UNECE Timber Committee forecasts rebound in wood and paper products markets in 2010 and 2011

During annual Market Discussions at the UNECE Timber Committee on 11-12 October in Geneva, experts forecast an upturn in wood and paper products markets (consumption, production and trade) in 2010 and 2011 for the UNECE region. Forest products markets are rebounding from a consumption drop of 12% in 2009. The Market Discussions were conducted for the first time together with the Society of Wood Science and Technology and the resulting, officially adopted, Market Statement summarizes the most current market information on forest products market developments as discussed and as described in more detail in the UNECE/FAO Forest Products Annual Market Review, 2009-2010.
The forecast improvement is strongest in Europe and Russia. In North America the housing crash in the United States from a peak of 2.2 million housing starts, which was the main cause for the downturn, may have bottomed out in 2009 at less than 500,000. In North America, without this main driver for wood products, all forest products markets, except wood energy, fell in 2009, and were forecast to rise only slightly in 2010. Full recovery of UNECE region forest products markets will need US housing starts to recover to a more sustainable level of near 1 million. Capacity reductions in the wood processing sector meant that when demand increased in 2010, prices generally rose for roundwood, sawnwood, panels and paper. Unemployment in the forest sector rose during the downturn and currency exchange rate fluctuations have only added to the turmoil.
The dramatic downturn in forest products markets, and the subsequent restructuring of forest-based industries, is a cause of the structural change which has occurred in the forest sector. Another reason is the escalation of wood energy: in 2009 the one major exception to the downturn in markets was wood energy which was buoyed by governments’ policies for renewable energy sources. A third factor for the change is the globalization of forest products production and trade. Finally, the increased control of international wood sources in order to ensure legality and sustainability affects timber producers, traders, users and consumers alike.
Summary of Key Developments
Policies affecting forest products markets

• Policies for more environmentally friendly construction materials and innovative manufacturing processes, i.e. green building, are a market driver.
• Developing commonly agreed definitions and standards, based on life-cycle assessment, would benefit the green building movement.
• Efforts to stem illegal logging continue throughout the region with strengthening of the US Lacey Act implantation and development of the EU FLEGT process and Due Diligence Regulation. A US-Russia Bilateral Presidential Commission aims to strengthen collaboration in sustainable forest management and in stopping illegal logging.
• Corporate Social Responsibility (CSR)is likely to grow in importance in the forest sector, driven by ISO 26000 on CSR which has now become a final draft international standard.

Innovative products and processes

• The Timber Committee supports innovation in wood and paper products and their manufacture as a means to insure optimum use of wood resources and market growth.
• The Forest-Based Sector Technology Platform in Europe, which includes Russia, promotes enhancing, strengthening and supporting R&D and innovations.
• Wood’s sustainable production and recyclability enable it to compete with substitutes. Innovative solutions provide market opportunities for the sector to rebound from the economic downturn.

Certified forest products markets

• The area of forests certified for sustainable management increased between 2009 and 2010 by 8% to reach 355 million hectares globally, with the main increase occurring in North America and the Russian Federation. The roundwood supply from certified forests totalled 472 million m3 in 2009, representing more than 26% of the world’s industrial roundwood supply. The continued lack of certified forest area in tropical regions remains a concern.
• Businesses recognize the marketing advantage that certified timber offers as evidenced by the escalating number of chain of custody (CoC) certificates.
• While certification and the use of CoC certificates will continue to grow, continued growth is likely to become more difficult without measures to make certification more attractive and less costly for the myriads of non-industrial and small private landowners.
• Legislation implemented by the US and EU to ensure legality and sustainability of traded wood will further drive certification.

Wood raw materials

• In all three UNECE subregions, the annual volume of wood that is harvested has been consistently lower than the annual increment of growth: in North America 79% lower, in Europe 64% and in the CIS 36%. In the US, the reduced demand for hardwood products has resulted in the forest resource, which has doubled in the last 50 years, being seriously underutilized.
• In 2009, the total harvest of industrial roundwood was estimated to be 880 million m3 – the lowest figure since UNECE/FAO began to collect data in 1964. The level of wood removals is expected to increase in Europe and in the CIS by about 6% annually in 2010 and 2011, as markets begin to rebound. In contrast, over the same period, a decline of about 1% is foreseen in the US in accordance with demand for some products from roundwood.
• Sawmills and pulp mills generally are paying almost 17% more for their wood in 2010 than in 2008 in spite of which, in general, prices are still lower than before the onset of the financial crisis.
• The impact of the Russian log export tariffs on global roundwood markets has been significant despite the postponement until 2011, or possibly later, of the proposed 2010 increase from 25% to 80%. Russian wood exports have fallen by 30% in volume due to the combined effects of the export tax and the global economic slowdown.

Wood energy

• Pushed by policies for renewable energy and energy security, wood energy was the only market sector to remain buoyant in 2009. Biomass energy can contribute to mitigating climate change while improving energy security and supporting the local forest economy.
• In 2009, energy policy measures have led to biomass surpassing oil to become the number one source for energy generation in Sweden now accounting for 33% of total energy consumption.
• Incentives promoting biomass can lead to market distortions by giving preference to wood for energy rather than as an industrial raw material.

Carbon markets

• The UNFCCC COP-16 and COP-17 are crucial for a wider inclusion of forest carbon in the solution for climate change mitigation.
• REDD+ has the potential to become the overarching platform for forest carbon issues.

Sawn softwood

• Following the 2009 drop by 13.8% to 155.3 million m3 in the UNECE region, sawn softwood consumption is forecast to rise by 7.5% in 2010 and by 2.2% more in 2011 to reach 170.7 million m3.
• In Europe output is expected to reach 98.2 million m3 in 2010 (up 7.9%) and 100.3 million m3 in 2011. Consumption will be 91.2 million m3 in 2010 (up 9.8%) and 93.2 million m3 in 2011.
• The growing market for bio-energy at many European sawmills has been a stabilizing factor, helping sawmills pass through the difficult economic downturn.
• North America’s sawn softwood industry fell dramatically until 2010, i.e. output was reduced by 45% since the peak of 2005. Capacity utilization rates hit record-low levels of 50% in 2009. North America forecasts a 4.7% increase in 2011, when Canada could out-produce the US for the first time.

Sawn hardwood

• After a long decline, sawn hardwood consumption is forecast to improve in the UNECE region. Demand is greatest in North America, which after falling again in 2009, is forecast to rise in 2011 by 3.7% to reach 16.4 million m3.
• In Europe, after minor change in 2009, consumption and production are forecast to rise by 3.2%, to 13.5 and 13.1 million m3 respectively.
• The weak demand in North America means that producers are seeking offshore markets, for example in China, and exports are forecast to increase sharply in 2011, by 12.1% to 2.4 million m3.

Panels

• Demand for and production of most panel products is expected to increase across the region in 2011, with consumption forecast to rise by 3% in North America, 9% in Europe and to show significant improvement in Russia also.
• Europe has been affected by a reduction in wood availability, reflecting: in part, lower sawnwood production and, consequently, fewer by-products which form a key source of fibre for the panel sector; but also growing competition from the burgeoning wood energy sector.

Paper and pulp

• China has become the world’s largest paper and paperboard producer and consumer with 95 million metric tons, overtaking the former leader, the US where production declined to under 20 million m.t. This signals a shift of growth in the sector to Asia, while production levels out and declines in Europe and North America.
• The UNECE region’s paper and paperboard consumption is forecast to rise to 175 million tons in 2010 (up 2.2% from 2009).
• Despite industry restructuring, Finland has increased its production as a result of improved production efficiency in the remaining mills.

Additional information is available on the Timber Committee website at: www.unece.org/timber
Summary forecast tables by subregion, click here.
Complete tables of country market forecasts for 2010 and 2011 at: http://www.unece.org/timber/mis/forecasts.htm
Country market statements at: http://timber.unece.org/index.php?id=316
The UNECE/FAO Forest Products Annual Market Review, 2009-2010 at: http://timber.unece.org/index.php?id=303
For additional information, please contact:

Ref: ECE/TIM/10/P13