Forestry sector: Business situation bad and getting worse

The Holzkurier’s economic survey shows great uncertainty among Central European forest owners when it comes to their expectations regarding log prices. It seems that anything is possible and also equally likely: One third of respondents (34%) believe in rising prices, slightly more in falling prices (37%), and the remaining one third of forest owners (28%) expects stable prices in the second half of the year.

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Much more pessimistic

In the second quarter, forestry companies' assessment regarding the development of sales over the next six months have become more negative again © Timber-Online.net

The results regarding the future log price vary greatly and they become very telling when you look at assessments from three months ago: At the moment, 34% of respondents expect that log prices will rise in the second half of 2024. At 19%, that percentage was much lower three months ago. In the first quarter, the majority (51%) of forest owners believed that log prices would remain constant. Now, that percentage has fallen to only 28%.

Only 6% of forestry companies report a good business situation in the first half of this year. For comparison: Sawmills gave similarly negative assessments (good business situation: 9%). Only 50% of respondents are satisfied with their business situation – i.e. 13 percentage points fewer than in the first quarter.

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Almost half with a bad situation

The worst result of this latest economic survey is the fact that as many as 44% of forestry companies describe their business situation as bad. Regrettably, none of the respondents expect to have a good business situation in the second half of the year either. Assessments have not been this negative since the peak of the damaged wood calamity in 2019 and 2020. At 53%, the companies which expect a satisfactory development of business in the second half of the year still outweigh the others by a narrow margin. Nevertheless, 47% predict a bad business situation.

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Similarly, forest owners also complain about a negative sales situation. Only 3% reported strong sales in the first half of the year. Three months ago, 18% gave this assessment. Conversely, 34% reported low sales. A stable 63% at least generated satisfactory sales (Q1 2024: 66%).

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Sales constant or decreasing

40% of forest owners expect sales to decrease in the second half of the year, while 44% think that they will remain constant. Only 16% predict increasing sales in the coming months.

The prices for transporting wood have largely been set for 2024. This is also reflected in the fact that 84% of respondents do not expect any change here. The costs for harvesting wood also seem to be increasingly stable. According to our most recent survey, as many as 82% forest owners expect stable costs. Three months ago, only 60% were of this opinion.

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Three quarters of survey participants had recently been affected by damaged wood in one form or another – and therefore gave assessments on that topic. Heavy snow and windthrow did cause some damage, although the removal of trees which were damaged longer ago has almost been completed. The winter storms, especially storm Zoltan and the storm on Easter Monday, caused a large part of the damage, but the favorable weather made the removal easier. All tree species were affected, but there was no substantial damage by bark beetles.

The forest protection situation is relatively relaxed thanks to heavy rainfall and low temperatures in spring which kept the first two flights of bark beetles from breeding successfully. Nevertheless, intensive management remains necessary. And although no new windthrows have been reported, the thunderstorm season has only just started.

There are complaints that there are no subsidies despite the volumes of damaged wood accumulating.

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Statements of survey participants*:

1. Weather and damaged wood:

Heavy snow/consequential damage from windthrow
Processing and removing individual and groups of spruce trees which were damaged by windthrow in the winter, with bigger volumes in inaccessible locations than in previous years, therefore expensive manual debarking necessary to prevent subsequent bark beetle infestation. The necessary work capacity of the contractors is just about available.
Immediately processing the increasing volume of damaged wood, ensuring a timely removal; more bureaucracy cannot be solved by individual companies, in some cases, it is actively left “lying around”
Processing of damaged wood and transport to neighboring forestry company is very slow – risk of bark beetle calamity
Processing of damaged wood; difficulties in finding contractors for the log harvest; removal of log wood challenging due to the weather; log price too low; beetle infestation expected – overall, not a good outlook
Uncertainty as to how the bark-breeding beetles will develop; We are concluding strategic contracts with customers and preparing for the removal of log wood.
No more log wood available due to calamities

2. Economic framework conditions and development of prices:

Wages, additional costs, log prices
With the low price for log wood, especially for pulpwood, the first harvest in the cable car area does not cover the costs. It is therefore difficult to finance changing the composition of forests.
Increases in (fixed) personnel costs – especially in administration!
Log price level and duration of contracts – not acceptable in the long term for sustainable forestry in the mountains with its numerous challenges!!
Poor log prices and poor removal of log wood. We will be felling fewer trees again.
Inflation-related cost increases are not compensated for by revenue. It is not enough to have higher log prices for 2 months a year. To maintain the structure of the forestry sector in a sustainable way, we need significantly higher log prices.
Log price far too low
Increase in log harvesting costs in the first half of the year due to post-calamity processing and removal, and inflation surcharges. This trend was stopped by a new tender, so prices will remain stable for the next 12 months.
Sawmills are gambling on beetle-damaged wood, which is not available in our region, and so the first customers are offering or announcing better prices.

3. Personnel situation and administration:

Finding suitable personnel for all positions
Uncertainty caused by EUDR, REDII and Nature Restoration Law
Repercussions of the Green Deal: EUDR, no concrete procedure yet, etc., although implementation might take effect at the end of December! Renaturation – Is this something that we might have to deal with as part of the implementation?
We must learn to deal with the barrage of directives, regulations and laws that the EU is bombarding us with, or we must march to Brussels.

4. Other challenges and developments: