Beyond any forecast
When we developed the sales indicator together with the University of Natural Resources and Life Sciences, we did not think that it would ever exceed a value of 130%, but we were wrong in our assumption. In March 2021, this value was clearly exceeded. Lately, price increases have been gaining speed week after week. Starting with the log wood, the entire timber market seems to be out of control.
All March prices already obsolete
The monthly increase in value is massive. However, this only affects the first quarter. When you read these lines, the prices quoted are not a few days old as usual, but actually they are one or two months old because most companies are already at the end of May or partly in June with their orders and price lists. With many product groups, the price level described here is already too low by up to € 200/m³.
What is announced for the coming quarter and has already been accepted by customers in most cases is exorbitant: up to € 600/m³ for roof battens, up to € 500/m³ or even more for solid structural timber (KVH), and up to € 660/m³ or significantly more for glulam. 1000 €/m3 for any product? Nothing seems impossible anymore!
Many losers in the price boom
In light of this market situation, the mood is aggressive. Many companies were taken by complete surprise by the massive increases and empty warehouses. When price fluctuations are so big and stock levels are so low, there are only big winners or big losers. According to buyers, “take it or leave it” seems to be motto of many producers. The majority of companies make an honest effort to primarily supply their existing regular customers – with quantities which are similar to their long-term order volumes. Furthermore, price forecasts going as far as until June and delivery commitments for a specific calendar week are to bring predictability to the market.
Unexplained price relations
Already in the middle of 2020, the price of plain lumber was higher in the US than the price of highly finished cross-laminated timber was in Europe. This could have been a first red flag for everyone, a sign that the usual price relations are falling apart. At that time, though, this was still attributed to the absurdities of the world markets, namely Trump’s America in the middle of the pandemic.
Now, the price absurdities are part of everyday life in Central Europe, too. When the price of best-quality inner-alpine carpenter’s products falls below the price of run-of-the-mill products, such as 17 mm chipper sideboards, you know that something is substantially wrong. Another extreme example: 640 €/m³ for roof battens bought at auction…
Only modest increases in forests
The fact that primary producers, i.e. the forest owners, continue to be closer to the lower end of the price scale rather than the upper end, creates particular discontent. In the first quarter, log prices rose sharply to € 81.5/m³ in Austria and Southern Germany. However, this 12% increase is still not enough to reach the average price of € 85.7/m³ which was recorded in the years from 2006 to 2021.
In our latest survey on LinkedIn, 61% of the respondents see the “growing demand in China and the US” as the main reason for skyrocketing prices. Germany, for example, exported around 2.7 million m³ of softwood lumber to these two big markets in 2020, that is 14% of the overall production output (19.7 million m³). With export volumes growing so strongly in such a short time, the market has not yet been able to get used to smaller volumes being available. Up until 2020, only a few companies shipped volumes worth mentioning across the Atlantic. Since then, however, it is mainly medium-sized sawmills which cannot resist a price level of more than € 500/m³. This leads to two developments:
- Certain products are in short supply for regular customers – for example, when companies specialized in KVH start to produce lumber for the US market.
- When a product (group) suddenly fetches twice the usual price, there is a growing desire to raise prices of classic European products as well.
Germany’s growing export volumes are only one factor contributing to the big increase in prices on the domestic market. Booming world markets also led to reduced imports. Scandinavian timber companies, for example, now have more lucrative markets than continental Europe.
In addition, the DACH region’s construction sector is experiencing a boom in renovations and redevelopments. Put all of this together and you get the situation in which we currently find ourselves.
China’s long poker game
It has already been mentioned that since October many companies did not want to believe what was happening before their own eyes. Giant buyers were also taken by surprise. In the fourth quarter of 2020, Chinese importers bought less because they considered the price increases to be only temporary. The rude awakening came when Chinese warehouses were nearly empty in January. The price of Scandinavian top-quality goods has almost doubled compared to the previous year (well over $ 400/m³ for saw-falling products in China).
The shortage of containers and higher freight costs are another two of the many problems which the Chinese timber industry faces. The worldwide boost in lumber prices makes products more expensive for the Chinese market as well. Furthermore, opportunities to shop for cheap log wood in Central Europe’s damaged wood hotspots are fewer and further between in 2021. These quantities will be used even more in Europe – and the Central European sawmills will be willing to pay more for the damaged wood.
Exports to China could slowly ebb away
European log exports to China might have reached its peak in 2020. In January 2021, shipments from Germany to China decreased by 25%.