Recent Developments in Finland's Forest Products Sector

In today's fast-paced global economy, staying updated on the developments within Finland's forest products industry is crucial. With its abundant natural resources, this sector plays a pivotal role in both domestic and international markets.  

Below is an overview of the latest trends and developments shaping the landscape of Finland's forest products industry. 

Finnish Sawmills' Production Lagged Behind in January-April Compared to Output in 2023

In the first four months of the year, Finnish sawmill production fell by nearly 10% compared to the same period last year. Sawn softwood inventories were notably lower than in 2023. Despite this, April saw an increase in production levels. Log prices continue to climb, even as trading volumes are behind last year. The market for residues such as bark, dust, and pulp chips remains robust, although we may have reached the peak of energy wood processing.

Finnish Labor Market: A Turn for the Better Can Be Expected Towards the End of 2024.

The sluggish economic growth is evident in the decreasing demand for workforce. Since the end of the pandemic, the number of available job openings has plummeted by over half. There is an anticipated decline in the employment rate this year, however, the strong influx of immigrants will work against this decline. With the positive economic trajectory and continuous immigration flow, we can expect a surge of 16,000 in the workforce in 2025, followed by an additional 29,000 in 2026.

The unemployment rate is set to rise by 0.5 percentage points this year, with projections indicating a gradual decrease from 7.7% to 7.1% by 2026. Long-term unemployment is expected to peak by the end of 2024 before slowly declining thereafter.

The economic downturn has hit the construction industry hardest, with employment levels at a 25-year low since the start of 2023. However, a positive turnaround is anticipated towards the end of 2025, with continued growth expected in 2026. However, this downward trend will have a direct negative impact on the demand for domestic wood products.

Source: Ministry of Economic Affairs and Employment - Ministry of Economic Affairs and Employment (tem.fi) 

Stumpage Earnings Reached EUR 3.1 Billion in 2023, Wood Shortage Noticeable 

According to the Natural Resource Institute Finland (Luke), forest owners in Finland saw their stumpage earnings reach an impressive EUR 3.1 billion in 2023, making it a historic high in terms of euros. Despite not surpassing the peak years of the 2000s when adjusted for inflation, these earnings still experienced an increase of 2% from the previous year. Compared to the five-year average when accounting for inflation using the cost-of-living index, they were 8% higher. Notably, these earnings grew even amidst declining volumes, showcasing the industry's resilience.

The bulk of these earnings, totaling EUR 2,610 million, originated from non-industrial private forests. In real value terms, earnings from these forests experienced a 1% growth compared to the previous year. Meanwhile, earnings from forests owned by the forest industry or the state saw a significant 11%, amounting to EUR 486 million.

Logs accounted for 65% of the total stumpage earnings, with pulpwood following closely at 28%, and energy wood making up the remaining 7%. Spruce continued to reign as the dominant tree species, representing 42% of the overall earnings. The halt in wood imports from Russia has heightened competition for domestic wood resources.

Wood shortages are evident in the Baltic Sea region and Europe, with rising wood prices in Sweden. Stora Enso predicts increasing wood demand in Finland, Sweden, and the Baltic nations. Springtime purchases focus on preparing for summer harvesting and building reserve stocks for autumn. The timber market is active, with buyers intensifying efforts despite lingering chopped wood in storage.

Stem Pricing of Roundwood Is Becoming More Popular

Metsä Group introduced a "stem pricing" system for regeneration fellings and thinning operations starting on April 25, 2024. This pricing model marks a departure from the conventional fixed wood assortment pricing typically used in the timber trade for regeneration activities.

"Stem pricing" means that trees are purchased as whole stems, and the price paid to the forest owner is based on the average bulkiness or average volume of the felled trees. The way the trees are cut for different processing purposes (assortments) does not affect the price paid to the forest owner.

Since the end of 2021, Metsä Group has implemented stem pricing for purchasing thinnings nationwide. The results have been promising, with almost one-third of thinnings in 2023 being acquired through this approach.

Major players in the forest industry can enhance their competitive edge in wood procurement by adopting stem pricing, which allows for the utilization of all timber assortments from a specific area to achieve optimal volumes and wood quality. This approach not only minimizes disagreements over assortment pricing but also maximizes the overall value for forest owners. Conversely, private sawmills prioritize maximizing log volume over pulpwood utilization due to their limited demand for the latter.

According to a study, transitioning to stem pricing or fractional stem pricing typically leads to an average increase of 1-3% in stand values compared to assortment pricing. While stem pricing may show more variability than fractional stem pricing, it can be perceived as a slightly riskier yet potentially rewarding approach.