A positive outlook for timber in construction

“The current short-term challenges do not change the long-term positive outlook for timber in construction.”

That was the conclusion of Olle Berg, EVP Market and Business Development at SETRA Group at the recent TDUK Global Market Conference.

Olle addressed delegates at the Conference in London this week, giving them an overview of the global timber market.

He started by looking at how 2023 has panned out for the timber industry, highlighting how we began the year with high price pressures, due to high stocks sitting with producers.

Prices went up in Q1 and Q2 this year, but timber deliveries also began to fall in Q2 as inflation hit, causing a slow down of new orders.

As the markets were gradually affected by rising inflation and interest rates, prices began to fall again, and continued to do so throughout Q3.

“The biggest problem we have for timber construction is interest rates,” Olle said, “especially in Europe. High interest rates have a significant effect on new housing starts and renovations.”

He also highlighted that this fall in new orders is adding to the impact of the post-pandemic downturn the industry was already seeing, as the market stabilised after the unprecedented highs experienced in 2021 and 2022.

Wood consumption is down 12.2 million m3 from 2020 through to the volumes being estimated in 2024.

So, is the current situation simply following historical market upturn and downturn patterns?

Olle thinks not, because normally a downturn in timber material consumption happens “when stocks are sky high”, and so everyone keeps producing. But that hasn’t happened this time. The market is also experiencing the continued impact of Russian invasion of Ukraine, and the removal of Russian timber from the global market.

Olle went on to explore how different countries are dealing with the current economic challenges. In Sweden, for example, the new housebuilding market has fallen almost to levels not seen since the 2008 financial crisis with Swedish households experiencing very high debts and high interest rates.

All European countries are experiencing falls in timber imports apart from Spain, which has seen a 1% rise, but the UK with just a 5% fall is coming in second, whereas the overall European average is 21% down.

“The UK had a surprisingly good Q2, and is clearly outperforming the rest of Europe from a wood consumption perspective, ” Olle said. “There is good underlying demand and a need for major renovations in schools, hospitals and other public buildings going forward, which is a strong opportunity.”

Olle added that the UK’s monthly consumption of softwood is down slightly, but still high, while wood consumption overall continues at high levels, even though housing starts are trending down.

In summary, Olle believes that, while the challenging market conditions and high inflation/interest rates will continue throughout 2024, the long term future of timber looks bright.