FORESTA2021
Roundwood markets in UNECE regions in 2021-22Key trends and outlook
Foresta2021 – Joint Session of the UNECE Committee on Forests and the Forest Industry and FAO European Forestry Commission
23rd November 2021
Market outlook
FORESTA2021
© 2021 Wood Resources International LLC and O’Kelly Acumen AB
Key dynamics impacting UNECE roundwood markets in 2021-22
Global trends
2
COVID rebound
Russian log export ban
Climate / forest health
Sustainability initiatives
• Strong lumber markets in US and Europe
• Paper and packaging rebounding
• Housing crisis in China?
• Challenge for China
• Opportunity for other log exporters
• Russian industrial expansion?
• Decline in BC harvests in wake of mountain pine beetle
• Fires in US West
• Temporary surge in Central European harvest
• LULUCF
• EU Forest Strategy
• Carbon forestry
FORESTA2021
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Sawlog prices are well above long-run average levels
Softwood sawlog prices1; USD / m3 • Sawlog prices in many regions are well above average, e.g., − Germany 7%− Finland 18%− Latvia 44%− BC 77%
• Key drivers:− Strong lumber market− Supply constraints (e.g.
BC)− China log imports (e.g.
Germany, NZ)
COVID rebound – Strong lumber markets
3
1. Delivered mill gate
SOURCE: Wood Resource Quarterly (WRI LLC)
0 20 40 60 80 100 120 140
US South
Global average
Germany
Latvia
Finland
US NW
Sweden
NZ
Canada East
Canada BC
Russian NW
Chile
Current (2021)Average 2000-21
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Pulplog prices are mostly around long-run average levels
Softwood pulplog prices1; USD / m3 • Pulplog prices around average level in most regions.
• Some exceptions (e.g. strong prices in Finland, weak in Germany, Brazil).
• Key drivers:− Slight rebound in P&P and
panel markets− Elevated sawmill residue
supply
COVID rebound – Strong lumber markets
4
1. Delivered mill gate
SOURCE: Wood Resource Quarterly (WRI LLC)
0 20 40 60 80 100 120 140 160
Brazil
Germany
Austria
Canada BC
Sweden
Global average
Finland
Canada East
US NW
US South
Russia NW
Chile
Current (2021)Average 2000-21
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China and Finland are both dependent on Russian logs; China mainly for sawmills, Finland for pulp and paper
Imported wood from Russia, 2020e; Million m3• Important for Chinese
sawmill industry− 10-15% of softwood log
imports, 30% of hardwood log imports
− Secondary impact on residues for panel mills
• Less impact on Finland− Russian import mostly
hardwood pulplogs (not covered)
− Softwood imports mainly as chips not covered
Russia log export ban
5
1. Delivered mill gate
SOURCE: Customs data; WRI/OA analysis
Sawlogs
Pulplogs
Chips
Softwood Hardwood
5.3
2.5
~0 ~0
~0 ~0
0.7 ~0
0.1
4.5
2.0
~0
Softwood Hardwood
China Finland
Expected to be covered by ban
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Of the largest lumber-exporting regions, Russia has the greatest potential to increase exports
6SOURCE: Customs data; WRI/OA analysis
Russia log export ban
30.0
26.0
23.0
16.0
12.0
6.0
5.0Baltic
Canada
Russia
EasternEurope2
Nordic
CentralEurope1
LatAm
Total softwood lumber exports 2020e Million m3 Potential to increase lumber exports
Low High
Large potential and incentives improving with expected log export ban and investment support for sawmill expansion and improved quality (kiln-drying). However, dependent on investment in Russian sawmill industry.
Some potential to increase harvest in the region; we estimate Finland could increase sawlog harvest 6-7 mlnm3, Norway 2-3 mln m3 and Sweden 2-3 mln m3. Most lumber production is already for export, with small domestic markets.
Lumber export will stabilize and log export decline following mountain pine beetle damage and salvage in BC. Geographic shift with more export from eastern Canada and less from the west. US will remain the most attractive export market for lumber, with only limited export to Asia from western Canada.
Harvests will decline in the coming 1-2 years after short-term surge related to salvage of forests affected by bark beetle epidemic. Long-term reduction in harvest is likely due to scale of the damage and salvage harvests.
Some potential to increase export. Although log markets are tight (harvest rate of 75-85%, and log markets tightly coupled with Nordic region), reduced log export would enable increased domestic lumber production. Likely strong domestic demand growth but most lumber production will remain for export.
Some countries (e.g., Czech Rep.) also impacted by bark beetle, but others (e.g., Belarus, Ukraine, Romania) have low wood costs, potential to increase harvest, and are attractive for sawmill investments. Strong domestic demand growth is likely with post-COVID economic recovery, reducing share of lumber for export. Limited potential; export is currently at high levels due to weak domestic demand. Domestic demand will increase and export fall as the regions economies improves long-term. Also, a decline in planted softwood area over the last 10-20 years will limit future size of lumber industry.
1. Germany and Austria, 2. Belarus, Ukraine, Czech Republic, Romania, Slovenia, Poland, Slovakia, Bosnia and Herzegovina
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Forest damage, related to climate change, is impacting roundwood supply in Canada and Europe – for many years to comeCanada harvest and lumber export to US; Million m3 Central European1 harvest and export; Million m3
Climate / forest health
7
1. Germany and Czech Republic
SOURCE: FAOSTAT; WRI/OA analysis
Implication: Temporary surge in log exports to China, supply to domestic lumber industry
Implication: Reduced lumber supply to US and Asia
0
10
20
30
40
0
50
100
150
200
250
1990 20151995 2000 20102005 2020
Harvest Lumber export
0
10
20
30
0
50
100
202020152000 2005 2010
Harvest Log export
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Sustainability initiatives, while arguably necessary, will have a large impact on wood supply
Example: Potential impact of LULUCF on Sweden wood supplySustainability initiatives impacting forestry
• LULUCF (EU)− Targets for increased
forest sequestration
• EU Forest Strategy− Continuous cover forestry
(selective logging)− Increased forest protection
• Forest carbon markets− NCX (US)− Voluntary carbon offsetting
Sustainability initiatives
8
1. If full LULUCF target achieved by reducing harvests, baseline felings ~94 million m3
SOURCE: European Commission; Swedish Forest Industries Federation; OA analysis
Target sink 2030 (MtCO2eq./year)
Swedish industry fears
Official (intended)
Current sink (MtCO2eq./year)
Required increase of sink
CO2 per m3 factor
Required addition forest sequestration (million m3/ year)
Impact on wood supply1
4.7
42.6
47.3
3.4
1.375
4 %
11.8
47.3
35.5
13.6
0.87
15 %
Estimates
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Global roundwood market outlook (pricing)
Roundwood market outlook
9SOURCE: WRI/OA analysis
UNECE regions Other regions
North America Asia-PacificEurope (EU) CIS, Central Asia Latin America
Sawlogs
Pulpwood
Things to watch for
Strong lumber marketAdditional potential in US South, Canada E, US NW
• Housing starts
• US South expansion
• Carbon forestry
• Sawmill expansion
• LULUCF, end of clear-cuts?
• Pellet / panel / P&P expansion with new sawmlls
• Chinese housing crisis?
• NZ peak export
• Afforestation for climate
Tight Balanced Soft
Strong sawmill residue supplyP&P demand returning to normal
Strong lumber market / exportPost bark beetle
Central: sawmill residues
Nordic: strong pulp production, harvest constraints
Russia log export ban
Sawmill expansion
Strong pellet industry
Strong lumber marketRussia export banReduced NthAm export
Plantations expanding with demand (e.g. new pulp mills)
Declining exports, with reduced supply and more domestic demand
Pulpmill expansionChina restrictions on RCP import and log import from Australia
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Total
UNECE Timber Forecasts for 2020-22
Roundwood market outlook
10SOURCE: UNECE COFFI and FAO EFC Foresta2021
North America Europe (EU) CIS, Central Asia
297 307303
+1.7%
187188 187
-0.2%
Hardwood Softwood
1515 15
0.0%
2020 2021
62
2022
62 62
+0.1%
216220 221
-0.8%
163159 165
+2.0%
76 7
+4.7%
2020 2021
115113112
2022
+1.2%
135 132137
-1.2%
49 50 50
+0.6%
1818 17
-2.0%
18
20222020
18
2021
18
-0.8%
Sawlogs
Pulplogs
Other industrial
Wood fuel
CAGR
Demand drivers
• SW lumber ++
• HW lumber +
• Plywood and veneer +
• Pulp for paper +/-
• Pulp for other uses +
• Panels +
• Posts and poles +/-
• Residential heating +/-
• Bioenergy plants +
+0.8% +0.7% -0.8%
x
Forecast roundwood removals; Million m3
FORESTA2021
Contact details
Wood Resources International O’Kelly Acumen
Mr. Håkan EkströmSeattleUSA
Phone: +1-425-402-8809E-mail: [email protected]
www.woodprices.com
Mr. Glen O’KellyStockholmSweden
Phone: +46-73-56-98-039E-mail: [email protected]
www.okelly.se
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Backup slides for questions
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© 2021 Wood Resources International LLC and O’Kelly Acumen AB
Since tariffs were first introduced in 2007, China has replaced ~75% of Russian volumes with imports from other countries
13
China softwood imports 2020e100% = 43 Million m3
Key take-aways
• Since 2007, China has shifted ~15 million m3
of Russian softwood log imports to other sources, especially New Zealand.
• China has further diversified import mix recently with increasing volumes from Australia and Germany.
• Exports from Europe are likely a short-term phenomenon, due to bark beetle salvage.
SOURCE: Customs data
0
2
4
6
8
10
12
14
16
18
20
22
20152000 20102005 2020
Russia
USA
NZ
Australia
Germany
Development of imports by source; Million m3
40%
11%13%
6%
17%
14%
New ZealandOther
AustraliaRussia
USA
Germany
Backup
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Decreased Russian exports of softwood logs to China will create opportunity for New Zealand and European exporters
14
Global trade-flows 2020e – Softwood logs; Million m3 Largest exporters
NZ
4
USA
5
1
SOURCE: Customs data; WRI/OA analysis
Backup
2
Korea & JapanChina
17
1
3Russia
Nordics
Central Europe
Baltics1
2
Largest importers
20
13
12
7
6
Germany
NZ
Czech R.
USA
Russia
43
11
5
5
2
Austria
China
Germany
Sweden
Japan
LatAm
Canada
121
1. Mainly from Germany (~8 mln m3) and Czech Republic (~3 mln m3)
3
1
Australia
India
3
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Most potential for additional log supply is in the east of Russia
15SOURCE: WRI/OA Analysis
76
133
Siberian
268
16
62
Far East
92
16
74
Ural
99
30
24
Volga
7086
Southern and North Caucasian
22
23
Central
56
53
37
120
Northwestern
Russia’s annual allowable cut and harvest by Federal District, 2017; Million m3
Unutilized
Registered removals
Harvest loss1
Illegal logging2
1. Estimated, assuming logging waste and bark is 25% of total (registered and illegal) fellings2. Estimated, assuming 25% of harvests in Siberia and Fast East are illegal, 15% in rest of Russia (20% overall)
Large unutilized potential in east of Russia – not currently available due to cost constraints and long distances from processing facilities or railroad.
Backup
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Forest growth of ~315 million m3 across the region, in production forests, of which ~175 million m3 is harvested
16SOURCE: USDA Forest Service
Backup
15
11
Louisiana
27
16
11
Arkansas
28
18
22
Mississippi
44
18
1031
Nth Carolina20
286
Sth Carolina
31
1047
Georgia127
21
Florida
24
19
Alabama
48
Unutilized
HarvestMortality
13
Texas
320
89
Virginia
20
315
282
107
175
Netgrowth
Harvest
Grossgrowth
Unutilized(added tostock)
33Mortality
Softwood growth, productive forest, US South, 2017-201; Million m3 Total across US South
Some of forest growth is lost to mortality (tree death, fires, storms). Of net growth, only about 62% is currently harvested, including harvest losses –remainder is added to stock.
1. Assessment dates vary by state, from 2017 to 2020
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Global lumber markets are in flux, with several trends suggesting a tighter demand-supply balance in years to come
17SOURCE: WRI/AO analysis
Backup
Supply Demand
Actual/ near term
Potential/ long-term
Developments in global lumber markets
• Russia expected to introduce an export ban on softwood logs and high-value hardwood logs from Jan 2022− Restricted sawlog supply to China, increased import of lumber and
sawlogs from other regions− Increased Russian export of lumber, and investments in improved
quality (kiln-drying).• Canada’s harvest potential reduced with mountain pine beetle in BC.• Central Europe harvests increased short-term due to bark beetle
damage but will fall to below pre-beetle levels from 2022/23. • Decreased export from LatAm to domestic economy rebound and
reduced sawlog supply.
• Strong demand in US due to COVID stimulus and increased DIY• Continued strong demand growth in China post-COVID
• Additional US South supply potential of ~20 million m3 long-term• Increased focus on forests’ role in climate change abatement, growth
in forestry carbon markets− Longer rotations and forest protection (esp. NthAm and Europe)− Surge in new forest planting (e.g., Southern Hemisphere)
• Increased frequency of climate-related forest damage (insects, fire)• Increased investment in plantation forestry in new regions, e.g.,
Africa, SE Asia, increasing sawlog and lumber supply.
• Increased use of wood in construction, including multi-family and non-residential, driven by interested in “green building materials” and innovation in modular solutions (e.g., CLT).
Tighter markets Softer markets Mixed impact