many sectors, including the forest sector. As a consequence, production and exports of forest products have recovered for some sub-sectors beyond pre-transition period levels, although domestic consumption of sawnwood and paper products remains weak. A new Forest Code is under consideration by the Duma, which seeks a balance between the economic, environmental and social aspects of forest management. The new code may provide opportunities for private ownership of forestland in the future.
5. Certified forest products. Considerable discussion revolved around the evolution of certification as its policies and issues affect both forests and markets. Worldwide certified forest area is nearing 200 million hectares, approximately 5% of the total forest area. 95% of the certified forests are in the UNECE region with the greatest most recent gains being in Canada, where there has been a tripling of certified area in the past two years. In Russia, which accounts for over 20% of the world’s forests, first steps are being taken by the industry, certification systems and the government to develop and apply certification. To date, certification has not made a significant contribution to halting tropical deforestation.
6. Demand for certified forest products is coming from within the wood chain, business-to-business markets (wholesalers and retailers), but not yet from final consumers. Despite recent moves towards more cooperation between certification schemes, the lack of mutual recognition between schemes may confuse consumers. Chain of custody (CoC) certification to trace forest products back to their source is expanding. Several initiatives are under way to assess certification schemes and increase transparency. National and local government procurement policies in some countries increasingly influence wood consumption and require that wood products come from sustainably managed forests. Similar policies are being developed in other countries. If these procurement policies are too rigidly specified, or favour one certification scheme, they could limit the use of wood by public authorities, in favour of other, non-renewable, materials.
7. Forests contribute to mitigating climate change by sequestering carbon in growing trees and in forest products, by consuming relatively little energy in processing and by substituting for non- renewable products and fossil fuels. These advantages of forests and wood should be emphasized in formulation of policies for climate change.
8. Forest law enforcement, governance and the implications for trade are key issues affecting the entire wood sector, from forest to markets. Illegal forest activities are occurring worldwide, including within the UNECE region, and government policies and intergovernmental measures are being put in place to deal with domestic situations and also the trade of illegally derived wood. The EU Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan provides for border controls, licensing schemes and partnership agreements between importers and exporters.
The Committee and the Commission reviewed the outcomes of the UNECE/FAO workshop held on 16-17 September 2004 in Geneva on “Illegal Logging and Trade of Illegally Derived Forest Products in the UNECE Region”. The workshop focussed on the causes, extent and consequences of illegal forest activities and trade, and was based on reports and interventions by 37 countries within the region. The workshop concluded that illegal logging and trade of illegally derived forest products exists in all countries within the UNECE region, although the prevalence and significance vary widely (from less than 1% in most countries in the region to over 35% of legal harvests in a few). The Committee and the Commission decided that UNECE/FAO should contribute to the regional efforts to improve forest law compliance.
Overall economic outlook
9. The global recovery is well established but its momentum has weakened. Higher oil prices are dampening economic growth, and there remain important downside risks. The recovery in the US is expected to continue but to weaken, while in the euro area, recovery is fragile, uneven and strongly dependent on export growth. However growth in Eastern Europe will be robust and the boom in the CIS will continue. Growth rates in 2004 will range from 1.8% in the euro area to 7.6% in the CIS, with growth in North America being up to 4.2%. For 2005, growth rates around 2.0% are foreseen for the euro area, 3.5% for North America and 6.0% for the CIS.
Market Sector Developments
10. Sawn softwood. Consumption of sawn softwood in the UNECE region reached record highs in 2003 and was forecast to rise strongly in 2004, by 1.4%, to reach 221 million m3, and then make slower gains in 2005. The region’s exports were forecast to rise in 2004 by nearly 4%, but to fall back in 2005 by 1.5%. Russian exports are forecast to rise by 7% in 2004 and again in 2005, reaching 11.6 million m3, full recovery from pre-1990 levels. Russia’s consumption is forecast to increase in 2005, following a steep decline during the last decade. In North America, the 2 million-strong housing market in 2003 drove demand for sawnwood, and other primary and value-added wood products, and sawnwood prices are at near record highs. The softwood lumber dispute between the US and Canada continues to affect trade. Canadian exports to the US are subject to 27.2% duties. Recent NAFTA and WTO rulings generally favour Canada. A mountain pine beetle outbreak has been ravaging parts of British Columbia (Canada). The provincial government has increased its annual allowable cut in the affected area by 27% (an increase of 4.9 million m3 for the province as a whole) to control the epidemic and salvage the wood before it stains, rots or becomes a fire hazard.
11. Sawn hardwood. Sawn hardwood markets are forecast to grow in Europe, confirming signs of recovery in 2003, with consumption rising by 2.4% in 2004 and again in 2005 by 1.6%. Trade in Europe is forecast to be active, with a 2.1% rise in European imports in 2004, and another 1% in 2005. Among major European producers, particularly fast growth is expected in Romania. US exports are forecast to approach 3 million m3 in 2005. Markets for certified hardwood are strong in some western European countries with significant demand by architects, especially those working on publicly-funded projects.
12. Wood-based panels. The panel industry in 2003 showed higher output and consumption levels, following two years of depressed markets and low prices. The forecasts for 2004 and 2005 confirm this trend. However, countries remain cautious and apparent consumption in Europe will probably increase marginally in 2004 and by 1% in 2005 to 57.8 million m3. The same is true in North America and in 2005 consumption will reach 63.8 million m3. Supply/demand imbalances pushed Oriented Strand Board (OSB) prices in 2004 to record highs in North America. However, the Russian Federation forecasts consumption to grow by 6% in 2004 and by a further 5.2% in 2005, to reach 6.4 million m3. Major increases are expected in the plywood, particleboard and Medium Density Fibreboard (MDF) industries in Russia.
13. Pulp, paper and paperboard. In Europe and the CIS, paper and paperboard consumption will rise at about the same rate as the economy as a whole (2.2% in Europe and 7.7% in Russia in 2004), but in North America consumption and production are expected to increase only marginally in 2004 and stagnate in 2005. Exports from central and eastern Europe are increasing, due in part to increased investment in the subregion. Pulp production and consumption in Europe are expected to grow steadily in 2004, and slightly more slowly in 2005. Growth rates are higher for Russia, especially for domestic pulp consumption, which is now growing considerably faster than exports. However, in value terms, Russia is a net importer of paper, as imports of high-value assortments have outstripped exports of commodity grades. In North America however, pulp production will stagnate and consumption fall slightly, because of weak paper demand and ample supplies of recovered paper.
14. Wood raw material, including wood energy. In the UNECE region, roundwood removals are expected to grow marginally in 2004 and 2005, in line with product demand. Consumption of wood for energy is rising rapidly driven by government policies and market demand. The steep rise in oil prices also stimulates the use of wood for energy. There is competition for low-quality wood between energy, pulp and panels. An urgent need exists to improve data and understanding of trends for wood energy to formulate satisfactory policies.
1. Europe: Summary table of market forecasts for 2004 and 2005
2. North America: Summary table of market forecasts for 2004 and 2005
3. Russian Federation: Summary table of market forecasts for 2004 and 2005
1 Additional information is available on the Timber Committee and European Forestry Commission’s web site on: complete tables of country forecasts (www.unece.org/trade/timber/mis/forecasts.htm), country market statements (www.unece.org/trade/timber/mis/market/market-62/market-62.htm), Forest Products Annual Market Review, 2003-2004 (www.unece.org/trade/timber/docs/fpama/2004/fpama2004a.htm)
For further information, please contact:
Mr. Christopher Prins
Chief, UNECE/FAO Timber Branch
Trade Development and Timber Division
United Nations Economic Commission for Europe
Palais des Nations
CH - 1211 Geneva 10, Switzerland
Phone: +41 (0)22 917 2874
Fax: +41 (0)22 917 0041
Web site: www.unece.org/trade/timber
United Nations Economic Commission for Europe
Palais des Nations,
CH-1211 Geneva 10, Switzerland
Tel.: +41 (0) 22 917 44 44
Fax: +41 (0) 22 917 05 05
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