2019 was a good year for the German softwood industry. However, when it comes to results, most companies probably won’t reach the previous year’s level. Sawmills slightly raised their production again, but at the same time sales decreased slightly. The availability of raw material and raw material prices were certainly not the reasons for the weaker performance in the second half year of 2019 compared to the first. The wood waste market, wood qualities and the resulting sawn timber prices contributed to the situation.
For German sawmills the start of this year was a positive one. The usual seasonal dents in sales of products for the construction sector were only moderate. In view of the robust development of the Central European construction sector, the medium-term prospects for those products are good. The big number of planned and announced investments are proof of this.
The fact that the overall Central European economy has seen a more positive development at the beginning of 2020 than many feared at the end of 2019 helps the second most important sales market of the softwood industry, i.e. the producers of pallets and wood packaging. Prices are under pressure. However, in the long run, sales seems to be ensured.
Wood waste is a much bigger cause for concern among sawmills. The engineered timber industry as well as the paper and pulp industry have serious problems, as the falling production indices clearly show. On top of that, there are enormous volumes of industrial wood from areas which have been affected by various calamities, which means that in the near future, sales of wood waste will continue to be a “problem child” for sawmills. In the future, we should see further investments in pellet plants and wait for new approaches to a wood-based bioeconomy.
Storm Sabine has caused less damage than media coverage indicated (although the actual dimensions are again going to exceed the reports of the forestry sector on the matter). In Germany, the epicenter was farther in the south this time, where drought and bark beetle damage was limited so far. The storm-tossed forest owners of Central Germany have already lost China as a “pressure relief valve” due to the coronavirus. Now, long-distance transports to Bavaria and Baden-Württemberg are likely to decrease as well.
As to export markets for sawn timber, there were considerable shifts in 2019. Sales in North America, where the housing construction sector has seen a very positive development since midyear 2019, should continue to grow. However, when it comes to quantities and prices, the dimensions reached are such that they might bring protectionists to the scene. Let us hope that all Central European producers comply with all respective regulations.
Fueled by the quality of log wood from calamity-struck areas, sawn timber sales to Asia also continued to grow in 2019 – apart from China, this is also true for India, Taiwan and South Korea. In view of the qualities of the log wood, those markets are of crucial importance for German sawmills. However, precisely those countries are especially at risk from the new coronavirus.
The potential repercussions of the coronavirus should not be underestimated. The epidemic in China has already brought log exports from German calamity-struck areas to a standstill. Containers are increasingly scarce, freight costs for transports to Asia have already rocketed and other destinations are likely to follow.
The medium-term effects are a slowing growth in China with the respective repercussions on the global economy and, for our industry, a fiercer competition when it comes to sawn timber markets. Northern Europeans and Americans are also going to record temporary losses in sales and are therefore going to turn to other markets. Russia is certainly most affected by this, Siberia being China’s most important supplier of sawn timber. The logistical challenges involved in reaching other markets are huge. It is clear the global trade flows are going to change in the coming weeks.
Naturally, the actual repercussions depend on the progress and duration of the epidemic which is no longer limited to China. If the virus continues to spread globally, all forecasts are only speculation. In the full year 2020, we will have to brace ourselves for a weaker economic development.
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