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In the German economy, Corona has led to a severe slump. The gross domestic product (GDP) in the 2nd quarter of 2020 is 10.1% lower than in the 1st quarter of 2020 and thus experiences the strongest decline since 1970. According to current estimates, economic research institutes expect the GDP for 2020 to be about 7% lower.

The extensive efforts of the German government to support the economy were welcomed and also used by the economy. The 700 million euro economic stimulus package is also important for the sawmill industry. This is intended to preserve the forests, among other things, by providing for the conservation and sustainable management of forests and extensive modernization and digitization projects. In addition, a greater use of wood as a building material is to be promoted. The 2.5 billion euro CO2 building renovation program and the reduction in value-added tax also fit in with this. Our companies can also benefit from the €25 billion as a bridging aid for small and medium-sized companies with corona-related loss of sales, as well as from additional programs for the energy-related renovation of municipal buildings and climate adaptation measures at social institutions.

Coping with the amount of damaged wood, which increases again significantly in the 4th year, the German sawmill industry is additionally challenged by the corona pandemic.

At the beginning of the year, there was still a justified hope that the sawmill industry would be able to make its contribution to coping with the increasing amount of damaged wood in 2020 by cutting more logs. Against this background, the Corona pandemic has had a considerable impact on the sawn timber markets. In particular, the temporary lockdown and closure of borders in several neighboring countries, but above all the severe impairment of long-distance exports to Asia to important consumer countries have significantly reduced export opportunities. Restricted exports unsettle the sawmills and lead to restrained production.

In the meantime, it has become apparent that the individual customer sectors of the sawmill industry are developing very differently under the limited possibilities during the Corona pandemic.

The ifo business climate index on the current business situation and expectations for the coming months shows that expectations for softwood have already recovered significantly. Expectations for sawn hardwood have also been rated significantly higher again for the next few months, although starting from a very low level.

Contrary to initial fears, construction remains at a high level even during the corona period, resulting in very steady domestic demand overall.

The other timber industry sectors were also able to recover to a large extent after the slump and have recently recorded a significant improvement in production activity. The packaging sector remains an exception and is only gradually beginning to recover from the corona-related slump in production.

Production data are not yet available for the 2nd quarter of 2020. In the 1st quarter of 2020 – before Corona – another positive development was recorded.

The decline in sawn timber exports has led to great uncertainties in production. One of the first measures taken to combat the spread of Corona was the closure of the borders, including for the transport of goods in some neighboring countries. At a very early stage, there were also problems with long distance export deliveries to important customer countries in Asia and elsewhere.

Uncertainties in the export market also influence the production activities of sawmills. For many export-oriented softwood and especially hardwood sawmills, export is a determining factor.

Exports of sawn hardwood, especially to the main consumer countries and distance sales to Asia were in some cases significantly lower in the first half of 2020. In the case of softwood, the reluctance and uncertainty in production and sales caused by corona was only felt for three months. The declining export of sawn softwood to the Far East – with the exception of China – was contrasted by significant increases in exports to the USA. The USA is currently experiencing a special boom in the demand for sawn timber and is proving to be surprisingly receptive to German sawn softwood. In the first half of 2020, significantly more sawn softwood was also exported to China.

In 2019, the raw materials market was characterized by the increasing amount of damaged wood, mainly due to beetle infestation, but also due to the drought and weakening of trees.

The total volume of timber felled in 2019 increased significantly to 66.8 million m³ due to the high amount of damaged wood, especially wood infested by beetles. Of this, 38.5 million m³ were sawable logs.

In the current year, the amount of damaged wood caused by the continuing drought is continuing to rise. Estimates have now been accumulated by the Federal Ministry of Agriculture to 178 million m³ of damaged wood and have been revised upwards for the years 2018-2020. For the year 2020, an accumulation of 73 million m³ is expected. Apart from softwood, other types of wood, especially beech, are also affected by the dry damage and its consequences.

The sawmills are making a decisive contribution to the management of damaged wood, especially wood infested by beetles, by continuing to cut at a high level. The considerable export efforts of the sawmills make it possible to cut at a high level beyond the limited capacity of the domestic market.

The forest reacts to the increasing amount of wood from forced utilization by expanding the export of softwood logs. In the first half of 2020, 3.5 million m³ have already been exported. The main buyer country is China with 2 million m³.

SAWN TIMBER BALANCE

In the current phase of uncertainty regarding the further accumulation of damaged wood and the further course of the corona pandemic, it is hardly possible to assess the coming development of the sawn softwood and sawn hardwood market.

Based on the data available so far for the current year, it is only possible to venture a forecast for the year with some reservations. We consider the following development in production and foreign trade to be possible.

Domestic sawmill sales remained at the level of the previous year, mainly due to the influence of price developments in the first half of 2020. Sales from sawmill exports to the euro zone declined significantly, partly due to lower sales in this area. Sales to countries outside the euro zone continued to rise sharply and now account for more than one fifth of total sales.

Compared to the same period of the previous year, 2.6% or approx. 310 more people were employed.

 USER Market statement

1. What was the raw material situation like in 2020? How do you see it changing in the coming months? Has the coronavirus had any impact on raw material availability? If not, what is affecting raw material availability the most?

Vitality of forests in Germany suffered during 2018 and 2019. Little to no precipitation and heavy winds paved the way for bark beetle calamities, especially in 2019 and log prices fell to a long time low.

Corona worsened this situation as sanitary requirements further reduced the available manual workforce. Markets are flooded with logs during an all-time high raw material availability, but storage and processing capacities were limited. Hence, a growing big share gets exported in the form of unprocessed logs or raw timber. Harvesting of non-calamity timber almost stopped with consequences for the sector that is relying on fresh and high grade softwood. As of August, the situation improves and a shortage in supply can already be seen, for the coming months a further scarcity of softwood timber is anticipated.

2. How did the different market segments respond to the crisis? Do you think there are going to be changes in the future?

a. Overall

i. The first half of 2020 was positive for the timber trade in Germany, despite the very difficult overall economic situation. Compared to the same period of the previous year, sales increased by almost 4%.

ii. The development for the industry is considered very positive during the time of the pandemic, and expectations for the coming months are also characterized by cautious optimism. In the summer of 2020, end users have taken care of the beautification of house and garden, in the construction sector there are numerous building completions, especially in residential construction and renovation. The increasing trend towards building with wood will also contribute to maintaining and increasing sales of wood and wood products at a high level in the coming years.

iii. Overall, a hot autumn business is expected as warehouses / supplies are empty and security of supply will play a major role.

b. Sales to the construction sector

i. Assuming, that planed softwood timber mostly goes into construction, this was the sector that maintained timber sales during the crisis. It still is and assumingly will be in the future, too. Sales of building elements gained 6.8% compared to the first half of 2019 and planed timber gained over-average with 17%. Overall, the timber construction is going extremely well. Nevertheless, production flows need to be adapted locally, which is based on the sales volumes of the previous months. Existing customers in the construction sector do not get any additional quantity and new customers cannot be served at all as of September. This is now common in the market, but there has never been a situation like this before! Hence it is likely that construction will be a stable pillar for softwood sales, despite communal and also domestic construction activity might slow down towards the end of the year and slightly more so in 2021 due to a lack of liquidity and more cautious planning.

c. Sales to the pallets and packaging sector

i. Packaging sector experiences never-seen-before low raw material prices but is forced to invest comparatively more time and labor to produce better-quality grades for packaging – with a loss in yield. Overall, the sector is slightly optimistic for the second half and even more so for 2021 as international trade will be on the way back to where it was before COVID-19. Sales to the sector slowed to producers of export-boxes whereas sales were kept steady towards manufacturers of pallets.

d. Sales to the DYI sector

i. DIY assortments gained 10% in the first half compared to the previous year and sales by retailers grew 14% – meaning that people stayed home and have built nice things for themselves.

ii. With planed goods, it doesn’t look quite as dramatic compared to KVH. Scandinavian producers are still making quarterly contracts and maintain a good supply to German traders.

e. Other:

i. Wood based panels, as with more than 34% share of turnover the most important assortment in the timber trade, lost 4.5% in the first half. Its recovery is questionable, as fairs and trade shows wont come back to their pre-pandemic size and frequency too quickly. .

3. What were sales to countries around the world like? Have there been any particularly positive or negative countries over the last few months? Are there markets which are going to be especially positive/negative in the future?

  • The KVH manufacturers are sold out and due to the boom in the USA there has been too little sawn timber (Central European supply) since mid August. Therefore procurement had to be adapted and some KVH producers buy more and more fresh sawn timber and dry themselves to feed their need. With a still very solid construction sector in Germany and a shortage of raw material supply, this will be a challenging market towards the end of 2020 and same in 2021.
  • China is the market for (bulk) softwood log sales and some businesses have even (re-) started exporting activities.

4. Have businesses in your country been affected by labour shortages and/or liquidity problems? Has your government provided any help (tax breaks, financial support, etc…) to the sawmill industry to cope with the coronavirus crisis?

  • On June 3, the federal government’s comprehensive economic stimulus package had a very valuable volume of 130 billion euros and, with its wide spread, is expected to give a boost to the economy and to keep it at the pace which it was at pre-COVID 19.
  • Furthermore, the federal government will spend 700 million euros on the preservation and management of forests and also for digitization in forestry – which both are two aspects that will be much more important in the years to come.
  • Kurzarbeit was successfully implemented in Germany during the last economic crisis and is now again considered the most stabilizing mechanism during a period of economic downfall. It ranges between 60-87% compensation, depending on length of claim. In the timber trade sector, only very few companies make use of it, though.
  • Tax postponements for trade / business tax were granted in some municipalities which leads to better liquidity of businesses / traders.
  • Banks are anxious to take risk, insolvency declaration duty is federally postponed, might lead to a lot of companies dying, especially event agencies, fair builders, shop builders suffer dramatically – this will also have influences on the trade.

5. How do you see the future of the sawmill industry in your country? Is the competitive landscape going to change as a result of the coronavirus crisis?

  • The future is positive for the trade – as sales have increased significantly, currently no structural changes due to pandemic are expected. Also, the tourism industry is a major competitor in the timber retail sector and Corona has given retailers a significant competitive advantage in 2020 so far.
  • The threat of the construction sector taking a dip remains, therefore the number of new building permits in both communal/ public and domestic building need to be observed carefully.

Also, a pull-forward effect in outdoor-sector might be seen.

  • For the trade: survival of the fittest, so those with a modern assortment, quick and available on the phone, proper webshop also for b2b. Hence, fit companies get stronger, weaker companies are anticipated to fall back strongly.
  • Overall, the adaptability of the trade and elasticity of the offer in Europe has shown to be extremely good.

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