Global Trends Review, June 10-16, 2013: lumber outlook, pellet and chip consumption surging, plastics & chemicals from wood

The 35,000 members of the European Organisation of the Sawmill Industry (EOS) produced 75.7 million m3 of softwood lumber in 2012 – 4.5% less than the year before, Holzkurier reported. A challenging situation on the log procurement front was identified as the main reason for the drop in production. With 26% market share, Germany remains the largest producer of the continent, followed by Sweden, Finland and Austria. Europe’s hardwood sawmills, however, increased their production by 8.2% to 6.4 million m3. Here, sawyers from Romania and France together constitute a market share of over 55%. These figures were presented at the EOS General Meeting in Vienna earlier this month.

Romania and Belgium reported softwood lumber production growth (1.4% and 3.4% respectively), whereas Austria, Germany and Sweden all reported decreases ranging between 3.7-7.9%. Hardwood lumber output grew by around 5% in Austria, France and Italy, with 9% in Belgium and an even bigger increase in Romania, as TTJ reported on the same EOS meeting.

Members of EOS also heard at the meeting that sawn hardwood production was predicted to increase by 1.2% this year, despite demand forecast to decline by 2%. “The European sawmilling sector continues to face challenging times,” as said in the EOS message. “Market conditions have been challenging, apart from some exceptions, not really improving since the beginning of the first half of 2011.” The EOS attributed the situation to the general economic climate, low construction level activities, low consumer confidence and tight wood availability with high raw material costs.

Meanwhile, an encouraging first quarter encountered the Austrian sawmill industry as far as exports to MENA countries are concerned, Holzkurier announced. In the first quarter, 225,000 m3 were delivered to this region – 18% more than last year. Algeria has remained the leader so far with 88,000 m3 (+14%). Former top market Libya has recovered strongly and absorbed almost 70,000 m3 (+140%) in the first three months. In the Gulf Region, however, business abated for the Austrians: Saudi Arabia (46,000 m3; –6%) and United Arab Emirates (10,000 m3; –50%) bought less than a year ago.

Finland’s research institute Metla published Finnish forest industry outlook for the near future. Experts are expecting growth in raw wood exports, mainly of birch pulplogs and chips. Production and exports of pulp this year are also to increase, as the demand will be provided by China. However, due to increased supply, pulp prices will decline. In other matters, Metla outlook is very close to what the other industry experts say: packaging demand will surge amid falling paper demand, while Asian and Eastern European markets will provide growth for the woodworking sector.

Although the extensive wave of consolidation anticipated in the Central European sawmilling industry for some years has not occurred yet, numerous works have closed down or have filed for insolvency since 2011, EUWID Wood Products reported. The 24 sawmills involved had a combined technical cutting capacity of approximately 2.7 million m3 per year. The bulk of this cutting capacity (2.4 million m3) is accounted for by the closures of 12 softwood sawmills. Out of total 2.7 million m3, approximately 2.1 million m3 fall within closed capacities in Germany, Austria, and the east of France. As most of these companies had already declined their production markedly by the time of closure, this has not resulted in significant growth of log availability – just around 800,000 m3 of softwood and 90,000 m3 of hardwood logs.

A 21% drop in the cash price since mid-March and lower futures prices have prompted several analysts to trim about 5% off their 2013 lumber price forecasts for North America, The Vancouver Sun newspaper said. Market experts now expect prices will average between $350 and $360 per thousand board feet in 2013, which is about $20 lower than earlier forecasts, but up from $299 in 2012. Analyst Mark Kennedy attributes the drop to a stronger-than-expected price increase in the first quarter, weather-related delays in building activity, increased sawmill production and lower Chinese imports. As US housing activity surpasses 1.4 million starts in 2015 or 2016, the North American supply chain “is going to be challenged to keep pace”, Kennedy added. This is also why imports from Europe should return despite higher cost structures there. As it is the case in other industries, global suppliers of wood and fibre are also eager to benefit from growth rates that are nowadays unique for China. However, higher prices for North American lumber moved China to increase imports from Chile, New Zealand and Europe and reduce imports from the US.

At a total of roughly 1.54 million m3, the Japanese glulam industry raised its production volume by around 5% last year and thereby increased its output for the third year in succession. In spite of the repeated growth, the previous peak figure of 1.68 million m3 achieved in 2006 remained unmatched again. The data published by EUWID Wood Products via Japan Lumber Journal shows that 1.37 million m3 and thus, like last year, 90% of the total output was accounted for by glulam assortments for structural timber. Roughly 98% of this volume comprised medium to smaller dimensions.

Pellet and chip consumption surging

Pellet consumption is increasing much faster than production in Austria, according to Holzkurier. In 2012 and 2013, only one, though a large one, pellet plant went online, Vöcklamarkt RZ Pellets. This year should see at least two operations starts – with their productions in full swing in 2014. An anonymous survey by Holzkurier showed that the 30 Austrian pellet producers had a utilization rate of 75% at their plants. Since these are mainly supplied from the large wood industries, it may be doubted whether this level can be maintained, given the drop in sawmill production so far this year. Dry chips are difficult to obtain on the market. Prices rose to €11.3-13/m3 in May. Among other things, this causes the wood-based panels industry to increasingly look for other waste wood as an alternative source.

Wood chips are about the only forest products commodities that have seen a steady growth in terms of globally traded volumes in the period from 2000 to 2011, as reported in WRI’s Wood Resource Quarterly. From 2009 to 2012, global chip trade increased by 6.5 million tonnes to just over 31 million tonnes, worth over $5 billion. The main reasons for the rapid increase are found in the dynamic expansion of MDF production capacity in Turkey and major investments in pulp capacity in China which has gone from being a net exporter of chips less than ten years ago to becoming the second largest importer of wood chips in the world. With its limited resources of domestic fibre, it is likely that China will surpass Japan as the world largest chip importer within 2-3 years.

New wood products: plastics and chemicals

A British firm is trying to develop bioplastics using lignin, a by-product of pulp and paper operations, Plastics News reported. Biome Bioplastics Ltd. is striving to make a bioplastic entirely free of petroleum chemicals. Lignin is a complex hydrocarbon found in plant cell walls and is a waste stream from pulp and paper. Biome of Southampton, England, is looking at lignin as a replacement for aromatic chemicals in plastics. Key to its commercial success is controlling the lignin breakdown process to get the most useful chemicals out of the brown residue. Early work shows bacteria and enzymes in termites’ stomachs could provide clues. Biome is working with the University of Warwick on the project. Britain’s Technology Strategy Board grant of 150,000 pounds ($230,000) is helping with the research. Biome already supplies a range of bioplastics for film, extrusion and coating. “The availability of a high performance polymer manufactured economically from renewable sources would considerably increase the market,” noted Biome CEO Paul Mines in a news release.

UPM and Renmatix Inc. (USA) have entered into a non-exclusive joint development agreement in the area of biochemicals. Under terms of the agreement, both companies will further develop Renmatix’s water-based Plantrose™ process to convert woody biomass into low-cost sugar intermediates for subsequent downstream processing into biochemicals. Offering cost-competitive bio-alternatives for select petrochemicals on an industrial scale is the long term goal of this initiative. The Plantrose process employs water at very high temperatures and pressures to breakdown biomass through supercritical hydrolysis. Under such conditions water can act as both a powerful solvent and catalyst, creating rapid reactions. “We believe this pioneering approach leads to real cost advantages over conventional methods”, commented Mike Hamilton, CEO of Renmatix.

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According to EUWID Wood Products, PEFC has implemented the announced changes to its chain-of-custody standard in connection with the EU Timber Regulation (EUTR). The new standard took effect on 24 May with a nine-month transition period. By using the new standard, companies meet the EUTR requirements, according to PEFC Germany’s managing director Dirk Teegelbekkers. Therefore businesses using it don’t have to develop their own due diligence system or join a monitoring organisation.

Mayr-Melnhof Karton has signed an agreement to acquire a high grade CTM pulp production near Trondheim, Norway, from Swedish Södra Cell AB. An annual capacity of up to 130,000 tonnes replaces external supply by self-sufficiency. The acquisition price will amount to approximately €4 million. MM Karton is the largest producer of coated recycled board worldwide with a growing position in virgin fibre-based board.

Against the background of a decreasing market for fine paper and an increasing market for board Stora Enso is to rebuild its Varkaus fine paper mill to produce virgin-fibre containerboard. If the investment will be approved following the feasibility study, which is to be completed in Q1 2014, the capital expenditure for the conversion will be around €80-100 million. The Varkaus mill has one paper machine with an annual capacity of 285,000 tonnes of uncoated fine paper. The potential capacity of the board machine would be about 350,000 t, Stora Enso said. In addition, the company will rebuild a fibre line at the kraft pulp mill at its Skoghall plant in Sweden. The €32 million investment will include its chemical recovery operations and is to increase the mill’s pulp output capacity by about 45,000 t per year. The project will begin immediately and is to be completed in October 2014.

Prepared using corporate press releases, Plastics News, Wood Resources International, Timber Trades Journal, Holzkurier, EUWID Wood Products, The Vancouver Sun and EUWID Paper.