While the EU softwood market is not without its challenges and raw material availability remains a concern, the market seems to have hit the bottom and the long-term outlook for timber in construction looks positive. That was the view from Olle Berg, Marketing Director of Setra Group, when he addressed delegates at the TDUK Global Market Conference in November.
As the first Keynote Speaker of the day, Olle gave his views of the EU softwood market from the perspective of Swedish sawmill business Setra, which has seven sawmills and a processing unit in Sweden, as well as a planing mill based in Great Britain.
Olle began by outlining the continuing impact of raw material constraints, particularly in Sweden and Central Europe, where log costs have increased by between 30 and 40%. This is partly due to the severe under-supply of logs in Q1 and Q2 2023 and their continuing lack of availability, which has seen prices increase in all markets. He noted that while log prices have skyrocketed this year, sales values have not risen by the same amount, leading to financial strain for many sawmills.
Olle explained: “Production is at low levels, and I don’t think that there are signs that this will change. Raw material availability could even worsen, and we’re looking at very tough times. This is the big topic of conversation in Sweden – we’re talking more about the raw materials than the sawn goods. Prices are still far below what the sawmills need.
“Log prices have skyrocket over recent years, [with] a reduced production volume due to these raw material constraints – that is becoming the new normal.”
Global markets struggle
Statistics show that construction and timber markets globally have continued to struggle in 2024. The Middle East and North African markets are, inevitably, affected by the war in the Middle East, and production there has remained low. Despite this, Olle sees potential in the North Africa and Middle East market overall. North Africa has a large population with a young average age, which creates a significant need for housing. Investments across North Africa in infrastructure programs and sporting events are also driving demand for wood products.
Production levels are also down in Sweden, Finland, Germany and Canada, with no signs of recovery in those countries as yet. European trade flows show imports are -4% year on year, with France and the UK being the most affected. The UK falls are predominantly due to low consumer confidence and a significant drop in housing starts. Poland is the only positive European market, although the south European countries such as Italy and Spain are also showing some early signs of improvement, these are from lower levels than France and the UK.
Olle explained: “UK imports have been holding very well over this period and, from a Swedish perspective, the UK is the biggest export market in Sweden. It was doing fine almost throughout 2023 and it really peaked in Q2 of 2023 but from then on, it’s been trending down.”
Nevertheless, timber building and CLT are continuing to take market share from other materials even in a depressed building market, which Olle said is a positive sign for the long-term health of the timber sector.
Most global economic forecasts suggest that inflation is coming down in many markets, leading to more rapid interest rate cuts and positive signs for consumption and the construction industry. Sweden’s inflation rate, for example, is 1.1%, with similar rates being seen in a number of European countries, as well as in the US.
Olle said: “High interest rates and inflation hit very, very hard during the first half of the year. But from August onwards, market conditions have changed quite rapidly in the US, and we are seeing rather strong price increases and improvement in housing starts.”
Here in the UK, interest rates are key to new housing starts, and Olle expects lower rates to begin boosting building and RMI activity next year and he does see positive signs ahead.
“We are moderately positive that from 2025 things will be better,” he explained, “but we’re not talking about any boom, and it will come in the later part of the year. I think that we’ll see moderate positive consumption growth. Inflation is now in control, and interest rates are going down a little bit quicker than anticipated. That’s a good sign.”
The key issue for Olle, however, will remain the availability of raw materials and the need to balance supply and demand. “With no significant change in production output, we will still have very tight log availability and costs remain high. If exports to the US come back, and we have a slight increase in Europe, then we will still have an undersupply of wood in the market, driven by the log shortage and lack of availability.”
