Forest product markets and prospects
Forest products markets in 1996 and 1997
Roundwood (pulpwood and fuelwood)
High resolution satellite imagery confirms FAO forest resource assessment data
The joint session of the UN/ECE Timber Committee and the FAO European Forestry Commission, meeting in Geneva in September 1996, issued the following statement on market developments in 1996 and prospects for 1997.
Overview. In autumn 1996, European markets for roundwood and forest products are marked, with few exceptions, by lower demand, fierce competition between products and suppliers and with non-forest products and continuing low prices. In North America, however, the strength of the housing market has contributed to raising consumption levels in satisfactory market conditions. The forest products sector of the countries in transition of Eastern Europe is now recovering from the deep recession of the early 1990s, but differences between national situations are becoming ever more marked. Production in the Russian Federation continues to fall, but more slowly than in previous years.
For 1997, a weak recovery in demand for forest products is expected for Europe and a continuation of the present market conditions for North America and the countries in transition.
For Western Europe, economic growth in 1996 has been sluggish and, in the light of results for the first half of the year, it may prove to be difficult to achieve even the 1.5 percent rate foreseen for the year by many forecasters. There has been some improvement in Germany and the United Kingdom, with the former recovering after a severe winter; however, GDP has fallen for at least one quarter in France and Italy. The slight loosening of monetary policy does not offset the restrictive fiscal measures adopted in many countries. Unemployment remains a major social and economic problem. Total construction activity is expected (by EUROCONSTRUCT) to fall by 0.3 percent in 1996 (-3.1 percent for new residential investment, and +1.7 percent for repairs and maintenance), with a slight recovery in the total in 1997 but a further drop of 21 percent in new residential construction.
In the United States, on the other hand, the economy is fairly strong, thanks in part to export growth and strong private consumption. Preliminary estimates for the third quarter indicate that the expansion is still under way, and growth of 2.4 to 3 percent for the year as a whole seems possible. New housing construction remained at a relatively high rate through much of 1996: if mortgage rates are not raised, housing starts may total 1.45 million in 1996, and 1.4 million if rates are raised.
In general, most East European transition economies showed satisfactory results in 1996, with rising domestic demand and falling inflation and budget deficits coming under control. There is, however, a growing gap in growth rates between the "advanced reformers" and other countries.
In the Russian Federation, on the other hand, output has continued to fall, although at a slower rate than before and the considerable uncertainty about the outlook is hampering necessary investment. Inflation, however, has fallen to a record low. There are some signs of improvement in other CIS countries.
Many European forest products markets and the global pulp market were affected by destocking and, in some cases, excess capacity which led, in conditions of weak demand, to a downward pressure on prices. This in turn influenced roundwood prices so that, in some parts of Europe, forest owners were not able to cover their costs for certain silvicultural operations, notably first thinnings.
In North America, on the other hand, demand was strong, under the influence of the high level of housing starts, and prices rose.
The trend in many market sectors was for strong competition, on the grounds of price, performance and public perceptions. There was continuing substitution among forest products, and of forest products by non-forest products. Examples include competition between sawnwood and medium-density fibreboard (MDF), between plywood and oriented strand board (OSB), between temperate and tropical hardwoods and between sawnwood and polyvinylchloride (PVC) or aluminium.
There continued to be strong and complex interaction between the pulp and sawmill sectors, notably through the markets for chips and residues. Many sawmills, notably in Nordic countries and North America, which had expanded production in early 1995, partly on the basis of higher income from sales of residues, saw their financial position worsen significantly as prices for residues fell.
Europe's sawn softwood consumption started to fall in the second half of 1995 and continued to fall into 1996, owing chiefly to decreased construction. Since its recent peak in 1994, sawn softwood consumption in 1996 is forecast to continue declining to reach 69.6 million m³ and to stay near that level in 1997. Part of the decline may be due to substitution by both non-wood building materials and composite wood products. Similarly, production is forecast to fall by 4.6 percent in 1996 from its record 1995 level of 74.7 million m³. Production has been greater than consumption since European imports fell below export levels for the first time in 1995.
In 1996 European sawnwood exports are forecast to fall by 2.9 percent to 30 million m³ from their record 1995 level of 30.9 million m³. Sweden, however, predicts record exports in 1996, partly owing to non-European markets such as Japan. Other European countries have also successfully entered the Japanese market. European exports are forecast to increase to 30.1 million m³ for 1997. Imports are forecast to drop by 0.7 percent in 1996, the second year after 1994's record level of 32.4 million m³.
European softwood prices have lost 25 percent over the past year, although prices appeared to have stabilized somewhat in mid-1996. Stock changes have played a major role: stock building by both producers and consumers accelerated price increases in the first half of 1995, while destocking accelerated price declines later and into 1996.
The North American housing strength in 1996 led to an increase in sawn softwood consumption. Consumption is forecast to increase slightly in 1996 to 126 million m³, still below 1994's peak. The new Softwood Lumber Agreement between the Government of the United States of America and the Government of Canada limits duty-free Canadian sawnwood exports to the United States (unless a specified price level is reached) at 34.7 million m³. The consequences of this measure for markets and prices are not yet clear, although Canada's sawnwood exports, 73 percent of which went to the United States in 1995, are forecast to decrease by 3.2 percent in 1997. Despite the potential downturn in exports to the United States, Canadian exports to Europe were not forecast to increase significantly.
Apparent consumption of sawn softwood is forecast to drop heavily in the Russian Federation in 1996, falling by 10.8 percent to 14.3 million m³, with the hope of rebounding by the same percentage in 1997. Production, which has fallen significantly since 1992, is likewise forecast to bottom out in 1996 to be lower than in 1995, but then to increase by 9 percent in 1997. Exports are also forecast to continue falling in 1996, reaching a level of 4.5 million m³. Exports in 1996 are being negatively affected by low European prices, rising production costs and escalating transportation costs.
The drop in Russian exports to Europe has been partly made up by the Baltic countries, all three of which forecast production increases in 1996, attributable to a combination of rising product quality and low costs for raw materials, transportation and labour. Their total sawnwood exports are forecast to reach 1.9 million m³ in 1996. A levelling off of production and exports is forecast for 1997.
Softwood logs follow the same trends as sawnwood in Europe and the Russian Federation with decreases forecast for 1996 in consumption, production and trade. However, Lithuania forecast heavier harvests in 1996 owing to sanitation cutting to control bark beetles. United States production of logs is forecast to increase in 1996 after a long period of decline resulting from reduced harvests in the Pacific Northwest for environmental reasons. The North American log trade is dominated by United States exports which are forecast to continue to decline by 10, percent to reach 10.7 million m³ in 1996: a lesser decline is forecast for 1997 as domestic consumption moves slightly upwards.
Europe's sawn hardwood consumption is forecast to continue to decline to 17.2 million m³ (2.5 percent) in 1996 and to stay steady in 1997. Hardwood consumption is under pressure from substitution of composite wood and non-wood products, changes in fashion and declines in construction. Promotion of alternative (lesser-known or lesser-used) species, lower grades, character-marked and value added products could promote hardwood use in Europe. Production is similarly forecast to decline by 2.2 percent to 13.4 million m³ and to stay at that level in 1997.
In 1996, European sawnwood imports, which are very price-sensitive, are forecast to fall by 2.5 percent from 1995 to 6.7 million m³, as tropical sawnwood imports to Europe continue their steady decline by 1.4 percent to 2.4 million m³, and temperate imports fall by 3.1 percent to 4.3 million m³. In 1996, exports are forecast to drop by 1 percent to 2.9 million m³. Imports, both temperate and tropical, are forecast to move up slightly in 1997 and exports are forecast to move up more, by 4.9 percent.
While tropical timbers decline in European markets, they still dominate Asian markets, increasingly as value added products such as plywood. The desirability of monitoring trade in further processed products such as furniture in order to have a comprehensive view of the situation was mentioned.
In North America, sawn hardwood consumption and production are forecast to rise by 3 and 2.8 percent, respectively, in 1996 and to stay steady in 1997. United States exports are forecast to fall by 3.8 percent to a level of 2.4 million m³ in 1996 and 1997.
European hardwood fog consumption, production and exports show no significant changes in 1996 or 1997. However, imports of tropical logs continued to drop, by 5.8 and 2.6 percent in 1996 and 1997, respectively. Tropical timber producing countries are increasing value added exports, but in the ECE region only Portugal cited significant substitution of tropical sawnwood for tropical logs. Temperate and boreal logs are partially substituting for tropical logs in Europe.
In the United States consumption and production of hardwood logs are forecast to continue to climb steadily, reaching 69.6 and 70.5 million m³, respectively, in 1996 and rising by less than 1 percent in 1997. Exports should drop to 1.1 million m³ for 1996 and 1997, or by 9.3 percent from 1995, according to forecasts.
In Europe apparent consumption of wood-based panels (particle board, plywood and fibreboard) is expected to drop in 1996 by 1.5 percent to 40.9 million m³ following the record high of 1995, which nevertheless only partially reflected real consumption as stocks built up to high levels. The markets in 1996 are very competitive with prices under pressure. A slight recovery is expected in 1997 of 1.3 percent to nearly 41.5 million m³.
In North America the wood-based panels sector has been steadily increasing since 1992 as a consequence of continued demand from the construction sector. Further expansions in consumption of 2.5 and 0.7 percent are forecast for 1996 and 1997, respectively, to reach a level of 48.2 million m³.
Consumption of particle board, the leading panel in Europe, is also expected to drop by 1.2 percent in 1996 and slightly recover in 1997. Stocks increased during the second half of 1995 by one-third on average, owing to depressed activity in the construction and furniture sectors and failure to adapt production to real demand.
Consumption of plywood in Europe is also forecast to drop in 1996 by 5.4 percent to 5.6 million m³, the 1.7 percent recovery expected for 1997 will maintain consumption below the 1995 level of 5.9 million m³.
MDF has continued to be the dynamic element in the expansion of the fibreboard industry. European production in 1995 was 3.8 million m³, nearly a 10 percent increase from 1994, and 49 percent of fibreboard production. In 1995 and early 1996, prices were under pressure, as a sign of temporary overcapacity resulting from the rapid growth of the industry at a moment of slowdown of activity. Japan and other countries in the Far East have eased this situation by continuing to absorb significant volumes. The Committee's forecast for total fibreboard apparent consumption is an increase of 1.6 and 3.6 percent in the two years to 1997.
United States production of plywood, which was in 1995 12.5 percent below the peak of 1987, is expected to continue to drop, by 2 percent in 1996 and a further 4.8 percent in 1997, thus continuing to lose market share to OSB. OSB now represents 31 percent of total United States production of structural panels and 38 percent of consumption. Canadian production of OSB continues to increase significantly and is forecast to reach 4.5 million m³ in 1996, or +33 percent, as four new plants come onstream. Eighty-eight percent of this volume is exported, mainly to the United States.
Particle board (excluding OSB) consumption in North America is forecast to increase by 2.9 percent in 1996 to 10.6 million m³. Canadian exports to the United States will drop by 10.9 percent as a consequence of increased demand of its domestic furniture industry.
Following the important increases in production and consumption of fibreboard as a whole in North America between 1994 and 1995, further expansions of 3.3 and 1.3 percent are forecast for 1996 and 1997, respectively, as a consequence of new MDF capacity coming onstream.
The downturn in the world pulp markets, which started in late 1995, continues to affect market conditions for pulpwood. Weak final demand, combined with excess capacity and high stocks, forced prices of market pulp down sharply, despite production cutbacks in many countries, it is uncertain, in autumn 1996, whether stronger demand and lower stock levels are now causing market pulp prices to recover, or at least to fall no further. Waste paper prices are also very low.
As a consequence of reduced pulp production, European pulpwood demand in 1996 is weak: apparent consumption of pulpwood (including round and split and residues and chips) in Europe is expected to be 171 million m³, 15 million m³ (8.1 percent) lower than in 1995, despite relatively satisfactory demand from the particle board and MDF industries. In both the largest pulpwood consumers, Finland and Sweden, consumption in 1996 is expected to fall by nearly 15 percent, for a total drop of 11.6 million m³ in these two countries alone (which between them account for nearly half of Europe's pulpwood consumption). European pulpwood production, however, is expected to drop rather less steeply than consumption, by nearly 8 million m³ (4.8 percent). In line with the expected reduction in consumption, imports are forecast to drop sharply, by nearly 20 percent (7 million m³). Finland's pulpwood imports are expected to drop by 2 million m³ to 7.3 million m³ and Sweden's by 2.5 million m³ to 5 million m³. The decreases in imports are expected to be less marked for residues and chips than for roundwood. European pulpwood exporters, however, expect substantially unchanged exports, at just over 15 million m³.
The situation is expected to change for the better in 1997, with apparent consumption of pulpwood rising by over 6 million m³ (3.6 percent), and production by 5 million m³ (3.2 percent), although it would still be below the level of 1995.
In the United States, however, both consumption and production of pulpwood are forecast to rise slightly (by around 0.5 percent) in both 1996 and 1997. Exports of pulpwood are also forecast to rise steadily in both years.
Overall, European removals are expected to fall quite sharply in 1996, by a total of 13 million m³ to 348 million m³. Removals of both logs and pulpwood are forecast to fall by over 5 percent. The largest falls in total removals are in Finland (5.6 million m³ or 11.4 percent) and Sweden (4.5 million m³ or 7.5 percent). However, European removals are expected to recover in 1997 by 5 million m³, with pulpwood removals growing rather faster than removals of logs.
Reliable information on the changing state of the world's forests is essential for a clear assessment of environmental and developmental consequences. Moreover, to favour effective responses, such information should describe the process of change and shed light on underlying cause-effect mechanisms.
The Forest Resources Assessment 1990 Project, assessing tropical forest area at year 1990 and its changes over the period 1980-1990, is being implemented by FAO as one part of the fulfillment of its mandate to produce information on the world's forest resources on a regular basis. Phase 1 of the Project was based on the collection and analysis of existing reliable information from all FAO member countries; the statistics produced, presented in FAO Forestry Paper Nos 112 and 124, constitute the current baseline data on the world's forest resources and deforestation rates.
Phase II of the Project, drawing on multidate high resolution satellite images acquired around 1980 and 1990, was a statistical survey based on detailed studies at sample locations statistically chosen throughout the tropical belt. Significantly, the study results, presented in the FAO publication Forest resources assessment 1990: Survey of tropical forest cover and study of change processes (FAO Forestry Paper No. 130), confirm the estimates of tropical forest area and rate of deforestation produced during Phase 1 of the Forest Resources Assessment 1990 Project.
Even more important, the consistent use of a common and detailed and cover classification and the innovative multidate data interpretation procedure, developed specifically for the study, have permitted the production of all results in the form of transition matrices. This has produced new revealing knowledge on land-use change processes at pan-tropical, regional and ecological levels, an essential complement to data on forest area and deforestation rates.
The detailed analysis of changes evidences both a quantitative difference among the three tropical regions vis-à-vis rates of change and also a strong regional character in the processes of change, indicating distinctive cause-effect mechanisms. In Africa, the main change processes are the effect of rural population pressure for subsistence farming. In Latin America, they are the effect of centrally planned operations such as government resettlement schemes, large-scale cattle ranching and hydroelectric development. In Asia, the change processes are the result of two driving forces: rural population pressure, characterized by the intensification and expansion of shifting cultivation practices, and centrally planned operations such as resettlement schemes and large plantation programmes. The study, by its nature, does not reveal in which ways and to what extent - direct or indirect - logging is a factor of deforestation, e.g. logging infrastructure opening formerly inaccessible areas to spontaneous colonization, or overexploitation leaving wastelands behind.
The analysis of land cover changes by ecological zone shows clearly that in all regions moist zone forests have changed (they have been deforested, fragmented, degraded, etc.) with a much higher intensity than the forests in the wet and dry zones. The change of pan-tropical forest area in the period 1980-1990 is estimated at 10.1 percent in the moist zone versus 4.8 percent in the wet zone and 4.6 percent in the dry zone.
Thus, it would appear that socio-economic and cultural factors, which are more homogeneous within geographic regions, determine the nature of forest change processes while ecological characteristics determine the rate of change.
This remote sensing survey has been the result of a major global cooperative effort where institutions and individuals, from both developing and developed countries, contributed to all its phases of implementation, from statistical and analytical design to the interpretation of satellite data and the dissemination of the monitoring methodology to the forestry institutions of tropical countries.