Sawn softwood leads forest products expansion
Prices up for wood products but outlook for 1980 unclear
A major feature of the European market for forest products since mid-1978 has been the marked increases in prices for a number of products, according to the Timber Committee of the United Nations Economic Commission for Europe. These products included sawn softwood, plywood, many hardwoods-notably oak and imports from Southeast Asia- and wood pulp. This was accompanied by more active forward buying by :importers whose end 1978 stocks had reached low levels. In several exporting countries, the stocks of products and raw materials in sawmills and pulpmills were much reduced during 1979. The raw material decline was partly a result of supply difficulties caused by the severe weather in the winter and spring of 1978-79.
Twenty-six of the ECE member countries were represented at the Committee's session held in Geneva from 15-19 October 1979, and Japan participated under Article 11 of the terms of reference of the Commission. Six intergovernmental and international non-governmental organizations were represented at the session. The Committee re-elected Mr. V. Nemtsov (USSR') Chairman and Mr. A. Froncillo (Italy) and Mr. D. Hair (USA) Vice-Chairmen.
Concern by importers and consumers to cover their forward requirements when stocks were low on a rising market seems to have been a more important factor in market firmness than any marked upturn in real consumption in Europe. Some modest growth in the latter in 1979 is, nevertheless, expected for most of the products dealt with by the Committee, as shown fin the estimates presented by countries. This growth is related to overall economic expansion in Europe which, apart from a temporary fall-back caused by the winter conditions, has been continuing at a rate not very different from 1978. A few countries, including those benefiting from the upturn in exports of forest products. expect a higher growth in gross domestic product in 1979 than in 1978.
New construction activity in many European countries has not returned to the levels of the early 1970s. however, this appears to have been offset by the growing importance of renovation and maintenance work, including more "do-it-yourself" work and a higher percentage of low-rise and one-family houses. Dwelling starts in the United States, after remaining art a high level up to the spring of 1979, have more recently tended to decline. The United States economy also has grown at an appreciably slower rate in 1979 than in the two previous years, and there are expectations of a small decline in the winter and spring of 1979-80 followed by an upturn later in 1980.
The Committee stressed the need in regard to individual products to take into account the prevailing uncertainties. Against this cautious attitude toward short-term prospects, however, the Committee considered that there are a number of positive implications arising from the energy situation for the mechanical forest products sector in the long term. This is because of the energy conservation possibilities in their production and use.
Forest products markets registered moderate growth during 1978 and early 1979 in Europe and North America, reflecting the general economic trends in these regions.
The latest Annual forest products market review (Supplement 1 to Volume XXXII of the Timber Bulletin for Europe, July 1979) prepared by the Geneva-based United Nations Economic Commission for Europe (ECE) says that forest products markets showed a "firmer tone," but that exchange rate changes considerably influenced the competitive position of producers in different exporting countries and the flow of trade in forest products.
The level of activity in the building and furniture industries, and to a lesser extent in packaging, is of major importance for the consumption of forest products. The underlying strength of these sectors varied considerably. It was firm in the United States, but was more restrained in Western Europe. The construction sector was depressed in the majority of Western European countries.
The instability in foreign exchange markets had a twofold effect on the forest products sector. First, it tended to follow a policy of cautious purchasing and stockholding. As producers also tended to reduce their stockholding during 1978, international markets were increasingly firm in the second half of the year, when purchasing activity resumed strongly. Second, it affected both the competitive position of producers in different exporting countries and the flow of trade in forest products. An example was the strength of Canadian forest products exports to world markets.
The sawn softwood market in Europe (excluding the USSR) and North America was characterized in 1978 by a marked expansion of trade, but little change in production. For North America this meant that trade reached record levels with exports increasing by 7 percent and imports by 12 percent. Trade in sawn softwood in Europe showed a different pattern: exports rose 10 percent, and imports 5.5 percent. European production, by contrast, showed a moderate increase in 1977 but dropped marginally in 1978 according to preliminary data. In North America, production increased only slightly in 1978 after an 8.5 percent rise in 1977.
The data reflect the policy of major exporting countries in Europe to reduce the previously excessive stock levels. As stocks in importing countries, at least at the trade level, were also rather low in the autumn of 1978, the result was a marked change over the year from an overstocked to an understocked situation. This brought an upward trend of prices which set in the second half of the year.
Apparent consumption in Europe is estimated to have increased by 1.10 million m³, or 1.5 percent, in 1978, as compared to 1.22 million m³ or 1.7 percent in 1977. Europe's net imports were, however, 0.57 million m³ lower in 1978 than in 1977, and production was also, by 140 000 m³, lower. The increase in apparent consumption reflects therefore mainly the strongly diminishing level of stocks in the hands of exporters and importers.
In North America, apparent consumption is estimated to have increased by 2.10 million m³ or 1.9 percent in 1978, markedly less than in 1977 (+9.34 million m³, or +9.5 percent).
The hardwood sector was generally characterized in 1978 by active demand, which could be met for a number of assortments from available supplies only at rising prices. Well-maintained levels of activity in the furniture industry as well as other hardwood-using sectors stimulated the market for temperate-zone hardwood in Europe, especially in the first half of 1978. Later in the year, however, the pace in the furniture sector tended to slacken.
The opposite development could be noticed with regard to tropical hardwood, where demand was generally restrained in the first half of 1978 but increased later, particularly in the last months of the year. Demand for imports could not be met immediately by available supplies in the majority of tropical exporting countries, and this resulted in appreciable price adjustments for species from West Africa and Southeast Asia.
In North America, the market for hardwoods was firm throughout the year, particularly in the United States. One element of strength was brought to the market for several assortments of hardwoods by the strong export demand. This was further stimulated by the depreciation of the US currency against the currencies of several European importer-countries.
Despite the improvement in demand, the international pulp market was characterized by intense competition as some major producers, notably in the Nordic countries, attempted to recover lost market shares and to improve profitability. The situation was further complicated by currency fluctuations, which gave North American exporters a competitive advantage. Real returns in currencies other than the dollar tended to drop, even though the dollar price of pulp and paper rose.