Forest products²

Highlights

The downward trend in international prices for forest products evident since 1995 has been arrested in 1999 and, for some products, reversed. For the forestry sector, the period since 1995 has seen increased mergers and acquisitions, the emergence of global processing entities, and, despite generally healthy demand in North America, Europe and Australia, challenging international trading conditions.

Pressure on the forest products trade during the latter part of 1997 and throughout 1998 was attributable to the Asian economic crisis. The economic recovery in this region was a key factor underlying the rebound in forest product markets in 1999. Another was the continued strength of the US market. With US construction of new homes at a level of 1.6 million units per annum for a second year, US demand for lumber and structural panels reached record levels in 1999. The buoyant US domestic market helps explain why US lumber exports continued to lose market share in Japan.

Although market conditions in Japan (the largest Asian import market) improved in 1999, they remained subdued by the standards of the mid-1990s. Expectations of growth in forest products consumption and imports for this country over the next 12 months also remain relatively modest. Japanese logs and lumber imports (from both temperate and tropical countries) were up by 8 percent and 21 percent respectively in 1999, but were still only some three quarters of the 1997 levels of these two products.

One of the key developments in European timber and lumber markets in 1999 was the increased supply of logs and lumber from the Russia Federation. This increase followed a 1998 devaluation of the rouble, which improved the competitive position of Russian exporters.

The tropical timber trade was and remains the most affected by the economic difficulties in Asia that sharply reduced demand. In 1999 tropical log exports recovered 7.8 percent from the previous year but remained less than 60 percent of the level at the start of the decade. Although the sharp decline in tropical log, sawnwood and plywood prices which occurred in 1998 was arrested, price recovery was relatively muted. Prices for ply-wood in 1999 were still only 65-80 percent of those applying in 1997; sawnwood prices were similar to 1997 levels; and during the course of the year, export log prices improved some 15-20 percent over the levels applying at the end of 1998.

The total value of world trade in forest products, which fell some 3.9 percent between 1997 and 1998, is estimated to have increased by 5 percent in 1999 to about $140 billion. This recovery in trade reflects the improvements in Asian demand, better prices for many products, and continued growth in North American and European economies.

Industrial roundwood

World roundwood production in 1999² (excluding storm felled material) is estimated to have increased by 2 percent over the 1998 level. The increase in industrial roundwood production was higher at 2.4 percent. Fuelwood uses continue to account for over 53 percent of all roundwood production. However the estimated 1.6 percent increase in production of fuelwood and charcoal in 1999 means that its share of total production declined slightly in this year.

Coniferous logs and pulpwood production is estimated to have grown by 2 percent and 1 percent respectively in 1999, though not all countries had production increases. Coniferous log production in China for example fell, largely reflecting the imposition of environmentally-inspired logging controls. These controls were introduced after serious floods in September 1998. It is widely accepted that the destruction wrought by the floods was made worse by deforestation in the headwaters of the country's rivers.

As a result of the controls, planned Chinese state log production for 1999 at 54 million m³ is 12 million m³ less than that for 1998. Initial expectations were that the reduced Chinese production and an expected increase in demand for wood for reconstruction following the floods, would be met by increased log imports. (Some projections suggested the increase in imports would be of the order of 20 million m³). Data to September 1999 show that log imports have not increased as much as implied by some initial projections. Price increases, imports of sawn wood, and utilisation of previously stored wood, (up to 10 million m³ of logs was estimated to be in storage), are all being used to meet demand. Despite this Chinese log imports for 1999 are still likely to increase by 40 percent over 1998 levels.

In other markets, log imports into the Republic of Korean returned to the levels of 1995/96, though prices remained subdued. A sharp devaluation of the rouble in 1998 improved the competitive position of Russian exporters in 1999. This brought significant increases in removals and in log and lumber exports from the Russian Federation, and resulted in the first increase in its pulp and paper production for many years. As a result that country's pulpwood production is projected to have risen some 4 percent over 1998 levels.

Substitution of recycled wastepaper for virgin wood fibre in paper and paperboard production increased during 1999 and, reflecting the improved economic conditions, there was substantial growth in US shipments of recovered papers to mills in Asia.

World production of non-coniferous logs is estimated to have increased by 13.5 percent for the year. This was mainly a reflection of the recovery in the production of non-coniferous tropical logs. In addition, there was a modest increase (2 percent) in the production of temperate non-coniferous logs. In Europe production of temperate non-coniferous material increased, and there appears to have been some substitution of temperate timbers for tropical non-coniferous timbers in this market. Malaysian exports of sawn timber to the European Union for the first 8 months of 1999 were 13.6 percent lower than for the same period in 1998. US production and exports of non-coniferous material are also expected to show a modest increase of between 1 and 1.5 percent.

While production of tropical logs recovered in 1999 this was not mirrored by an increase in trade in tropical logs. However, 1999 saw growth in exports of value-added products e.g. furniture from Malaysia. It also saw changes to Indonesian logging concessions and to that country's log export restrictions. Production of tropical logs is already constrained, with most logging companies now required to adhere to strict sustainable forest management plans. This is expected to have a longer-term impact on production and the mix of items produced.

Trade in industrial roundwood, both in value and volume, was significantly affected by the Asian crisis. The impact was most severe on those dependent on the Asian markets, particularly the Japanese market. Tropical logs are believed to have lost market share to coniferous logs in Japan, particularly to coniferous logs from the Russian Federation. However, other Asian markets for tropical logs though are developing. For example, Malaysian log exports to China in the first 8 months of 1999 totalled almost 1 million m³.

North American log exports rose 4 percent. However, their share of the Japanese market fell slightly to around 31 percent of the total. Most of the log trade in Europe is intra-regional and volumes traded there have been relatively stable. An increase in the volume traded of some 2 percent is forecast for 1999. Exports of industrial roundwood from the Russian Federation had been on a downtrend for some years because of internal economic problems. However, log production in the first 9 months of 1999 is reported to be 10.4 higher than 1998, and log exports to Europe and Japan have risen substantially. Overall a 3 percent increase in trade is expected for 1999.

Mechanical wood products

Global sawnwood production is estimated to have increased by 2.5 percent in 1999. However, the global market conditions for lumber have been somewhat mixed.

Strong housing starts in the US and healthy economic growth in Western Europe have kept coniferous sawnwood consumption at a high level. As of October 1999, US housing starts for the first 10 months of 1999 (1.4 million) were running 3.6 percent ahead of starts for the same period in 1998. (US housing starts should exceed 1.6 million for the full year). US softwood lumber consumption in the 10 months to October was 4 percent higher than for the same period in 1998 while imports were 2.5 percent ahead of levels for the same period in 1998. Canadian production of sawn softwood for the first 10 months of 1999 was some 5.3 percent ahead of the 1998 level. Price rises reflected the increased US demand. Prices for Random Lengths composite US framing lumber, which ranged between $136 to $153/ m³ in 1998, reached $174/ m³ by the end of 1999.

1999 was very much a year of two halves for Europe. In the first half of the year markets slowed sharply, inventories rose and prices were weak. In the second half demand increased, inventories declined and prices improved. For the year as a whole consumption of sawn softwood, which includes an increased use of laminated products, is estimated to be some 81 million m³, slightly more than in 1998. European production should also be slightly up on the 1998 level.

In contrast to Europe and North America, markets in Asia were more subdued. Japanese housing starts for the year were 1.2 million units, the same as in 1998 and substantially lower than the 1.6 million units of 1996. Japan's softwood lumber imports increased by 21 percent on 1998 levels, with most of the increase being supplied by the Russian Federation and Europe. However, overall import levels were still substantially lower than in 1996 and 1997.

Overall trade in coniferous sawnwood in 1999 is forecast to have increased by some 2.5 percent over 1998 levels. This increase is largely attributable to continued growth of the US economy although recovery in Asia, and China's moves to restrict logging also helped with the growth. In the first 10 months of 1999, US softwood lumber exports were 14.7 percent higher than for the same period in 1998, although US exports to Japan were down 0.9 percent. Canadian exports to the United States, for the same 10-month period, were up 1.1 percent while exports to the United States from other suppliers increased (from a small base) a massive 42.9 percent.

Despite the relatively subdued markets tropical sawnwood production is estimated to have increased by 1.6 percent in 1999 with trade increasing by approximately 10 percent. Although EC imports appear to have declined, Japanese imports increased by 12.8 percent. There was also growth in China's imports. For example Malaysian exports to China were up 40 percent in the first 8 months of the year compared to the same period in 1998.

Production of non-coniferous sawnwood from developed countries is also thought to have increased in 1999. European production appears to have ended its secular decline and to have grown, while production in North America also increased.

Global production of wood based panels is estimated to have grown by 2 percent in 1999. The increase is a combination of new processing capacity coming on stream in 1998, much of it in Asia, and higher operating rates for existing plant. North American output of panels for 1999 is expected to be 4.9 percent higher than that of 1998. Within the panels group, however, plywood continues to lose market share to other types. In the United States, orientated strand board (OSB) output is expected to exceed that of plywood for the first time ever.

Production of tropical plywood, which was up 4.2 percent in 1997, declined 8 percent in 1998 and a further 2 percent in 1999. The long-term production trend for tropical plywood appears to be a declining one. There are increasing difficulties with log supplies, and ongoing substitution of tropical plywood with other panel products such as OSB, medium density fibreboard (MDF) and particleboard or softwood plywood.

Global trade in wood based panels is estimated to have increased by 7 percent in 1999. Trade volume is expected to increase for developed countries with, for example, US imports of MDF reported to be 40 percent greater in 1999 than in 1998. Plywood, and more particularly tropical plywood, remains the one area where recovery in traded volumes has been most limited. Although in value terms Malaysian plywood exports for the first eight months of 1999 are reported as being 16.5 percent greater than for the same period in 1998 in volume terms these exports are some 6.1 percent. Volumes of plywood exports from Indonesia in 1999 are also expected to be less than in 1998.

Pulp and paper

World production of wood pulp increased in 1999. As of November, Norscan producers were reported to be operating at 91 percent of capacity. Production in developing countries is estimated to have increased because of the new production capacity, particularly in Asia. World demand in 1999 is reported to have increased by 5.5 percent with North America, Latin America, and Europe showing increases of 7.3 percent, 6.9 percent and 1.4 percent respectively. Japanese demand, in contrast, dropped by 9.1 percent. However, demand for market pulp in other countries of Asia, especially in the Republic of Korea and China, increased by 20 percent, or more than 1 million tonnes in 1999. This region accounts for about one fifth of world consumption and the increase represented over 60 percent of the growth in world demand for this product.

Overcapacity, which has been a problem in the pulp and paper industry in recent years, is expected to be less of an issue in the next few years. The healthier market conditions and adjustments to capacity through closure of older less efficient mills (some 2.5 million tonnes of US paper and paperboard capacity was removed during 1999) resulted in the price of the benchmark Northern Bleached Softwood Kraft (NBSK) rising. In September 1998 it was $525/tonne; by the end of 1999 it had reached $600/610 per tonne.

With a more disciplined approach to expansion likely, world capacity growth over the next three years is forecast to be less than 1 percent per annum. This, when coupled with expectations of sustained global GDP growth over the period, has led some to forecast that by 2001-2002 the NBSK prices could increase to $750/780 per tonne - about 25 percent above current levels.

Production
	1994-96 Average	1997	1998	1999 Est.
WORLD TOTAL
		Million m3
Roundwood	3 252	3 297	3 269	3 335
Fuelwood and charcoal	1 763	1 750	1 753	1 782
Industrial roundwood	1 489	1 547	1 516	1 553
Sawlogs and veneer logs :
coniferous	613	631	623	635
non-coniferous	320	313	293	317
Pulpwood and particles	400	413	417	421
Other industrial roundwood	159	190	177	180
Sawnwood and sleepers	431	431	416	425
Wood based panels	142	157	150	153
		Million tonnes
Wood pulp	159	162	159	160
Paper and paperboard	280	289	294	297
DEVELOPING COUNTRIES
		Million m3
Roundwood	2 015	2 002	1 987	2 042
Fuelwood and charcoal	1 573	1 553	1 563	1 592
Industrial roundwood	442	449	424	450
Sawlogs and veneer logs :
coniferous	88	92	89	90
non-coniferous	177	178	156	177
Pulpwood and particles	72	72	74	75
Other industrial roundwood	105	107	105	108
Sawnwood and sleepers	114	109	97	108
Wood based panels	39	46	39	37
		Million tonnes
Wood pulp	17	19	18	19
Paper and paperboard	59	69	70	71
DEVELOPED COUNTRIES
		Million m3
Roundwood	1 234	1 295	1 282	1 293
Fuelwood and charcoal	190	197	190	190
Industrial roundwood	1 044	1 098	1 092	1 103
Sawlogs and veneer logs :
coniferous	525	538	534	545
non-coniferous	143	135	137	140
Pulpwood and particles	328	341	343	346
Other industrial roundwood	55	83	72	72
Sawnwood and sleepers	318	322	318	328
Wood based panels	102	111	112	116
		Million tonnes
Wood pulp	143	143	141	141
Paper and paperboard	220	220	224	225

Exports
	1994-96 Average	1997	1998	1999 Est.
Million m3
INDUSTRIAL ROUNDWOOD, coniferous
World total	46.6	47.4	44.4	46.2
Developing countries	3.4	2.6	1.7	1.6
Developed countries	43.1	44.8	42.7	44.6
North America	10.5	9.8	8.6	9.0
Europe	17.1	28.3	29.3	28.1
Area of the former USSR	14.1	15.9	16.8	18.5
INDUSTRIAL ROUNDWOOD, non-coniferous
World total	18.1	19.2	23.6	26.0
Developing countries	1.7	1.9	1.9	1.9
Developed countries	16.4	17.3	21.7	24.1
North America	1.3	1.8	1.8	2.0
Europe	8.9	15.4	19.7	20.2
Area of the former USSR	8.8	8.8	11.5	12.0
INDUSTRIAL ROUNDWOOD, tropical
World total	17.6	18.2	14.1	15.2
Developing countries	17.5	18.1	14.0	15.1
Far East	9.3	7.9	7.2	7.2
Africa	4.5	6.2	4.3	5.1
Oceania	3.6	3.7	2.2	2.4
SAWNWOOD AND SLEEPERS
World total	109.4	113.7	113.9	116.7
Developing countries	11.9	11.7	11.4	11.7
Latin America	3.5	4.3	4.0	4.4
Africa	1.5	1.4	1.5	1.5
Far East	6.8	5.9	5.8	5.7
Developed countries	97.4	102.1	102.5	105.1
North America	54.7	55.7	54.0	56.5
Europe	36.2	45.1	47.1	47.3
of which Eastern Europe	4.7	6.0	6.5	6.9
Area of the former USSR	8.1	9.2	9.7	10.0
WOOD BASED PANELS
World total	42.9	50.4	48.2	51.6
Developing countries	18.2	19.6	16.2	17.3
Latin America	2.0	2.1	1.7	1.8
Far East	15.6	17	13.9	15.0
Developed countries	24.8	30.8	32.0	34.2
North America	8.7	11.2	11.3	11.9
Europe	15.4	18.7	19.8	20.0
		Million tonnes
WOOD PULP
World total	32.3	34.9	34.8	35.8
Developing countries	4.9	6.0	7.0	7.7
Developed countries	27.4	28.9	27.8	28.1
PAPER AND PAPERBOARD
World total	74.5	88.6	89.7	91.3
Developing countries	7.4	9.8	10.5	11.2
Latin America	1.9	2.0	1.6	1.7
Far East	5.4	7.7	8.8	9.8
Developed countries	67.1	78.9	79.3	80.1
North America	22.3	26.8	25.4	25.9
Europe	42.9	49.8	51.3	52.3

Value of exports
	1994-96 Average	1997	1998	1999 Est.
	`000 million $
World total
All forest products exports	130.8	138.3	132.9	139.5
Roundwood exports	9.9	7.9	6.5	7.3
Sawnwood and panels exports	40.3	42.8	38.3	41.5
Pulp and paper exports	79.2	82.5	83.2	89.6
Developing countries
All forest products exports	23.4	23.8	19.9	21.0
Roundwood exports	3.5	2.9	2.0	2.3
Sawnwood and panels exports	11.7	11.5	7.5	8.3
Pulp and paper exports	7.9	8.6	9.1	10.2
Developed countries
All forest products exports	106.3	111.1	109.5	115.0
Roundwood exports	6.4	5.0	4.5	5.0
Sawnwood and panels exports	28.7	31.3	30.8	33.3
Pulp and paper exports	71.3	74.8	74.2	79.4

Prices
	1994-96	1997	1998	1999.
	Average			Est.
		$/m3
Coniferous logs
Germany (domestic price )	110	104	102	102
United States (export price)	176	198	188	199
Tropical logs
Cameroon (export price)	302	257	248	260
Malaysia, Sarawak
(export price)	287	205	133	160
Coniferous sawnwood
United States
(framing composite price)	225	232	144	174
Tropical sawnwood
Malaysia Peninsula
(Export price)	788	763	565	560
		$/ tonne
Wood pulp
Northern softwoods	700	535	525	600
Newsprint
United States (domestic price)	661	628	580	516
Coated paper
United States (domestic price)	1 117	1 033	1 000	1 010

Imports
	1994-96 Average	1997	1998	1999 Est.
		Million m3
INDUSTRIAL ROUNDWOOD, coniferous
World total	47.6	49.4	47.5	48.3
Developing countries	8.5	9.3	6.8	7.1
Developed countries	39.1	40.3	40.7	41.2
North America	5.0	5.3	5.4	5.5
Europe	19.3	20.9	23.7	23.8
Japan	14.7	14.0	11.4	11.8
INDUSTRIAL ROUNDWOOD, non-coniferous
World total	23.4	23.7	25.9	26.3
Developing countries	1.7	1.8	1.5	1.7
Developed countries	21.7	21.9	24.4	24.6
North America	1.5	2.1	1.6	1.7
Europe	19.5	19.2	22.2	22.7
Japan	0.5	0.6	0.4	0.2
INDUSTRIAL ROUNDWOOD, tropical
World total	17.6	17.6	14.6	13.4
Developing countries	8.9	9.3	7.9	6.5
Far East	8.5	8.9	7.6	6.1
Developed countries	8.7	8.4	6.6	6.9
Europe	1.9	2.4	3.0	2.2
Japan	6.8	5.8	3.4	3.7
SAWNWOOD AND SLEEPERS
World total	108.4	117.6	115.8	117.6
Developing countries	17.1	18.0	17.6	15.3
Latin America	2.4	2.7	2.9	2.6
Africa	4.8	4.8	5.0	5.0
Far East	8.2	8.6	7.0	6.3
Developed countries	91.4	99.6	98.1	102.3
North America	43.0	46.4	48.1	50.2
Europe	34.9	39.5	41.1	40.7
Japan	11.6	12.6	7.8	8.3
WOOD BASED PANELS
World total	41.8	44.9	49.4	51.3
Developing countries	11.7	12.8	12.4	13.2
Latin America	1.0	1.1	1.1	1.1
Far East	8.8	9.8	9.0	9.9
Developed countries	30.0	36.2	37.0	38.1
North America	8.0	10.4	11.9	12.1
Europe	15.3	18.1	19.4	19.8
Japan	6.1	7.0	5.0	5.4
		Million tonnes
WOOD PULP
World total	41.4	34.2	34.8	35.0
Developing countries	9.7	8.3	9.1	9.3
Developed countries	31.7	25.9	25.7	25.7
PAPER AND PAPERBOARD
World total	71.5	85.6	88.6	91.2
Developing countries	18.5	24	23.0	21.6
Latin America	4.1	5.4	5.3	5.3
Far East	11.2	15.1	13.9	12.5
Developed countries	53.0	61.6	65.0	69.5
North America	14.4	17.8	19.2	21.1
Europe	35.3	40.9	43.2	44.9

¹ For additional information see UN-ECE/FAO, "Forest Products Annual Market Review 1997 - 1998"; and "Forest Products Markets in 1998 and Prospects for 1999".
² In December 1999 windstorms in Europe felled an estimated 200 million m ³ of material, the equivalent of the typical five/six months harvest for this region. The greatest impact has been on forests in Germany, France, Switzerland, Sweden, and Denmark. The impact of these storms on roundwood production will be recorded in 2000 removals. The true effect will depend on the proportion of the wind-throw material actually removed and the success of storage programmes implemented by national authorities.