Production Cuts in Finland Have Brought Some Balance to The Market

Production cuts in Finland have brought some balance to the market Summary  Sawn timber prices are improving. Mild weather has hindered access to harvesting sites.  UK purchases continue to be hand to mouth.  Finnish producers are generally feeling more positive about the next six months. Nordic companies’ annual results reported over the past few weeks reveal what a tough year 2011 was but many Finnish traders are hopeful that the worst is now over. The early part of 2011 was reasonably positive but the deepening European financial crisis depressed the market post-summer. “The second half of last year was difficult, ” said a shipper. “Prices were going down at the same time log prices were rapidly going up. The situation has now improved but of course it’s not as good as it was some years ago. ” Late last year mills responded to the lacklustre market by curtailing production and log prices started to ease. “With sawn timber prices and log prices as they were it didn’t make sense to continue sawing and a lot of companies started to limit production. It’s been a clear measure that we need to push raw material prices down, ” said one sawmiller. Harvesting delays Mild weather in early winter didn’t help as contractors couldn’t access winter harvesting sites. Freezing conditions have now set in but in the meantime some companies resorted to felling areas usually reserved for spring extractions, possibly storing up problems for later in the year. “We are concerned whether, when we get to April/May, we can build up enough reserves because we’re already consuming them, ” said one sawmiller. The storms that hit Finland at Christmas brought down around 5 million m³ of wood, mainly in the south-west, and encouraged forest owners to sell logs, but one contact said this has been short lived. “Log prices started to erode, mainly because of the storm effect. Whether it’s psychological or real, most forest owners have been more willing to sell but trading volumes have gone down again and I see a slight increase in log prices, ” he said. Market balance The sawmills’ production cuts have brought some balance to a market where demand continues in the doldrums and sawn timber prices have started to rise. “We’ve seen the first increases in both redwood and whitewood and we believe the bottom in prices has been achieved and new contracts done lately have been at increased prices; The question is how quickly will prices recover, ” said one shipper. Demand in Nordic domestic markets is said to be reasonably stable, and of Finland’s export markets Germany and Japan are holding up, and volumes to north Africa, an increasingly important redwood market, are back to normal after a temporary fall during the political uprisings in the region last year. “You only need to look at the demographics there, the average age of the population and people’s desire to improve their living standard and you can see it’s extremely important to Nordic countries, ” TTJ was told. UK market The UK, however, is a different story. It continues to be a difficult market and customers are buying hand to mouth. “Once people start to gain confidence and see that prices are moving upward they will buy forward more, ” said a shipper. The recent 30bn bailout for Greece will go some way to steadying the markets and, with the traditionally busy grading period around the corner, several Finnish contacts are feeling optimistic about the next six months. However, they are quick to point out that while there may be some improvement, it’s starting from a very low base and it’s reliant on there being “no nasty” surprises in the global economy. “I’m more optimistic than I was back in November, ” one shipper told TTJ, “but the outlook for 2012 is still very tough. We don’t see any big improvements but we don’t expect things to get any worse either. “We’re encouraged by the fact that sales so far have gone well and the order book is good. The only thing which isn’t good is the price levels so profitability is a major concern. ” However, another contact was less than positive, predicting that results during the next six months would be “somewhere between survival and catastrophic”. “Nobody’s making any money at the moment, ” he said. “On average, our results have been poor for many years. ” Cost burdens The two things which would improve Finnish producers’ fortunes would be lower raw material and transport costs. “We definitely need a more secure and predictable log supply. Nobody can pay what the forest owners are asking now, but still they’re asking for more, ” TTJ was told. Logistics costs had increased substantially recently, he said, and the EU sulphur directive, which means that from 2015 the sulphur content of all maritime fuel used in the Baltic, North Sea and English Channel is cut to 0.1%, will add to Finnish producers’ burdens. “If the sulphur regulation eventuates it will be a major handicap for us compared with German and Swedish shippers, ” he said. Source: ttjonline.com