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Report from
Europe
Hardwood log supply under increasing strain in Europe
Hardwood log availability is now coming under considerable
pressure in Europe due to the combined effects of declining forest
productivity in the face of climatic disturbances, rising log exports to
China, and a wide range of new policy and regulatory measures.
This has meant that prices for European hardwoods have remained
relatively firm, particularly for oak, even as consumption is declining
in the face of the economic slowdown.
These are key messages from the latest Annual Report of The European
Organisation of the Sawmill Industry (EOS) published in June. The EOS
Member Countries are Austria, Belgium, Denmark, Finland, France,
Germany, Latvia, Norway, Romania, Sweden, and Switzerland.
The Annual Report includes sawnwood production and consumption data for
the 11 EOS Member Countries alongside the UK and Italy as major
consumers. EOS estimate total sawnwood production in the 13 countries to
have been 92.3 million cubic metres in 2022, a 4% decline compared to
the previous year.
Sawn softwood production in the 13 countries fell 4% to 86.6 million
cubic metres in 2022 but was still at the second highest annual level
since before the 2008 financial crises. Sawn softwood production in
these countries was rising almost continuously between 2013 and 2021.
Sawn hardwood production in the 13 EOS countries was down 6% to 5.7
million cubic metres in 2022. In contrast to softwoods, hardwood lumber
production in these countries was sliding between 2015 and 2019, and
only picked up briefly in 2021 when demand increased rapidly during the
COVID home improvement boom. Sawn hardwood production last year was only
marginally above 2020 and was at the second lowest level since 2013.
In 2023, EOS forecast that total sawnwood production in the 13 countries
will decline a further 2% to 90.1 million m3, with sawn softwood
production down 2% to 84.6 million cubic metres and sawn hardwood
production falling 4% to 5.5 million metres.
In relation to hardwoods, EOS observe that Europe’s three largest lumber
producing countries – Romania, France, and Germany - all reported
significant declines in 2022. This was driven more by constraints to log
supply than by falling consumption, although slowing demand was a major
feature of the market, particularly in Germany and Romania, in the
second half of last year.
EOS suggests that “national and European legislation is curbing the
availability of raw materials while many hardwood species remain
underutilised. The quality of some species such as beech is also
declining which is posing a new set of challenges for many mills
particularly but not only in Germany.
Hardwood companies that rely on foreign trade are negatively affected by
the geopolitical situation: long-distance exports are hampered by high
freight rates, pandemic-related tension in China and rocketing fuel
prices”.
Another challenge on the supply side according to EOS is that a
significant proportion of logs – particularly of oak, by far the most
popular European hardwood species, are being exported to China and
thereby diverted away from European mills. China’s import data shows
imports of oak logs from European countries (excluding Russia) of
981,000 cubic metres in 2022, up 20% from 818,000 cubic metres the
previous year.
Total sawnwood consumption in the 13 EOS countries is estimated to have
declined 13% to 63.8 million cubic metres in 2022 and is expected to
fall another 2% this year. Sawn softwood consumption fell 14% to 58.7
million cubic metres in 2022 and is forecast to fall 2% this year. Sawn
hardwood consumption fell 10% to 5.2 million cubic metres in 2022 and is
forecast to fall a further 1% this year.
The decline in European sawn hardwood consumption is due to shortages in
domestic hardwood supply, particularly for the most favoured species
oak, which kept prices high, at a time when demand was being undermined
by wider geo-political and economic trends. The war in Ukraine has had a
particularly detrimental effect on buyer sentiment, contributing to the
very sharp rise in energy prices and wider inflation which in turn led
to a big increase in interest rates and a sharp rise in the costs of
borrowing in European countries.
The direct effect of the war on supply of hardwood lumber in Europe,
while significant, has not been as severe as in the softwood sector.
According to EOS “while imports Russian make up about 0.5% of total EU
sawn hardwood consumption, Ukrainian imports make up about 2.5-3% of
European consumption, so overall the market share of the three countries
combined is about 3-3.5%. Belarus does not export sawn hardwood to
Europe. Importantly, Ukrainian exports of hardwood lumber are
overwhelmingly valuable sawn oak products”.
European associations call for restrictions on oak log exports
The sharp increase in the volume of European oak log exports to
China in 2022 has prompted efforts by a range of European forest
products associations to show to the European Commission (EC) that this
trade has “reached an unsustainable level and risks jeopardising the
viability of the (EU) industry”.
These efforts are being undertaken by EOS alongside the European Panel
Federation (EPF), the European Federation of the Parquet Industry (FEP),
the European Furniture Industries Confederation (EFIC), the European
Office Furniture Federation (FEMB), and the Italian Federlegno with the
help of the legal company Van Bael and Bellis.
To date, according to EOS, the EC has not been convinced of the need to
limit exports of oak logs for several reasons:
There is a risk of retaliation as China could take measures in
response to any action limiting the export of logs (both in the
woodworking industry and in other sectors).
Chinese operators or Europeans acting on their behalf extend the
number of possible customers for the forest owners: so, what is bad for
the woodworking industry is good for forest owners. It is a market
outcome. Therefore, the EC advised the European industry to negotiate
and find solutions locally with the forest owners.
The EC has not received factual evidence proving a case of critical
shortage of an essential product where the EU interests call for
immediate intervention.
Investigations by EC offices in Beijing have found no evidence that the
Chinese import trade in logs and associated processing industry are
being subsidised contrary to WTO rules.
However, EOS note that the EC is “interested in keeping the discussion
alive and actions to limit the export of logs cannot be completely ruled
out”.
Good demand for sawn hardwood in France
The Market Statement for France contained in the EOS Annual
Report highlights that demand for sawn hardwood produced in French mills
was good all year round in 2022, both on the national market and for
export. Consumption was curbed only by insufficient supply, particularly
in oak. For beech, the main issue was quantity of dying beech due to the
impact of climate change on forests.
Total sawn hardwood production in France in 2022 was 1.25 million cubic
metres, 8% less than the previous year. In contrast to production,
French sawn hardwood imports increased 11% to 200,000 cubic metres in
2022. French exports of sawn hardwood also increased 6% to 425,000 cubic
metres. Overall consumption of sawn hardwood in France increased
marginally (by 0.5%) to slightly over one million cubic metres last
year.
For oak, French exports of logs to China were at an historically high
level in 2022. More than 30% of the French oak harvest was diverted to
China, the boom coinciding with the ban imposed by Russia on its log
exports.
French oak sawmills reduced their activity by 25% in 2022 to adapt to
the shortage of supply and this cessation of activity is increasing. In
terms of prices, oak logs continued to appreciate in all qualities.
Rises were also observed in oak sawnwood, bringing prices to a historic
high.
“Tense” situation for German hardwood mills
The Market Statement for Germany in the EOS Annual Report notes
that the situation for hardwood sawmills in the country remains “tense”.
After the Covid-19 pandemic led to a significant drop in production, a
full recovery on the national and international markets has not been
realized. In 2022, production of sawn hardwood in Germany was 997,000
cubic metres (-6% compared to 2021) including 239,000 cubic metres of
oak (-4%), 731,000 cubic metres of beech (-8%), and 28,000 of other
species (-42%).
In addition, companies in Germany are facing increasing challenges in
the supply of raw materials. Political measures are restricting forest
management, in particular beech felling in some federal states. At the
same time, log exports have been at a high level for several years and
demand for firewood assortments also increased dramatically last year.
The Statement goes on to note that exports of German sawn hardwood were
weak in 2022 and this situation is persisting. Declining exports to
China, the largest customer for beech lumber, are weighing on
production. In addition, exports to the other major consumer countries
for German sawn hardwood were lower. In 2022, export volume of beech
lumber fell by 13.5% to 456,000 cubic metres and oak lumber was down
3.2% to 115,800 cubic metres. Export volumes of both species have yet to
return to pre-pandemic levels.
In 2022, Germany’s imports of sawn hardwood also fell dramatically, by
16% to 395,000 cubic metres. While imports of sawn tropical hardwood
increased by 6% to 79,000 cubic metres, imports of oak fell 3% to 90,000
cubic metres, beech was down 20% to 17,000 cubic metres, and other
hardwoods (mainly industrial grade products of beech and similar) fell
26% to 209,000 cubic metres.
Overall consumption of sawn hardwoods in Germany declined 1% to 693,000
cubic metres in 2022, well below the pre-pandemic level of just over
800,000 cubic metres in 2019.
While domestic consumption was down in Germany last year, supply
shortages meant that prices for both beech and oak lumber have risen
significantly. However, with a rise of 20% in 2022, the increase in
beech lumber price was less than the increase for logs. For oak, prices
for logs and lumber developed in tandem.
Price increases of 30% over the year illustrate the difficult supply
situation for beech logs. Insufficient availability and quality losses
due to the ongoing drought are hampering hardwood companies’ production.
Added to this are the restrictions on utilization, so that around 60% of
German hardwood mills are acutely affected by the shortage of raw
materials.
Import prices for hardwood lumber in Germany showed a dynamic
development. After rising steeply to highs in the middle of 2022, they
fell significantly in the second half of last year and, in the first
quarter of 2023, were below their previous year’s level and thus only
just above the domestic prices.
Sawn hardwood production in Romania fell in 2022
The Market Statement for Romania in the EOS Annual Report shows
that sawn hardwood production in 2022 was 1.45 million cubic metres, 15%
less than the previous year. Despite the decline, Romania remained
Europe’s largest single producer of sawn hardwood last year.
Romania’s sawn hardwood exports fell by 12% to 451,000 cubic metres in
2022, including 331,000 cubic metres of beech (-19%), 74,000 cubic
metres of oak (+10%) and 45,000 cubic metres of other species (+29%).
Exports fell dramatically to the two leading destinations; China (-32%
to 171,000 cubic metres) and Egypt (-18% to 92,000 cubic metres).
The Market Statement notes that “the year 2022 was for Romania, due to
the energy crisis, the war in Ukraine and some blockages during the
pandemic, a year with particular challenges both in the resource area
and in the production and marketing of wood and wood-based products”.
Supply side constraints in Romania have been such that, despite
declining demand both in the domestic market and for export, stocks are
low for most companies throughout the trading chain and this is creating
longer lead times for delivery of products and, according to the Market
Statement, “uncertainty regarding the ability to honour contracts”.
Forest growth and policy trends point to declining European wood
production
The EOS report highlights that current harvest levels in most
European countries are still well below increment. In fact, drawing on
Eurostat data, EOS show that the total stock of timber standing in EU27
forests increased by nearly 30% in the twenty year period between 2000
and 2020, with the stock rising in every Member State. In total, an
estimated 65% of the net annual increment of wood in EU forests was
removed by the logging industry in 2020.
However, EOS also point out that other forest trends are negatively
impacting on log availability in the region. Drawing on a recent study
by the EC’s Joint Research Centre (JRC), the EOS report highlights that:
total living aboveground biomass stock of EU forests in 2020 was 18.4
billion tonnes of dry matter.
this volume was equally divided between broadleaves (50.7%) and conifers
(49.3%). The dominant species are Picea sp. (21.5% of total biomass),
Pinus sylvestris (19.8%), Fagus sylvatica (11%), Quercus robur (8%),
Betula sp. (6%) and Quercus cerris (4%).
the total volume of forest biomass in the EU27 increased at a rate of
between 1% and 2% each year between 1990 and 2015, but the annual rate
of growth slowed to only 0.9% between 2016 and 2020.
the annual rate of growth of forest area in the EU27 declined from
0.4% before the year 2000 to only 0.1% between 2015 and 2020.
modelling of forest growth indicates the rate of annual increment may
slow even more during
the period 2020 to 2025.
the slowdown in the rate of forest growth in the EU is due to various
factors, the most significant being the ageing of forest stands,
particularly of broadleaves.
While the rate of forest growth has slowed, EU27 harvest levels showed a
clear upward trend between 1990 and 2015.
This was driven by the rising proportion of forests reaching maturity, an
increase in demand for wood fibre, and a substantial increase in natural
disturbance leading to a rise in salvage logging, especially in central
Europe.
a recent increase in climate variability and climate extremes is now
contributing to the surge of tree mortality and a reduction of
productivity.
drought and heatwaves are interplaying with other natural disturbances
such as fires and pest outbreaks, multiplying the negative impacts on
the forest increment expected in the coming years.
The combined effects of declining forest growth and natural disturbance
is expected to be a reduction in share of increment available for wood
supply in the future. EOS also suggest that policy measures may place
further limits on roundwood extraction in the EU in the future. These
measures include:
The new EU Biodiversity Strategy that requires protection of 30% of
all EU land area and strict protection of 10% of these areas targeting
those with very high biodiversity value and that are important for
mitigation and adaptation to climate change, including all primary and
old growth forest. Guidelines on closer-to-nature forestry practices are
also expected to be developed.
The Nature Restoration Regulation which stipulates that for all forest
ecosystems, progress must be made against a set of indicators including
standing and lying deadwood, uneven age structure, forest connectivity,
a standardised forest birds index, and soil organic carbon content.
The revised LULUCF Regulation which increases the EU’s target for net
carbon removals by natural sinks from 225 Mt of CO2 equivalent (a target
already met according to some studies) to 310 million tonnes of CO2
equivalent by 2030. Meeting the new target will require changes to
forestry practices which, according to many scenarios, is projected to
have a negative impact on area available for wood supply.
The EU Regulation on deforestation-free products (EUDR) which
prohibits forest products resulting from deforestation or forest
degradation to be placed on or exported from the EU market and requires
enhanced due diligence compared to EUTR. Although there is only a
relatively low risk of deforestation and degradation according to EUDR
definitions inside the EU, the new law implies a potentially significant
increase in transaction costs and liabilities for commercial forest
operators and their customers in the EU.
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