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Above left: Production was initially curtailed but has now ramped back up Above right: Log availability has not been an issue
for supply with increased intensity and warehouses emptied, prices started to increase at an almost unprecedented scale. Swedish export prices were almost set on a day-to-day basis. Swedish exports returned in force, refocusing on European markets and others suddenly found it difficult to compete and saw their imports decrease. Egyptian trade went from being 70-80% above normal levels in the spring, to 70% below in the autumn. In the UK market it took until November 2020 for imports to reverse the deficits of the first half. The situation was similar in the US, with domestic production and net imports starting to exceed typical levels around the same time. But while markets had managed to catch up on the supply side, demand rose still higher and ran at extraordinary levels for a while, fuelled by consumers being on furlough and working from home and government pandemic subsidies and fiscal stimulus measures.
THE PICTURE AHEAD
Swedish sawmills have been running at high capacity for a long time now and expect to do so for the rest of the year. The exception was in January and February 2021, when the cold weather and snow slowed the pace of production. But output in March was the highest for an individual month ever, and later months followed suit. Consequently, it seems fairly certain that 2021 will see new production records set. Demand remains virtually insatiable and despite the efforts of Swedish sawn wood producers the market remains under high pressure with low stocks. During this summer export demand has remained strong, while production facilities have had to take annual downtime for maintenance and the legally mandated holiday season. In this period a larger share of demand will be met from mills’ inventories built-up earlier in the year. However, the exceptional demand from the end of 2020 into 2021 meant stock levels in spring were
already at the lowest levels for 20 years. Despite this, producers have managed to squeeze an additional 200,000m3
out of
storage. They also kept up production during the summer maintenance, with output in July 54% up on the same month in 2020 and 16% ahead of July 2019. In July 2021 Swedish export prices were double the levels at the start of 2020 and have continued to rise at an average 10-15%/ month through spring and summer.
SAWLOGS SUPPLY HOLDS UP There have been no signs that sawmills have been constrained by sawlog availability. Rather, inventories have been high-to-normal during this whole period. Although, while the spruce bark-beetle situation is much less of a problem than in central Europe, it has still had some impact on harvesting mobilisation and moving volumes through the supply chain. But sawmills have produced as much as they can with available capacities and supply chains. Many sawmills are also now taking the opportunity to invest in their facilities, although this will have limited effects in the short-term.
During the summer US lumber market prices crashed by more than 70% in under two months. Prices are now back to pre- pandemic levels, and there are reports of inventories filling up again. But these large price movements will likely not have any direct impact on the market from a Swedish perspective. While sales to the American market increased significantly during the pandemic, they still only accounted for 5% of Swedish sawnwood exports. The spike in Swedish export prices has rather been driven by sales to the UK and central-Europe.
From a personal perspective, I believe that the US markets could, to some degree, bounce up again during early autumn, impacted by very high sawlog costs and production curtailments in British Columbia. Although I understand that analysts specialising on US
markets are more hesitant as to the timings of these market trends and possible effects of scarcity in other construction materials on building activity.
STRONG FOCUS ON THE UK From a Swedish perspective, the British market remains a major focus and we follow closely developments in building activity, work-force availability and regulatory developments, notably implementation of the UKTR and UKCA.
Many factors regarding the market will need to show their colours as we approach the fourth quarter. There is no doubt that underlying demand remains strong on most, or all, global markets. Even in a scenario where markets start to be able to access sufficient supply to meet demand, expectations are for stability, with prices levelling out. While the US market is renowned for its fast-pace of change and sudden swings, similar instability in European markets would be unlikely. While the market for Swedish sawn wood is expected to remain strong during the autumn, some volatility can also be expected. We are no longer struggling to catch up and recover lost volumes, but we are now fighting to supply a still super-hot demand cycle, which can be expected to continue to even beyond this year.
Balancing a world market in turmoil with interdependencies between geographies and different construction materials will mean continued market stress. It will take time to find its way back to a new balance and not until then will we know what the new normal looks like. ■
FURTHER INFORMATION
Christian.nielsen@
skogsindustrierna.se https://www.linkedin.com/in/theforester/
www.ttjonline.com | September/October 2021 | TTJ
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