UN/ECE Timber Committee market statement
The 55th session of the United Nations Economic Commission for Europe Timber Committee was held at the United Nations headquarters in Geneva from 6 to 9 October 1997. Following is the official text of the market statement for 1997 and 1998.
Overview
In 1997, European forest products markets are recovering from the severe market conditions which prevailed in the first half of 1996. As forecast by the Committee in 1996, demand has strengthened, and production and consumption of nearly all products are expected to rise in 1997, compared with 1996. Nevertheless, markets are still highly competitive, and prices for some products are still under pressure, partly owing to the globalization of markets. Overcapacity remains a problem for some sectors, notably for wood-based panels.
In North America, market conditions remained satisfactory, as consumption of forest products continued to rise, notably under the influence of a high level of housing starts.
Forest products markets in some transition countries began to feel the benefits of the successes of the transition reforms, leading to stronger domestic demand. For a few transition countries, forest products exports, notably of roundwood and of sawnwood, have made a major contribution to the national trade balance and have expanded significantly. Elsewhere, however, domestic demand is still very weak and the forest sector faces many grave problems.
The rate of economic growth varies widely between market economies. In the United States, the long-lasting economic expansion continued, at an annual rate of 3.6 percent in the second quarter of 1997, and continued growth is forecast for the rest of 1997 and for 1998, although at slightly lower rates. For the United Kingdom, second quarter GDP in 1997 is expected to be 3.4 percent higher than a year before. Output growth in 1998 is expected to be about 2.5 percent. The rise in the dollar exchange rate has given an export-led stimulus to the three major continental European economies (France, Germany and Italy), but domestic demand in these countries is rather weak and unemployment remains high. The German economy is expected to grow by 2.5 percent in 1997 and at about 2.5 percent to 3 percent in 1998, with rates of 2.3 percent and 2.8 percent for France. Italy forecasts growth below 1 percent for both years. In all economies, measures are being taken to reduce budgetary imbalances, stimulated, for EU countries, by the Maastricht criteria. Everywhere, prices are rather stable. Unemployment, however, remains a major problem in many countries.
Housing construction has been stable, but at a high level in the United States (a rate of 1.45 million units in 1997), with particularly strong growth for prefabricated houses, which are major users of forest products. In Europe, however, residential construction is expected (by EUROCONSTRUCT) to fall by 1.1 percent in 1997, and not to grow in 1998. Repairs and maintenance are expected to grow by 2 percent in both years. There are however significant differences between national situations.
For the transition countries, the outlook for 1997 is quite uncertain, but also widely differentiated between countries. In the group of transition countries of northern and central Europe, growth well below 5 percent is expected in 1997, but in more southern and eastern countries the transition process is much less advanced, leading to stagnation or continued declines in output. The outlook for the Russian Federation is rather uncertain although, after a long period of economic contraction, the return of positive growth rates is expected.
While reviewing the forest sector as a whole, the Committee noted some structural developments. In particular, forest products are increasingly being reused, repaired or recycled into raw material or as a source of energy, thereby minimizing waste, energy consumption and use of landfill facilities, while providing an economic return to those involved. Used pallets and packaging and many types of demolition wood can be treated in this way. Taken together with the better known practices regarding waste paper recycling and the use of sawmill residues as raw material, these developments mean that the forest sector is coming closer to a "closed cycle" situation, which would represent a major contribution to sustainable development.
In its special topic, the Committee examined "markets for certified forest products", i.e. wood and wood products which can be identified as coming from forests which have been proven to be managed sustainably. While questions of forest management have received much attention, the effect of certification on the forest products markets has so far received relatively little emphasis. Based on expert presentations, national market statements and discussions, it was determined that, at present, the volumes of certified forest products available to consumers are extremely limited. In most cases, they do not command a price premium. However, certain niche markets are being developed by the pioneers in this field and certification of sustainable forest management may be a valuable marketing and public relations tool, for the producer or the retailer.
Empirical information on the motivations of consumers and retailers is only now becoming available, making it possible to carry out a more objective analysis of the situation. The Committee decided to continue monitoring markets for certified forest products at future sessions.
Softwoods
With improved construction demand, Europe's sawn softwood consumption ended its two-year decline in 1996. It is forecast to rise by 4 percent in 1997 and remain at the same level, 75.9 million m3, in 1998. In 1997, large advances in domestic apparent consumption are forecast in Sweden and Finland, both by 24 percent. Part of the explanation of this large rise is in stock changes: for instance, in Sweden, stocks are being built up to normal levels after a sharp decline in 1996. Germany forecast a 1 million m3 increase in consumption to a record 16.8 million m3. Correspondingly, European production is forecast to make the same increase to reach record levels of 78 million m3 in 1997 and 1998.
Europe remains a net exporter of sawn softwood, notably owing to strengthening export markets in Asia. Both exports and imports are forecast to rise by 3 percent in 1997, to 30.7 and 28.5 million m3, respectively, and then by 1 percent more in 1998. Most of the 2 million m3 net exports is forecast to be exported to Japan in 1997.
The slump in sawnwood prices in Europe ended in mid-199S and prices are rising in mid-1997 as stocks have been brought down.
North American housing construction in 1997 is at a high level and it is forecast to drive sawn softwood consumption to a new record of 139.3 million m3. With another increase of Canada's housing starts expected in 1998, North American consumption of sawn softwood could rise by 2 percent more. Production is also forecast to rise by 5 percent in 1997 to 149.3 million m3. In 1998, production would be near the 1987 high of 150 million m3.
With housing starts forecast to fail slightly in the United States in 1997, to 1.45 million units, imports of sawn softwood appear to have peaked in 1996 at 43.8 million m3. Imports are forecast to decrease in 1997 by 2 percent. Canadian exports to all markets are predicted to fail by 3 percent in 1997, to 48.1 million m3, and then again more sharply, by 6 percent, in 1998.
Partly making up for the drop in Canadian exports to Europe, as well as the drop from the Russian Federation' the Baltic countries, since their independence in 1991, have more than doubled production to 3.4 million m3 and multiplied their exports to nearly 3 million m3 in 1996. Resource limitations could hinder further expansion, despite the countries' competitive advantages of relatively low labour and log costs, favourable foreign investment policies and a strategic geographic location of ports between the resource and the markets. These countries have begun importing logs and sawnwood from CIS countries for remanufacture and export.
In light of the continued deterioration of the economic situation in the Russian Federation's forest and forest industries sector, consumption of sawnwood is forecast to fall by 14 percent in 1997 to 12.6 million m3, but to recover the 1996 level in 1998. Production is currently constrained by a lack of domestic demand coupled with higher log prices. Production is forecast to decline by 11 percent in 1997 but rise by 12 percent in 1998. Exports in 1997 are forecast to remain at 1996 levels, 4.4 million m3, but then to rise in 1998 by 9 percent in line with increased production.
Softwood fog consumption in Europe is forecast to continue to expand, by 4 percent to 144.6 million m3 in 1997 and by 1 percent more in 1998. Imports of logs from former USSR countries and within Europe continue to expand faster than exports. Imports of 12.1 million m3 in 1998 are forecast to be about double exports.
In North America, the export of softwood logs continues to decline and is forecast to reach 10.1 million m3 in 1998, less than half of the exports ten years ago. Russian softwood log exports are forecast to rise by 9 percent in 1997 and again similarly in 1998 to reach 7 million m3. Some of these logs are exported to the Baltic countries as mentioned above, and Turkey and Hungary, as well as to Japan and the Republic of Korea.
Hardwoods
Europe's sawn hardwood consumption appears to have ended its long-term decline and, in line with rising construction-related demand, is forecast to increase by 3 percent in 1997 and a further 2 percent in 1998 to reach 17.3 million m3. Production is forecast to follow the same trend and reach 13.6 million m3 in 1998. Sawnwood is competing with other forest products, both engineered wood products, including composite boards, and traditional wood products such as millwork, and with non-wood materials such as PVC plastic and metal. For example, in France the market share of wooden windows has fallen from 45 percent in 1988 to 32 percent in 1996.
Less than half of Europe's imports, 1.9 million m3, are forecast to be from tropical sources in 1997. Despite a continued decline in the volume of tropical timber imports into Europe, their gross value has increased as producers increase their value-added processing.
In North America, consumption of sawn hardwood is forecast to continue to climb slowly, by 2 to 3 percent in 1997 and 1998, to reach 29.1 million m3. Although still at a relatively low level compared with domestic consumption, exports are forecast to accelerate in 1997 by 15 percent and again in 1998 by 8 percent to reach 4.4 million m3. Prices of sawnwood are increasing, especially for light coloured species. United States sawmills are investing in automation, expanding kiln drying and integrating, sometimes with foreign investment, into dimension production.
In the United States, the greatest volume of hardwood sawnwood, 10.6 million m3 in 1996 of mostly the lowest qualities, was used for pallets and crating, which is one of the lowest-value uses. While pallet production is increasing, the use of recycled wood rose to 30 percent of the volume of finished pallets in 1995, double that of 1993, mainly owing to the recovery of wood in urban areas and its 50 percent lower cost. A growing share of pallets (11 percent in 1996) was repaired and recycled but 10 percent was still buried in landfills.
Hardwood log consumption and production in Europe are forecast to improve by 1 to 2 percent per year and to reach 31.9 million and 29.3 million m3, respectively, in 1998. Trade of logs is at a low level and fairly steady. Exports of logs, forecast to reach 3.3 million m3 in 1998, are half the volume of imports which continue to be increasingly from temperate sources.
In the United States, the consumption and production of hardwood logs are forecast to move up in parallel, by 4 percent in 1997 and by 2 percent in 1998. Exports are forecast to increase by 29 percent in 1997 and again by 18 percent in 1998, to 1.7 million m3, half the level of European exports. Demand by foreign buyers in both Europe and North America has driven up log prices, sometimes to the disadvantage of local sawmills.
Wood-based panels
In Europe, consumption of wood-based panels (particle board, plywood and fibreboard) is forecast to drop slightly in 1997 by 0.7 percent to 41.5 million m3, as the recovery in end use sectors has been timid at best. An increase of 1 percent is expected in 1998 to reach 41.9 million m3. In general, markets remained depressed with prices under pressure and signs of overcapacity for particle board and MDF.
In North America, on the contrary, further expansions in consumption are expected in 1997 and 1998 of 2.9 percent and 1 percent, respectively, to reach 52.0 million m3 as a result of the continued strong demand in the United States and the recovery of the Canadian economy in 1996 and first half of 1997.
Slight increases in consumption of particle board, the leading panel in Europe, are expected in 1997 and 1998 to 29 million m3. In Germany, the main producer, production is expected to remain around 1996 levels, reflecting the weak demand in end use sectors. France, Poland and the United Kingdom expect major production increases. But markets for particle board remain very competitive and several less efficient mills have closed (three in Germany, one in Belgium and one in Portugal). Oriented strand board (OSB) is developing fast in Europe as the newly installed mills reach operational capacity and production is expected to increase by 60 percent in 1997 to 660000 m3.
Consumption of plywood in Europe is forecast to drop by 5.8 percent in 1997 to 6.7 million m3 although a slight recovery is expected in 1998. Finland expects to increase production by 10 percent to nearly 1 million m3 with 88 percent of this volume being exported.
MDF production now represents 70 percent of total fibreboard production in Europe. Exports of MDF outside the region mainly to Japan have eased the overcapacity created by the rapid expansion of the industry. Total fibreboard production is forecast to continue to rise in 1997 and 1998 by 2.2 percent and 1.9 percent, respectively; all the increase in MDF production is expected to go to exports outside the region.
In the United States, consumption of plywood is expected to drop by 5.1 percent and 3.7 percent in 1997 and 1998, 1.6 million m3 in aggregate, as a result of softwood plywood mill closures owing to plywood substitution by OSB which is cheaper. The overcapacity in the structural panel sector has kept prices at low levels, and some older, less efficient OSB mills have also closed. In Canada, consumption is forecast to increase by 5.2 percent in 1997 with small changes in 1998.
Demand in North America for both particle board and OSB is estimated to continue to increase sharply in 1997 and 1998, in aggregate by 12.9 percent or 2.9 million m3 to a total volume of 25.5 million m3, Canadian production will benefit from continued increased exports to the United States, 12.6 percent in 1997 and 5.1 percent in 1998. A steep fall in prices was the result of the very rapid growth of the OSB industry, prices attained their lowest level in April 1997 at US$120 (per thousand square feet 7116-inch basis). As announced OSB mills come on-stream, no new capacity expansions are expected.
Apparent consumption of fibreboard including MDF in North America is forecast to increase in 1997 by 5.4 percent to 7.9 million m and a further 2.4 percent in 1998 to 8.1 million m3. MDF capacity continues to expand, especially in Canada. Hardboard and insulating board consumption are expected to remain at 1996 levels.
Roundwood (pulpwood and fuelwood)
Supply and demand on the global pulp markets are better balanced in autumn 1997 than they were in the first half of 1996 stocks have fallen and prices have recovered (without approaching the 1995 record levels), partly owing to production cutbacks by some major producers.
As a consequence of the better conditions on the markets for pulp and for wood-based panels, European pulpwood consumption is expected to recover in 1997 and 1998 from the steep drop measured in 1996. By 1998, it is expected to have reached 186 million m3, 14.6 million m3 (8.5 percent) more than the low level of 1996 and about the same level as in 1995. Over the two years, Finnish pulpwood consumption is forecast to rise by 4.8 million m3, to 41.6 million m3, and Swedish consumption by 5.6 million m3 to 40.7 million m3. European pulpwood production is expected to recover marginally more slowly, by 4.4 percent and 1.9 percent, in 1997 and 1998, respectively.
Since 1991, European pulpwood exports have been dropping steadily, from nearly 20 million m3 to 14.5 million m3 in 1998. However, since 1993, imports, notably to Finland and Sweden which together account for 40 percent of Europe's imports, have followed market fluctuations. In line with increased demand, European pulpwood imports are forecast to rise by 15 percent between 1996 and 1998, although they would then still be lower than in 1995. Europe's import requirements have in the main been supplied by the Baltic countries and the Russian Federation, which have all established regular trade channels to the Nordic countries. In 1998, pulpwood exports by the Baltic countries are expected to reach 5.5 million m3 and by the Russian Federation, 10.7 million m3.
Several delegations remarked on the increasing globalization of markets for wood raw material, notably pulpwood. Competition from low-cost wood sources exerts downward pressure on prices, putting economic pressures on forest owners.
Despite the expected higher levels of paper production, the United States expects a slight drop in pulpwood consumption, from 240 million m3 in 1996 to 238 million m3 in 1998, attributed to the increasing importance of recovered paper as a fibre source.
A number of countries reported an expansion in the use of wood for energy, in private households and in larger co-generation units. Often, these changes had been stimulated by official policy measures, designed to encourage renewable energy sources. Energy generation represents a significant outlet for low-quality wood, as well as being a contribution to the mitigation of climate change and, as such, should be encouraged as appropriate.
In accordance with the stronger demand conditions, European removals are forecast to rise over the two-year period, from 346 million to 362 million m3, an increase of 16 million m3, or 4.7 percent, with similar rates of growth for logs and pulpwood. Russian removals are forecast to fall from 94 million to 82 million m3 in 1997, but to rise in 1998 to 92 million m3 because of the many transition-linked problems. United States removals are expected to remain roughly constant at about 495-500 million m3.
