The sales indicator does not take quantities into account. Weak demand therefore makes the situation is even more unpleasant for producers than the price reductions alone would suggest. Normally, construction activity comes to a standstill in winter and so does demand as a result. This year, however, winter began already in July.
Situation deteriorating further
The Central European timber industry has thus lost another big revenue “cushion”. Demand for nearly all products is well below the usual seasonal level in terms of quantities. Some construction products are said to be at 50% of the normal number of incoming orders. All customers buy only the minimum – after all, everything could be cheaper next week. Italy is an exception to this. For reasons of liquidity, Italian customers were not able to stock up as much as German timber merchants, for example. So, now, they have to order again and sooner than others.
Sawmills are calling for significant curtailments of production. Some of them are going to reduce work from three shifts to one in November. The wood processing sector is also implementing significant curtailments.
US and pellet prices recovering
Two factors are currently stabilizing the situation: US softwood lumber prices keep rising. Thus, there could be a trend reversal in the West. From September to October, an increase of €69/m³ was recorded, bringing the price level away from this year’s low by €90/m³.
Wood pellet prices are also rising strongly. In Germany, pellets cost €248/t, which is 9% more than last year. In Austria, the price was up by 4%. On the log wood market, on the other hand, three factors are driving the downward trend:
- well-supplied sawmills
- cutback in cutting due to weak lumber and processed wood product sales
- marked increase in available log wood in some regions
By how much is cutting to be reduced?
To what extent cutting will be reduced is difficult to quantify. An overall curtailment of 5 to 10% is likely in Austria. In Germany, where cutting is said to have been 15% above last year’s level in the first half-year, the handbrake is going to be pulled harder.
If the downward trends continue, the question is whether the prices of lumber and processed wood products could return to last year’s level. This is most likely to happen to products which had the highest growth rates in the first half of 2021: solid structural timber (KVH) and roof battens. The KVH price has nearly halved since June, and as for glue-laminated timber, many people wonder whether the new year will begin with prices from €500. In Germany as well as in Italy, glulam still costs €600 or more on average. Fresh laminations for glulam staying above the €300/m³ mark is also something that industrialists are hoping for.
Prices approach the bottom
In general, it is assumed that prices of all product groups have reached a certain bottom. Decreases are levelling off and real production curtailments are being implemented now. Opinions on how long the winter will last this year differ greatly. The first quarter at least will still be a challenge in terms of sales. The development on the US market is a glimmer of hope. Eleven weeks without a fall in prices and a 60% increase in the price level could be a sign that the much-vaunted “new normal” is being targeted.
Shipping space for 2022 already sold out
2022 shipping capacities from Europe to the US are said to be already “sold out”. This is true both for container and break-bulk shipping and could make it impossible for some companies to return to the US next year. With even more forest being placed under protection in Canada, supplying North America is becoming more difficult which could keep demand for European wood high.
Chinese demand is on the decrease, with a loss in customer confidence, Covid-19 and the real estate bubble (“Evergrande”) having a negative impact.
At the moment, customers only buy what they really need, since everything could be cheaper next week.
In 2022, we might see skyrocketing prices like we did in the first half-year. In the interest of everyone involved, we should try to avoid that.
The lumber price used to be twice the log wood price. Now, it is closer to 2.5 times because wood waste is cheap and electricity is expensive. We are currently approaching this 2.5 times-mark.
If the log price level is too low, we won’t have enough wood in the first quarter of 2022.
The order lead time for 2022 differs completely from company to company.
Even though prices have halved, KVH is still hard to sell.
