The mood in the German economy once again improved significantly in the second quarter. The Ifo business climate index rose to 101.7 points in June after 99.2 points in May.
The companies rated their current business situation considerably better, as reported by the Munich economic research institute. For the business climate index, the institute surveys around 9,000 companies every month. They are asked to assess their current business situation and to state their expectations for the next six months. In April the index rose slightly to a revised 96.6 points.
The business climate also improved further in the construction industry, and the expectation indicator rose for the second time in a row. In April, the construction industry achieved a record of EUR 7.9 billion in new business. That was nominally (not price-adjusted) 7.0 percent more than a year earlier in the first lockdown and at the same time “the highest ever measured value of new orders in an April in Germany”, as the Federal Statistical Office announced. Excluding rising prices, the real increase was 4.1 percent.
In the German construction industry, the intensifying price increase and long delivery times and poor availability of almost all raw materials had a negative impact. The rapid rise in the price of wood, which in the meantime developed extremely dynamically, especially in North America, caused a surprise on the markets. Solid structural timber, for example, was 83.3 percent more expensive in Germany in May compared to the same month last year, according to the German Federal Statistical Office. In the timber construction industry, therefore, there was growing concern that the market shares achieved in recent years and competitiveness on the market could be at risk due to increased prices.
German wood processing industry
Domestic prices for softwood lumber continued to rise in the 2nd quarter. The constant strength of the main construction trade, a do-it-yourself sector (hardware stores) that is still doing well and export markets that are doing well kept the demand for softwood lumber and construction products made of wood consistently high.
The exports of softwood lumber from Germany to the USA increased strongly by 38% in the first half of 2021 to 992,000 m³ compared to the corresponding period of the previous year. This means that Germany remains the second most important US supplier of softwood lumber after Canada (16.9 million m³, +20%). Well behind in third place is Sweden, which with around 380,000 m³ delivered something (+0.3%) more than in the first six months of the previous year. At the same time, the prices of softwood lumber in the USA rose to a record level in the 2nd quarter (converted for European exporters over € 850.00 per m³ 2-by-4, free Great Lakes region), only to then descend sharply.
The German softwood sawmills therefore produced at a very high capacity. According to the Federal Statistical Office, a production record of 6.5 million m3 of softwood lumber including planed lumber was recorded for the period from January to March 2021. Never before has more softwood lumber been produced in one quarter in Germany.
In the second quarter, however, complaints about delivery delays and increased material costs were heard from the German timber construction companies. In the industry, it is still expected that global demand for softwood lumber will exceed production in 2021.
For the hardwood processing companies in Germany, the mood brightened somewhat in the first half of 2021 compared to the previous year. The current business situation is assessed better than at the end of 2020, but the outlook for the coming months remains cautious. After declines in the German production of hardwood lumber in previous years, this trend had intensified by the end of 2020. The exports of beech and oak sawnwood fell significantly in 2020 compared to the previous year, but in the first quarter of 2021 beech sawn timber rose again in some cases strongly compared to the same period of the previous year. From January to March 2021, Germany exported a total of 138,000 m³ of beech lumber and planed goods. That is + 8% compared to the same period of the previous year.
German forestry sector
Due to the weather, the incidence of the bark beetle was initially low in the main damaged areas in the almost continuously cool spring with high levels of precipitation. The main swarming flight of the bark beetles started with a delay, but was massive and concentrated for a short period of time. In northern Bavaria there was an increasing number of bark beetle infestations in the stands and high levels of damaged wood. Due to the high demand for softwood logs, the timber was removed from the forest very quickly, so that no forest storage facilities were set up.
Dry storage outside the forest and the wet storage of larger forest operations were largely cleared at the beginning of the 2nd quarter. The cautious felling of fresh wood in southern Bavaria – also because of the federal ordinance on the restriction of regular felling of spruce that came into force at the end of April – has further contributed to the continuous drainage of damaged wood from northern Bavaria.
The situation on the log market stabilized further in the 2nd quarter. The unbroken high demand for softwood lumber domestically and in the important export markets has led to regionally strong price increases for spruce logs as well, although these in no way reflect the development on the purchase markets. While prices for spruce sections 2b + of just over € 90.00 were still being paid for fresh wood outside the main damaged areas at the beginning of the quarter, prices on the spot market in southern and eastern Bavaria ranged from € 110.00 to € 115.00 by the end of the 2nd quarter. Fresh spruce logs (B quality, 2b) cost between € 105.00 and € 120.00 at the top in southern Bavaria.
The market for pine logs has revived in the wake of the very strong demand for spruce. Fresh wood prices of over € 85.00 per cubic meter could be achieved. The demand for Douglas fir and larch logs remained very high as prices continued to rise; regional demand could not be satisfied despite the increased supply.
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