Global Trends Review, July 15-21, 2013: sawmillers and pulp makers predict volatile but better market environment in the second half-year

In the construction sector, seasonally adjusted production fell by 0.3% in the Eurozone and by 0.2% in the whole European Union area in May 2013, compared with the previous month, according to first estimates released by Eurostat. With €366.6 million, sales in the German sawmilling industry in May decreased a little from April (€369.9 million), but increased marginally year-on-year from €365.2 million, according to figures from the Federal Statistical Office Destatis. British Timber Trade Federation says that wood products import volumes to UK were 5.9% higher in April 2013 year-on-year.

UPM Tilhill, the UK’s largest forest management and timber harvesting company, said recent forecasts of softwood availability for the UK forest estate – an increase to an average of 16 million m3 over the next 25-year period (National Forest Inventory Report) – provided good grounds for optimism. It also cited Timber Trade Federation statistics which show UK timber and panel processors’ share of UK wood products volumes increasing to 44.6% in 2012. UPM Tilhill’s timber operations director Peter Whitfield said economic uncertainty had diminished and signs of recovery in the first half of 2013 were being seen. And he said the sterling/euro exchange rate showed no signs of turning against domestic processors.

Scandinavian sawmillers are generally positive in their second half-year outlook. As reported in the previous global trends review, Moelven and Sodra recorded better results in Q2 2013. In May Södra also managed to increase prices by SEK 40/m3 (€5/m3) for spruce and pine lumber. The decisive factor for considerable growth for Moelven was an increase in the delivered volumes of softwood lumber, especially to North Africa and the Middle East. Stefan Lundin, acting CEO of another Swedish forest industry company Setra, said that Japan and China were mostly accounting for the company’s sales growth. However, the market situation remains fragile and difficult to assess, Lundin added. “The price increases which could be implemented during the spring are more a sign of reduced production and low stocks rather than increased demand,” he said.

Both SPF and SYP lumber prices experienced a sharp drop during the second quarter, West Fraser said in its half-year report. U.S. housing continues to slowly recover and lumber prices have stabilized and shown some improvement in early July. Just as European colleagues, West Fraser expects lumber prices to remain fairly volatile but with a gradual upward trend.

In the Building and Living division of Stora Enso, operational EBITDA was €39 million on sales of €500 million in the second quarter, up from €13 million on sales of €441 million in the first quarter. The company said the division’s improved performance was the result of an increase in sales prices, especially in overseas markets, exceptionally strong market conditions, and improved cost performance.

Pulp producers are also optimistic about the second half of 2013, despite some challenges now. Södra expects a continued positive development of the already upbeat pulp market. With a production of 916,000 tonnes of pulp in the first half-year (as compared to 856,000 tonnes last year) and a pulp price that has climbed to $860/tonne already in March, Lars Idermark, President and CEO of Södra, maintains a positive outlook on the autumn period.

Even paper manufacturer Norske Skog, despite deepening losses in the first half of the year, is showing optimism about business development in the second half of 2013. Permanent capacity cuts in Europe combined with expected price increases in the second half, continued favourable exchange rate development and stable raw material costs contribute to a brighter margin outlook, as company CEO Sven Ombudsvedt said. According to the company, price increases taking place in the second half-year amount to €20-25 for newsprint and €15-20 for SC paper, with little or no changes in LWC paper prices.

***

The price of wood pellets has increased slightly in July in Germany. The DEPV index for Germany is currently at €269.37/tonne, thus 1.74% higher than in the previous month, as reported by the German Energy Wood and Pellet Association (DEPV). In the South Germany, price of six tonnes delivered was €273.60, in the Centre – €265.13, while in the North/East it was traded at €263.30.

British government’s Electricity Market Reform Delivery Plan, released for consultation, recommends that subsidies for existing power stations that have been converted to burn biomass will end in 2027. Dedicated biomass combined heat and power plants would be exempt from the cap under the Renewables Obligation and would still be able to receive subsidies. The recommendations follow the earlier conclusions of the 2012 UK Bioenergy Strategy, in which the government said new build electricity-only biomass plants did not offer a cost-effective means of decarbonising the electricity grid, compared with other renewable technologies. The government is also not offering subsidies for co-firing coal and biomass. Energy minister Edward Davey told the BBC that using imported wood biomass to make electricity was not a long-term answer to the UK’s energy needs. We remind that recently RWE announced shutdown of its large-scale biomass power plant in the UK due to low electricity demand and electricity prices.

Stora Enso has received the requisite project approval for the integrated pulp and board project in Guangxi, southern China, from the Chinese National Development and Reform Commission (NDRC). In order to benefit from the growing consumer demand for consumer board more rapidly, Stora Enso has together with its local partner and supported by key customers revised the investment schedule and will start by building a consumer board machine scheduled to be operational in the beginning of 2016. Construction of the previously announced pulp mill will be started after the board machine has been completed. The capital expenditure for the first phase of the project is estimated to be approximately €760 million, comprising €590 million for industry and €170 million for plantation operations. The project is expected to clearly exceed Stora Enso’s ROCE target of 13%.

In 2012, the average forest regeneration costs in Latvia comprised LVL 275-418 per hectare (€392-595), depending on the forestland quality group. Average costs of forest regeneration per hectare include expenditure on soil preparation, small sapling expenses and planting costs. Forest tending costs in Latvia on average comprised LVL 121-148 per hectare (€172-211); they include agro-technical tending of forest and tending of young growths. The total value of the harvesting costs in both final felling and intermediate felling are formed by the labour costs, transportation costs, including costs of the machinery used. In 2012, the average harvesting costs (per one cubic metre of timber) in the final felling constituted LVL 12.09 (€17.2), while in the intermediate felling – LVL 14.06 (€20).

Prepared using corporate press releases, Holzkurier, Timber Trades Journal, Fordaq, EUWID Wood Products, and EUWID Paper.