8 min read
2023 is already halfway over; can you believe it? Over the past six months, we’ve seen some critical developments in the forestry industry. We've...
To truly grasp the dynamics of the forest products industry, it is essential to understand conditions in both your own region and across other areas. By gaining insights into the factors that currently influence the market, you can gain a deeper understanding of the challenges to anticipate and the opportunities to explore. That's why we have compiled a list of the key elements currently impacting the Finnish forest products industry.
In 2023, according to estimates, the production of sawn softwood amounted to 10.4 million m3, showing a 7% decrease compared to the previous year and a 13% decrease compared to 2021. This decline can be attributed to several factors, including a significant drop in domestic consumption of sawn products to less than 2 million m3. The decrease in market share for wood, as well as a deep slump in the construction sector, were major contributors to this decline.
Other factors that influenced this trend included rising fiber costs and brisk export deliveries that depleted inventories. At the end of the year, the woodworking industry also faced thin stocks globally, while an exceptionally cold winter further limited production in January.
Finland has experienced an exceptionally cold January this year, with temperatures ranging from -20˚ C (-5˚F) in the south to below -40˚C ( -40˚F) in Lapland. Customers with electricity contracts tied to spot prices experienced a shocking increase in their bills, nearly 20 times higher than the average day's cost, reaching 200 €/MWh.
The cold weather and limited wind power production contributed to these exorbitant prices. Some power plants also encountered technical issues, leading to a temporary halt in production for certain industries such as sawmilling.
The trade of roundwood started off strong last year, but it experienced a slowdown shortly after the summer season. Finnish Forest Industries Federation member companies purchased 33 million m3 of wood, which was 8% less than the previous year.
There was an 11% decrease in log purchases, amounting to 14.5 million m3, and a 4% decline in pulpwood totaling over 17 million cubic meters.
Despite the decrease in volume, wood prices showed improvement. The price of coniferous logs increased by 4-6%, birch logs saw a rise of 17%, and pulpwood prices were up by 23-30%.
To align with the EU's climate goals, the current Renewable Energy RED III Directive has been implemented. This directive establishes targets, general frameworks, and measures that aim to promote the production and consumption of renewable energy.
In response to this updated directive, the Ministry of Economic Affairs and Employment has formed a dedicated working group to thoroughly examine the necessary changes in national legislation to meet the sustainability criteria outlined in the directive.
The upcoming changes will impact the regulations surrounding biofuels, bio-liquids, and biomass fuels. Currently, these regulations adhere to the provisions outlined in the RED II Directive, which focuses on sustainability criteria and how they are implemented.
One key area of discussion revolves around the potential taxation of various biofuels. It is likely that round energy wood, which consists of small-sized trees from harvestings, may be subject to taxation. Conversely, some industry residues may be exempt.
Wood-based fuels have experienced a rapid increase in market share as a viable alternative to fossil fuels. However, the supply of these fuels has faced challenges, particularly due to sanctions imposed on Russian energy and energy wood imports.
Foreign freight traffic at Finnish ports experienced a decline of more than 7% in 2023. The export volume saw a decrease of 8.7%, while imports fell by 5.5% between November 2022 and November 2023.
Simultaneously, international container traffic also saw a dip of 4.2%, with a total of 1.37 million TEUs. Despite the challenging economic environment, container freight exports managed to remain steady at -0.7%. But imports in container traffic experienced a significant drop of almost 8%.
The decline in Russia's transit traffic through Finnish ports can be attributed to a combination of economic and personal sanctions, as well as other individual decisions affecting transportation. These factors have had a substantial impact on the overall volume of foreign freight traffic at Finnish ports.
Softwood sawlogs and industrial roundwood prices in Estonia and Latvia reached their peak in 2022 before experiencing a significant decline by Q4 2023. Despite the decrease, these prices still remain substantially higher than the average levels before 2021.
Currently, softwood log prices are 45-55% above the long-term average, while industrial roundwood prices range from 45-65% higher. Market players do not anticipate prices returning to pre-2021 levels in the future. This projection is based on existing processing capacity and the largely depleted forest utilization potential in certain regions.
As a result of the scarcity of affordable local raw materials and the reliance on imported Russian and Belarussian logs and sawn goods, Estonia has emerged as a key export market for Finnish mills.
According to the Natural Resources Institute Finland (LUKE), if the volume of domestic wood harvesting increases as expected, the land use sector will become a source of emissions by 2035. This assumption is based on a scenario analysis conducted to support the preparation of the climate plan for the land use sector.
The projected increase in demand for domestic wood and a more accurate assessment of carbon dioxide emissions from drained peatland forests will also cause some changes. It is anticipated that the land use sector's net carbon sink will decline by approximately 23 million tons of carbon dioxide equivalents by 2035. Consequently, the land use sector is expected to emit around 0.5 million tons of emissions during that time period.
The decrease in the net carbon sink primarily stems from the anticipation of an increase in demand for and harvesting of domestic wood. Harvesting activities contribute to around two-thirds of the decline in the net sink, while the remaining third can be attributed to soil emissions from peatland forests. These numbers have risen due to the revised calculation method.
However, LUKE makes no analysis of the total consumption of wood. We can expect that the new investments (pulp, cartonboard, sawmills, energy, etc.) will increase consumption by 10 million m3. The balance is further shaken by the lack of imported Russian pulp and energy wood. It can be expected in the short- to mid-term, the new investments will gradually replace older capacity and not increase output.
Later, the combustion of wood will be partly replaced by other sources of renewable energy and improving energy efficiency. However, it is true that reaching carbon neutrality on time will be challenging for Finland as the forests are not able to compensate for emissions of other sectors as anticipated.
If you're looking for a deeper understanding of the forest products industry and want to stay ahead of the competition, be sure to visit our Forest Products page at ResourceWise. Discover how we can provide valuable insights and help you gain a competitive edge in this dynamic sector.
4 min read
Forest2Market, a ResourceWise company, continually monitors the changing economic conditions impacting the forestry industry. Production seems to be...
8 min read
Latvian forests are facing a grave crisis as they are being plagued by an infestation of eight-toothed spruce bark beetles (Ips typographus). The...