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EU softwood production was forecast down 2.3% in 2022 at 84 million m3 contraction next year.


, with 1.3%


Longer term the industry outlook remained positive, he concluded, with timber building gaining momentum worldwide. However, while raw material supply may not be an issue currently, ahead it could become critical. With rising environmental legislation potentially “endangering stable fibre provision” and central European supply shrinkage post bark beetle, the priority would be to “make sure logs are available for mills”.


Canfor president and CEO Don Kayne said prospects for the Canadian timber sector are also being shaped by rising inflation and geopolitics. But the Canadian construction sector continues to “outperform expectations despite deteriorating affordability and prospects of economic downturn”. House starts hit 277,000 units in 2021 and are on track for 272,000 this year. They are expected to remain above 200,000 in 2023, before dipping to 196,000 in 2024, but then climbing to 2027.


The US takes 65% of Canadian softwood output, so, said Mr Kayne, “the importance to us of US housing starts also cannot be overstated”.


“Whether they will continue to climb in 2023 is unclear, but the US repair and remodelling market is expected to remain strong,” he said.


With a fall in sales to China and the rest of Asia and a shift to supplying more to the US, Canada’s offshore exports have declined, with British Columbia’s down from 5.2 billion bdft in 2013 to under 2 billion bdft in 2021. Canadian mills remain optimistic about longer term prospects in China. “But currently we’re cautious, with its zero Covid policy depressing housing growth and Russia looking to Chinese [sales] to offset loss of European markets,” said Mr Kayne. Marc Brinkmeyer, owner and chairman of Idaho Forest Group (IFG), said latest US market assessment pointed to a multi-year downturn. “And it’s not clear when it’s going to equilibrate,” he said.


In 2020, he added, projections were made about the point when interest rate rises would pull back US construction. “The conclusion was that 100 basis points would be concerning, 200 basis points would mean recession. In fact we’re up 400 basis points since then.”


US prices, he said, were not expected to come off as significantly as in the last downturn, partly due to consumers post- pandemic buying houses “sooner than they would previously”. However, a key to softwood suppliers ensuring a softer landing than in 2008 was closely tracking the market, with the US housing sector also set to be impacted by falling birth rates and baby


boomers retiring. IFG’s future focus, said Mr Brinkmeyer was ‘A-cubed’; using AI, academic expertise and “understanding analytics with regards products”. Reporting on China, Mathias Fridholm of Swedish Wood said its inflation remains low and it is less exposed to international energy price rises. But other factors, including global slowdown and the country’s strict zero Covid restrictions are restraining the economy. Softwood imports from January to August this year are 38% down on 2021 at 20.5 million m3


and GDP growth is forecast


at just 3.5% in 2022, although rising to 5-6% next year. On anticipated increased Chinese importing of Russian softwood, Mr Fridholm said so far this trade had been limited by high Chinese inventories and a strong rouble. But some predict Chinese companies may invest in Russian mills to secure future supply. “The global wood market’s fate, to a large extent, will depend on what happens on the Chinese-Russian border,” he concluded. Eiji Sahara, of materials and commodities trader Hanwa, said Japanese interest rates and inflation also remain low, but GDP growth continues to be slow, projected at 1.7% in 2022 and 1.8% next year. Softwood consumption has been rising recently and this year is forecast at 80 million m3


, with 41.8%


now domestically produced and the EU’s share at 9%.


With 860,000 housing starts a year and 58% being timber-based, building is clearly the dominant softwood consumer. Starts are set to decline as the population ages. “But, construction of single dwellings, which are most likely wood-based, is expected to be more stable and the government is backing wood use in mid-height housing, public and non-residential building,” said Mr Sahara. Of course, trade embargoes following Russia’s invasion of Ukraine, have been the dominant factor for its softwood trade. “They block it from two-thirds of addressable markets,” said Anti Koskinen of Finnish/Swedish sustainability-focused engineering, design operation and consultancy Afry. “It is having to switch to lower value markets too, with the EU lately paying an average US$318/m3


for Russian,


compared to China’s US$174, for instance. Overall exports this year are expected to be down 20% at 22 million m3


.”


ISC speakers also highlighted that an increasingly significant factor in softwood sector development will be government climate change and wider environmental regulation.


EOS and CEI-Bois secretary-general Silvia Melegari described the proposed EU regulation for deforestation-free commodities, or EU Deforestation Regulation. It requires all EU timber operators and non-SME traders, plus businesses trading in five other Forest and Ecosystem Risk Commodities, to


undertake due diligence to ensure products are not implicated in deforestation and forest degradation. Geolocation of timber sources will need to be recorded and EU Competent Authorities will undertake compliance checks on 5% of operators and traders and 5% of product volume annually. Ms Melegari said EOS, CEI-Bois and others were pressing for changes to be made to the Regulation in the interests of the timber sector, including its requirement for time-range of harvest. Hélène Koch policy adviser to the CEPF European Forest Owners Confederation looked at potential impacts on the timber sector of the range of EU environmental regulations and policies. These included the 2030 biodiversity strategy, Land Use and Forestry Regulation (LULUCF) and Nature Restoration Regulation. Ms Koch said the potential outcome of these measures is increased forest management and harvesting costs and reduced EU area of timber supply and type of wood available.


It was vital, she said, that the industry understands the taxonomy of latest regulation and promotes its value in terms of sustainable and economic activity under new classification systems.


As well as the sobering immediate outlook, ISC speakers did flag up major opportunities for softwood going forward. Mr Kayne and Mr Brinkmeyer highlighted prospects for use of residuals for biofuel, including for aviation. They both also underlined potential in mass or engineered timber construction, with the US now having over 500 major mass timber projects completed and Canada 100 in education alone.


CEI-Bois public affairs director Paul Brannen pointed to further advances in European timber construction, with two mass-production modular housing plants in development; Nokera’s factory in Germany and Goldman Sachs-backed Top Hat in the UK.


Emil Engelund Thybring from Copenhagen University discussed further possibilities for new softwood material technologies and products. For optimal use of the resource and maximum environmental benefit he concluded, the industry must follow a strict use hierarchy. This meant new extended-life wood products that lock in carbon longer and a strengthened regime of reuse and recycling, extending the period before wood goes to energy generation. ■


FURTHER INFORMATION


The 2023 ISC takes place in Vienna from October 11-12.


Report courtesy of the European Timber Trade Federation – www.ettf.info


www.ttjonline.com | November/December 2022 | TTJ


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