UNECE TIMBER COMMITTEE
STATEMENT ON FOREST PRODUCTS MARKETS
IN 2003 AND PROSPECTS FOR 2004
The UNECE Timber Committee adopted the entire official text
below on 10 October 2003.
Overview of forest products markets in 2003 and 2004
Forest products markets in the UNECE region were forecast
to remain at high volumes in 2003, although oversupply appeared in several
sectors. However the outlook for 2004 is for little change, with the exception
of Russia and the central and eastern European countries (CEECs), interpreted
as uncertainty about economic conditions. Certain subregions, for example
CEECs and the CIS, principally Russia, are benefiting from high GDP growth,
availability of wood raw materials, low labour costs and favourable government
policies creating a climate for international investment. In North America,
wood products market demand is at a high level due to the strong US housing
construction, where more than 95% of houses are built from wood products.
Western Europe is currently experiencing weakness in housing construction
and associated demand for wooden furnishings and millwork, although some optimism
was expressed for 2004.
The Timber Committee examined illegal logging, an issue affecting
forest products markets. Forest law enforcement, governance and trade (FLEGT)
is at present the main issue in the forest sector and the Committee’s annual
Market Discussions provided a forum for a multi-stakeholder discussion. Illegal
logging denies revenues to governments, industries and forest owners, puts
downward pressure on forest products prices, negatively affects workers and
compromises sustainable forest management. The Committee wants to work together
with other organizations to determine the extent and causes of illegal logging
and trade.
Certification of sustainable forest management was discussed
as a means of ensuring the source of wood products, however currently a lack
of chain-of-custody documentation is an obstacle to bringing the growing volume
of certified forest products to market with an identifying label. The area
of certified forestland has grown to approximately 160 million hectares worldwide,
under specific forest certification schemes, of which most is in the UNECE
region. In environmentally-conscious markets, certified forest products are
gaining recognition, but mainly at the business-to-business level. Public
procurement policies, in favour of wood products originating from sustainably
managed forests may become important drivers, e.g. in Germany, Denmark, Netherlands
and the United Kingdom. The lack of a price premium for certified forest products
and of comprehensive mutual recognition of certification schemes remain outstanding
concerns.
Wood-based energy has been and is being promoted by governments
and forest owners throughout Europe as a means to improve forest viability,
provide rural employment, promote renewable resources and reduce CO2 emissions
from fossil fuels, and thereby mitigate climate change. In treating this topical
issue, the Committee felt wood energy should be promoted by governments, noting
an excess of growth over removals in the region’s forests, while acknowledging
the concern of some industry sectors for raw material competition.
The Committee discussed markets for certified forest products,
value-added forest products, sawn softwood, sawn hardwood, panels, pulp and
paper and wood raw materials. The theme of this year’s discussions was the
market effects of wood energy policies. Developments in 2003 and forecasts
for 2004 in these sectors are detailed below.
Economic situation
Global activity picked up in 2003 after a pronounced cyclical
downturn. North America remains the main engine of growth, although there
are persistent concerns about the ability of the United States to increase
growth, in view of developments regarding interest rates, unemployment, trade
and budget deficits, and exchange rates. Most western European countries show
continued stagnation while eastern Europe and the CIS have demonstrated strong
resilience to the weakening of the growth forces in western Europe. The US
housing market remains strong although long-term interest rates have edged
up. The euro has appreciated against both the dollar and the yen. GDP growth
in North America in 2003 will be about 2.6%, compared to 1.0% for western
Europe. Stronger growth is expected for 2004: 3.8% for North America and 2.1%
for western Europe. GDP in eastern Europe is expected to grow by 3.6% in 2003
and 4.4% in 2004, while in the CIS, the corresponding growth rates are 6.2
and 5.1%. There remain however downside risks, related to the robustness of
US consumer spending, the consequences of the stronger euro, persistently
high oil prices and the impact of the United States’ large current account
deficit.
Sawn softwood
Sawn softwood markets are forecast to remain steady at high
volumes in both Europe and North America in 2003 and 2004. Sawn softwood demand
from the extraordinarily strong US housing market, at 1.7 million houses annually,
continued to drive not only imports from the traditional supplier, Canada,
but also from other countries. Globalization is transforming sawnwood trade.
The US is increasing imports of sawnwood, and further-processed sawnwood products,
both from within the UNECE region, but also from outside, for example plantation-grown
softwood from the southern hemisphere.
US imports from Canada continue to be subject to the 27%
duty imposed following the end of the Softwood Lumber Agreement. It was noted
that trade disturbances such as the U.S. anti-dumping and countervailing duties
on Canadian sawn softwood have underlying impacts such as the transfer of
trade to other countries. Such formal trade actions can lead to fundamental
changes such as increases in manufacturing efficiency. Canada forecast a 4%
increase in exports in 2004 to reach 36 million m3, overcoming a forecast
dip in 2003. Most of these increases will be to offshore markets, particularly
in Asia.
Despite the weak US dollar in 2003, offshore exporters were
able to expand their share of the US market. As was the case for Europe in
1993, North America’s increasing imports could turn the subregion into a net
importer in the near future. Sawnwood prices in North America have been weak
in an oversupply situation, but some strengthening in prices is evident in
Europe. Russian sawnwood prices remain below western prices, but sawmills
in Russia are economically viable because of low labour costs.
The Timber Committee discussion included policies promoting
the sawn softwood sector. The Russian sawmilling sector development is benefiting
from favourable government policies which have also created the conditions
for increasing international investment that will add another 1 million m3
in production capacity. Russian sawn softwood exports are forecast to grow
by 5% in 2003 and again by 6% in 2004 confirming recovery of the sector’s
exports to levels greater than the former USSR. Growth has been strongest
for exports to non-UNECE region countries, especially China, which doubled
its sawnwood imports from Russia between 2000 and 2002, and to other CIS countries,
which have now regained levels of the former USSR, and become, as a group,
Russia’s most important export destination. Policies are being developed to
promote increased domestic consumption of sawnwood in housing and industrial
construction. Some Russian sawmills envisage their residues will be increasingly
used for energy production, both within the country and also in western Europe
due to government policies promoting renewable energies.
Sawn hardwood
Sawn hardwood markets in the UNECE region are forecast to
remain steady overall in the UNECE region in 2003 and 2004. In Europe a furniture
crisis occurred in 2002: growth in furniture demand stopped, leading to a
drop in sawn hardwood demand. Throughout the UNECE region, increasing imports
of furniture from outside the region are displacing domestic production, negatively
affecting both sawnwood and panels demand. For example, China has quickly
risen to become the second largest furniture exporter in the world behind
Italy. The acceleration of trade in hardwood dimension (cut-to-size and defect-free
parts) is displacing some sawnwood trade, which is a positive development
when it maintains hardwood demand.
Romanian production and exports of sawn hardwood were forecast
to accelerate in 2003 and 2004 in contrast to more subdued forecasts for other
countries. Exports of sawn hardwood are forecast to expand by 23% in 2004,
confirming Romania as Europe’s largest sawn hardwood exporter. Government
policies have opened Romania to foreign investment. In addition, policies
now promote exports, especially of sawnwood, panels and value-added products
such as furniture.
Oak is once again becoming fashionable in Europe, along with
other “dark” species, such as cherry. In discussion, the Committee felt the
renewed interest in oak was in part due to successful promotional campaigns,
such as “J’ai choisi le chêne.” (I chose oak) in France.
In Europe, despite the lack of public awareness, the business-to-business
demand for sawn hardwood that is certified as coming from sustainably managed
forests is growing, however the availability of supply is not keeping abreast
of demand. Reasons include: chain-of-custody problems, lack of a price premium,
issues related to indigenous rights, etc. Tropical hardwoods have difficulty
achieving certification in part due to small-sized holdings. Tropical forests
are often seen as sources of illegal logging, but some of the allegations
made appear to arise because of inadequate national accounting of production
and exports.
Wood-based panels
Consumption of wood-based panels (plywood, particle board, OSB and fibreboard)
in Europe in 2002 attained a new record level of 54.1 million m3, slightly
higher than in 2001. This result was due to the positive development of the
sector in the central and eastern European countries, where consumption increased
by 17.4 %, while it fell by 2.3 % in western Europe. The Committee forecast
for 2003 a drop in consumption of 1.9 % in Europe as a whole. A slight recovery
is expected in 2004. In the Russian Federation consumption in 2002 increased
by 10.7% to a record 4.7 million m3. This trend is forecast to continue in
2003 by 13.2% and in 2004 by 7.8%. In North America thanks to the continued
strong construction sector, consumption went up by 4.7% in 2002 but is expected
to fall slightly in 2003, by 0.8% to 60 million m3 and remain at his level
in 2004.
The discussion which followed showed that prospects for an
economic recovery had been deferred at least until 2004. However, production
remained at high levels of output but the industry was facing short-term overcapacity
and low prices. Rationalisation had been taking place in the less competitive
plants while capacity expansions at the scale of the last decade seemed to
be over. There are still prospects for technology improvements, better product
quality, higher value added products and enhanced service.
For all panel types, the European manufacturers are worried
about the increase in raw material costs. In particular, they feel that the
availability of supplies of raw material for panels is coming under increased
pressure because of the policy in many countries to promote the use of wood
for energy. It was pointed out that the panels industry performed a valuable
ecological function in utilizing low-quality wood, recycled wood and wood
residues.
Paper, paperboard and wood pulp
European consumption of paper and paperboard is expected
to expand by 1.9% to 92 million m.t. in 2003 and a further 1.1% to 93 million
m.t. in 2004, both record levels, with similar rates of growth for production
and rather faster growth for trade. Russian consumption will grow faster,
by nearly 9% in 2003 and 7% in 2004, as per caput consumption levels converge
on those of Europe and North America. In North America however, consumption
of paper and paperboard, at just over 98 million m.t. in 2002 was well below
the records attained in 1999 and 2000, and is not expected to expand significantly
in the medium term. This reflects some structural changes in the economy,
such as the shift from manufacturing to services and weakness of advertising
in paper-based media, as well as overcapacity in the sector.
Despite rising production of paper and paperboard, consumption
of wood pulp is expected to stagnate or decline in Europe and North America.
In Europe, wood pulp now accounts for less than half the raw material used
for paper and paperboard production, as the use of recovered paper expands
rapidly. This trend is expected to continue, as it is in line with policy
objectives and the commitments of the industry to develop recycling. It was
pointed out that that the pulp and paper sector is the largest producer and
user of wood energy.
In Russia, production and exports of wood pulp will expand
in 2003 and 2004. Exports will grow by over 3% in 2003 and a further 2.6%
in 2004, to reach 2 million m.t., out of total production of nearly 6.8 million
m.t.
Wood raw materials including wood energy
In the UNECE region, roundwood removals are expected to grow
in the period from 2002 to 2004. The highest growth, of 2.0%, is forecast
for the CIS subregion. For the first time in 2004 consumption is expected
to increase faster than production, by 4.1% annually. Roundwood exports are
expected to stop growing, after continuous growth since 1996. While the majority
of these exports are legal, some come partly from illegal logging. There is
an increasing concern that illegal logging is affecting global forest products
markets. The lack of verifiable information makes it difficult to provide
more robust analysis of the situation. There is a need for much better information
on the extent of illegal logging.
Removals in western Europe are growing by 1.5 % per year.
This rather high growth is likely to be related to recovery to normal levels,
after extraordinary removals in 2000, caused by the storm damage, followed
by reduced fellings during 2001 and 2002. The growth of removals in central
and eastern Europe is low at 0.2% per year. The only downward trend is forecast
for North America, the biggest producer and consumer of roundwood, with an
annual decrease of 0.5 % in 2002 to 2004. Timber harvests from the US National
Forests continued to decline, but at a lower rate than in earlier years. Russia
remains the biggest exporter of roundwood, while western Europe is expected
to remain the biggest importer in the UNECE region. The trade surplus for
roundwood in North America declined for the fifth consecutive year.
During the discussion, it was highlighted that raw material
costs for sawmills and pulp mills had been falling in many subregions. There
are two main reasons for this: oversupply of roundwood and wood chips, and
lower market prices for manufactured forest products. However, an opposite
trend was observed in some cases in central and eastern Europe. Roundwood
exports from Russia to western Europe as well as to Asian markets are expected
to remain on a high level or even to increase further through 2004, while
there is a policy intention to develop wood processing and increase export
of end use products.
Wood represented about 6% of the total EU primary energy
production in 2000, and almost 15% of the total roundwood removals in the
UNECE were used as fuelwood in 2002, mostly in CIS. The Committee noted that
further analysis of the use of wood for energy purposes requires more robust
data and information. In some countries, weak demand has led to accumulation
of growing stock in over mature stands, some of which are showing signs of
instability. Stimulation of new demand, for instance for wood fuel, would
help to resolve this situation.
The hot, dry summer of 2003 influenced roundwood markets:
several countries reported forest damage, notably insect infestations and
fires, due to the weather conditions. Market stabilisation measures were being
taken in a few areas.
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