Rather positive outlook for 2021

At the ISC, Don Kayne, CEO von Canfor, the world’s second biggest sawmill group, was surprised by the strong performance of its Swedish subsidiary Vida already in Q2.

Trends positive for timber demand

After considerable production curtailments during lockdown, Canfor* had its hands full with increasing production again. Only in mid-June, the group was back at full output – which the market urgently needed. The segments renovation and DIY saw year-on-year increases in demand of 15 to 30% in North America. Sales of DIY stores skyrocketed as well. “People like being at home. They want to do something themselves. That’s good for timber companies. Also, the trend to move to suburbs is a big game changer,” analyzed Kayne.

Stock levels still low

“Prices were already high in 2018, but contrary to that year, there were hardly any goods in stock in 2020,” explained Kayne with regard to the price explosion. There was never an oversupply. “And when I take a look at our order books, there is going to be little change in Q4.” Kayne even went so far as to say that in his opinion “prices are going to remain high in the coming months because lumber stock levels are low.” He expected stock levels to adapt in Q1 2021.

“At the moment, many sawmills only have log wood for one to two weeks. Log supply remains a challenge in North America. The worst wildfires in 18 years caused damages worth USD 20 billion – which is going to further reduce supply in the medium term. In light of global calamities, Kayne sees log supply as the biggest uncertainty in the coming years.

Normal level could be higher

When asked about possible prices in 2021, Kayne as well as Brinkmeyer were rather evasive in their answers. However, they see the bargain price of the last decade as a thing of the past (around 400 USD/1000 bft for 2-by-4; Holzkurier average price 2010-2019: 225 €/m³).

China always a good market

China is still a good market – despite the 10% decrease recorded in H1. SCA’s Håkan Persson sees China as being on the right track. The country’s GDP grew by 3% already in Q2. “Domestic demand has to recover,” he thinks. Contrary to Europe, the US or Japan, however, China does not have a DIY tradition.

Currently, a lot of damaged wood is arriving in China. This quality is sufficient for the use in construction. The “Green Olympics 2022” are going to boost demand for laminated timber and as a result, also demand for strength class-sorted goods. Furthermore, China wants to become carbon-neutral by 2060 – and timber constructions could help with that. SCA sees very promising opportunities in the furniture segment.

China’s domestic consumption decisive

The “Golden Week” at the beginning of October showed that consumption is already increasing in China. The growing domestic demand is also going to boost demand for wood. According to Persson, furniture or components for small-scale apartment renovations are possible examples.

In South East Asia, only Taiwan is going to see growth this year according to Persson. South Korea is consolidating its position as number two in the region after China. The Vietnamese market, which has a demand of 600,000 m³, is characterized by stability even in difficult years.

A gigantic country with hardly any own lumber supply: This is how Tano Khan of Timber Base in Berlin introduced India. The country’s 1.3 billion inhabitants are on average 27 years old. “Whoever uses wood, mainly turns to importers,” explained Khan and showed that Germany, Austria and Ukraine already ship big volumes to India. Wood is mainly used for formwork since there is no timber construction tradition, not even in roofing.

India: Many still want to go there

An ad hoc survey carried out by Khan among all ISC participants revealed that 37% are already doing business with Indian companies, while 26% have plans to do so. However, India is not “the new China”. The country hardly uses any wood in constructions. This could change, though, with the topic of carbon neutrality. In the medium term, this could create opportunities for CLT or construction timber.

Ulf Gabrielsson of Uni4Marketing AB analyzed the market outlook for North Africa and the Middle East. “This region has 360 million inhabitants, nearly no timber resources of its own and a construction sector which is expected to grow by an annual 7% until 2022,” was his positive introduction.

Contraction in the Levant region/Middle East this year

With an annual softwood lumber demand of 4.3 million m³, Egypt is the region’s biggest market, followed by Saudi Arabia (1.5 million m³) and Algeria (1.4 million m³). Despite COVID-19, Egypt’s GDP is expected to grow by 2% this year. Nonetheless, lumber demand is on the decrease in 2020. According to Gabrielsson, the plan to build 765,000 housing units in the next three years is reason for hope. “The Swedish exported one million m³ until the end of June, i.e. 23% more than last year, even though imports fell by 13%,” Gabrielsson said with a smile.

In Algeria, bigger construction projects have been postponed due to lower revenue from crude oil sales. As a result, demand for imports was down by 15% compared to last year. Austria remains Algeria’s main supplier with 256,000 m³ and a year-on-year decrease of only 6%. Germany managed to ship 19% more to the country but remained on a lower level in terms of volumes (31,000 m³ in 2020). Gabrielsson sees Algeria as a stable buyer in the short term. Considering that the country’s GDP could continue to grow by an annual 3%, this is also true for the long-term outlook.

Europe gains market shares in Japan

With Japanese demand on the decrease, Europe still sells constant volumes of softwood lumber and laminated timber, while considerably less is bought from North America “because their wood is too expensive”. This is how Yasuo Toyoda of Itochu Kenzai analyzed the situation. Toyoda expects that housing starts are going to fall to 88% of last year’s number (795,000 units) with a slight recovery following in 2021.

There is additional demand thanks to buildings for the Olympics in Tokyo and more timber construction, for example in the non-residential construction sector. Concludingly, Toyoda explained that DIY is a motor in Japan as well.

* Editor’s note: In Q1, Canfor recorded an adjusted net loss of CAD 26 million (€ 16.8 million), and profits of CAD 83 million (€ 53.7 million) in Q2. Q3 results are going to be published at the end of October.