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Between 2017 and 2019, over 270 million m3 of standing timber in Central Europe has been damaged by a combination of factors, primarily driven by changing climate conditions featuring hotter, drier summers and warmer winters. In combination with frequent windstorms, this has created ideal conditions for the spread of spruce bark beetles, especially at lower elevations. The damage is across many countries, including Poland, Switzerland, Slovakia, Italy, and Sweden, but the most severe losses have been in Germany, the Czech Republic, and Austria.

“The outbreak in these three countries is so severe, ” said Russ Taylor, Managing Director at FEA – Canada, “that our analysis predicts that the killed timber volume from the European source bark beetle in Central Europe will eventually exceed that of the B.C. Interior mountain pine beetle outbreak.”

Damaged timber & harvest 

“While the greatest volume of damaged timber is currently in Germany,” indicated Rocky Goodnow, VP Timber, FEA LLC, “the Czech Republic faces a grimmer outlook from the spruce bark beetle with most of its spruce forests under severe threat.” The logging-capacity constraints in the Czech Republic relative to its beetle spread means that timber harvesting will not likely catch up to the beetle-kill for much of the decade. One “high” forecast has the Czech beetle damage estimate increasing to a potential annual kill of between 80 and 120 million m3 in 2021 alone! Relative to a 2019 annual timber harvest of less than 30 million m3, this is like “fighting a forest fire with a garden hose”.

The increased timber harvest in Germany, the Czech Republic, and Austria will feature a rising percentage of beetle-killed and damaged timber over much of the forecast period. The inability to harvest all the beetle-infested timber each year could lead to a greater or faster spread of the beetle.

Lumber production

Several sawmill companies are betting that the surplus timber will be around for some time—enough time to justify adding sawmill capacity or even building greenfield sawmills. There are many sawmilling companies that have plans, have started, or have completed new capacity installations to process incremental sawlogs from the damaged timber. If there was any question about how long the storm and beetle damaged timber was going to be around in Central Europe, then these investors are answering that question. The key reason that these sawmill capacities are being constructed is the potential volume of damaged timber that will be harvested in this decade and the low cost of sawlogs.

With the massive timber salvage producing a glut of sawlogs of various qualities, there has been downward pressure on sawlog prices in Central Europe. In Germany, sawlog prices have seen a steady decline since early 2018 from spruce bark beetle and storm wood availability – they had dropped by almost 50% by the end of 2019 and close to levels found in the U.S, South (North America’s lowest cost region).

With increasing volumes of distressed sawlogs at low price levels, there will be an increase in Central European lumber production. This means that sawmills in Germany, the Czech Republic, and Austria should remain the low-cost operators in Europe and should be able to access most, if not all, export markets competitively and with positive margins.

Log exports

As demonstrated in 2019, log export markets proved to be an important release valve for excess salvage spruce logs that are surplus to domestic mills in Germany and the Czech Republic. This log export trend will continue throughout the salvage harvest, especially since beetle-killed logs are being harvested at close to cost levels in Central Europe; this allows for spruce log exports to be competitively priced for volume sales in China. Note that Germany and the Czech Republic accounted for 80% of softwood log exports from Europe to China in 2019, and we expect this proportion to increase in 2020 and beyond.

Based on the potential harvests of damaged timber and the capacity limits of Central Europe’s sawmill industry to process the damaged logs, log export volumes at increasing volumes could result in further disruptions to global trade flows. Central European log exports to China will remain strong for some time until the incremental sawlog volumes ease later in the decade.

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