Current situation of the Swedish forest industry
- Swedish demand for sawn wood products has decreased by more than seven percent, saved by increased exports
- Falling demand for graphic paper has led to shutdowns
- Packaging materials of paper have developed well and some increased capacity can be expected
- Market mass has developed weaker since the spread of the Corona pandemic
The outbreak of Covid-19, but above all subsequent political measures to stop the spread of infection, has had extensive economic consequences globally and in Sweden. Several countries, including Sweden, are now in a very deep and serious recession. In April, Swedish companies’ production plummeted and the fall in GDP during the second quarter of the year became, as in many other countries, historic. The euro area, which is the Swedish forest industry’s most important market, has been hit hard.
During May and June in particular, activity increased slightly in several countries. This coincided with the fact that the situation with the Corona pandemic was not as acute, that societies were opened up and that the economic policies of some countries were shifted in an expansive direction. But overall production levels in the economies remain low in Sweden and the euro area, among others. Various indicators certainly show expectations of growth, but it remains to be seen whether they will be met and how strong the growth will be. The Swedish forest industry has been affected to a lesser extent than several other industries. But the Corona pandemic has left clear traces in the forest industry as well, among other things there have been disruptions in the forest industry’s trade with other countries, which in turn has led to increased costs.
The companies have also had problems with canceled customer and supplier meetings, among other things as a result of introduced travel restrictions. Demand for market pulp, and especially for graphic paper, has developed very weakly. Profitability has also been under pressure as the prices of pulp and paper in Swedish kronor have fallen due to the krona’s exchange rate having strengthened. World market prices for pulp and paper, on the other hand, developed relatively stably during the year.
The market for sawn wood products has developed positively overall, as has to some extent packaging materials made of paper.
Exports save Swedish sawmills
In general, the situation for Swedish sawmills is currently positive and the mood is hopeful. The latter is reflected in the Swedish National Institute of Economic Research’s barometer, which signals great optimism at the sawmills.
In principle, deliveries have exceeded production during each individual month during the year. Up to and including August this year, deliveries are six per cent higher than in the corresponding period in 2019. Above all, exports have been strong. This has offset declining domestic demand. Despite a strong Swedish construction trade, domestic demand for sawn wood products has decreased by more than seven percent so far this year compared to 2019.
Prices have risen in several markets as a result of demand for sawn wood products falling less than supply, while inventory levels at both producers and customers have been low. For Sweden, global price increases have been offset by a strong krona. In August, the price index for Swedish wood products, converted to trading currency, had increased by almost 10 per cent since February-March and by five per cent since August last year.
Calculated in Swedish kronor, prices had only increased by about two percent since February and fallen by a few percent compared with a year ago.
Compared with the peak in September 2018, the price level was 13 percent lower.
The current positive situation is mainly due to the fact that global production of sawn goods has decreased more than demand. The market balance has thus been negative, which has greatly reduced inventories and led to higher prices. The development has largely been driven by a reduction in production in Canada (approximately -15 percent in the first half of the year). The reduced production can be linked to the outbreak of the pandemic and a concern about the market situation and a high cost situation.
In the future, however, these factors may change. For example, due to sharply rising prices in some of the country’s main markets, Canadian sawmills have once again increased their production. Other important producer countries have also increased their production and the supply from Central Europe may remain high in order to obtain sales for bark beetle-damaged timber.
For a period ahead, the world market for sawn wood products may be volatile before production, inventory and demand return to balance. There is a certain risk of setbacks where a surplus of wood products develops on the market. In the next few months, however, it is not unreasonable that the positive market situation for Swedish sawmills and exporters will persist, as it will take time to even out the deficits and low stocks that have built up in several markets.