Finland Forestry: Falling Market, Russian Ban Change Up Industry

In the most recent forecast update, Finland’s National Resource Institute forecasts a decline in the forest products industry. Much like other areas in the global wood market, the decline stems from both cooling economic development and ambiguity about the future.

This will likely lead to some level of export decrease in forest industry products from Finland in the coming months. However, this does not always bring a price decrease along with it. Prices could remain stable—and perhaps go up—depending on current supply levels.

Conversely, on an industrial level, we’ll continue to see high numbers through the rest of this year. Much of this comes from replacing important pulpwood and energy wood from Russia after its ban on exports. Due to the lack of supply from Russia, we’re expecting a continuance of demand to replace that missing wood.

2022 Finnish Roundwood Consumption Falls 10% from Last Year

According to ResourceWise data, Finland’s roundwood consumption reached 78.7 million m³ (measured on bark) in 2022. Industry use was down about 10% from 2021 with 65.2 million m³.

Market strain was a major contributor to the decline, and it created a domino effect. As demand deflated, production also went down. Additionally, several major strikes impacted mill capacities.

Particular wood products also reflected the softening of consumption:

• Wood Products: 29.4 million m³ roundwood (-3% YoY)
• Pulp Industry: 35.8 million m³ roundwood (-14% YoY)
• Chemical Pulp: 29.5 million m³ of the above-mentioned pulp industry (-14% YoY)

One smaller but noteworthy increase came in roundwood used for energy production at 13.4 million m³. This number marks a 3% increase from 2021, and it highlights an area where continued growth is expected.

The shortage of wood imports, combined with fuel combustion and investment, will cause the decrease in supply to endure. We’ve already seen cost spikes in raw materials costs, and that likely won’t change any time soon.

All of these factors cause strain on the industry in several ways. We can expect several mills to cut capacity. In some cases, they may be fully shuttered or sold off in response.

For example, Stora Enso has already tried to sell its paper mill in Anajalankoski, but it could not find a buyer. Consequently, the mill is now scheduled to shut down some time in the 4^th quarter of 2023.

The closure comes on the heels of UPM’s recent closing of its Kaipola paper mill. Other mills may also risk a reduction in capacity or a full shuttering depending on how long the downturn will endure.

Beyond roundwood (and perhaps unsurprisingly), we also find several similarities across the sawmill industry. But the log market typically remains more balanced overall compared with pulp and energy markets. This is why we’re seeing increases in log prices even with a global drop in sawn softwood demand.

Russian Export Ban Significantly Affects Finnish Roundwood Imports

Another substantial change came in the form of roundwood imports to Finland. In 2021, Finland saw about 12.7 million m³ of total imports. This included 54% pulpwood, 35% chips and 3% logs.

One important aspect of 2021 to note is the source. 73% of all imports to Finland came from Russia. As

With the Russian invasion of Ukraine enduring and an EU sanction banning all exports from the country, this number has drastically changed. 2022 marked import numbers of 3.3 million m³ of roundwood and 1.6 million m³ of chips—a 50-60% decrease compared to 2021.

The decline in imports comes at a pivotal time in Finland. The country has committed to reaching carbon neutrality by 2035. This will mean a full shift from coal and peat combustion to renewable energy sources.

Besides nuclear, solar and wind, this will also include wood-based fuels like forest chips. With Russian imports gone, that leaves a gap of about 10 million m³ of industrial wood. This has, in turn, vaulted Finnish demand for domestic wood.

Continued Investment in Forestry will Drive Industry, Increase Roundwood Shortage

As Finland and other European countries post declines, we are still seeing continued investments across the forestry industry. For instance, Metsägroup’s greenfield sawmill investment aims to hit full capacity at the end of 2023 after a slew of delays.

Other players investing right now include the following:

• Kuhmo Oy – brownfield
• Versowood Oy – brownfield
• Pölkky – Austrian Pfeiffer Group acquired this company in 2023
• Junnikkala Oy – greenfield
• Koskisen Oy – both greenfield and brownfield

These private sawmill investments will up their production with an aim of full capacity by 2024. Consumption will likely hit 10 million m³, a major increase within the next 12-18 months. 

Finnish Market Summary

1. Industrial wood harvesting will stay on par with 2022 numbers thanks to the shifts to replace Russian wood for pulp and energy consumption.
2. Total output on sawn softwood will likely decrease somewhere in the 2-3% range. Prices will dip to a much greater loss of -25% despite increased capacity for production.
3. Softwood plywood demand has felt the strain of negative construction outlook. However, Finnish birch plywood has experienced strong demand (again, thanks to Russia’s market absence).
4. Pulp and paper and related products such as packaging board are sliding downward. Similar to other forest products, low demand and a large backstock are contributing to the decline.
5. As roundwood prices jump somewhat dramatically, we forecast logs and pulpwood will follow suit. Russia, as expected, as well as domestic cutting of wood will contribute to this increase.
6. We also expect Finland to amp up pulpwood imports coming into 2024, mostly from other Nordic countries like Sweden. However, Sweden aims to reduce harvests and shake up their wood markets. The change comes partly from more scrutiny about potentially unsustainable forestry practices.

Key Insights on Global Forest Products from ResourceWise

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