Caution is the order of the day

Good start of the year deceiving

Things will likely be different in 2023. A good January and February gave reason to be confident that this year could be a more or less successful one, too. However, there has never been a similar drop in demand in the second half of April. As a result, sawmills exercised caution when reporting their production figures for 2023. This year, only those companies that recently built new sawmills or acquired existing ones will see their production volumes grow. These expansions are sufficient for a 1% increase in output to around 43.5 million m³ (see table). However, many companies predict significant curtailments for 2023.

Europe needs overseas markets

This year’s market development shows how important the large overseas markets are for Europeans. If the US market isn’t running smoothly, we have a problem. If the other overseas markets are weak, too, things will get tight. A lot of lumber is now being exported to China – which already has an impact on prices there.

The big sawmill groups have been facing three main challenges since April:

• Lower prices combined with
• lower sales volumes,
• but unchanged (Central Europe) to higher (Scandinavia) log prices

Currently a 40% decrease in sales

The direct year-on-year comparison of sales generated in April 2023 with those of last year shows a decrease of probably 30 to 40%. It is well known that April 2022 was the record month of the year 2022 and that prices as well as demand have seen a downward trend since then. The fact that the gap in year-on-year comparisons will likely narrow in the coming months is not a comforting thought either. The second half of 2023 will be even more challenging.

At the moment, the industry is pulling the proverbial handbrake. Many companies do not worry anymore about how to get back laid-off employees, the reason being that most of the managers of the top companies do not expect any substantial recovery before 2025.

Processed products are faring better

What has been said, or rather written, applies to lumber in particular. Demand situations differ among the various processed products. Demand for cross-laminated timber, for example, is slightly decreasing. It has to be said though that in the case of this product, the additional quantities manufactured in new production sites are having an impact.

Within the Top 20, there were some shifts in ranking, primarily due to acquisitions and sales. The most recent deal was the sale of HS Timber Group to Ziegler Group, which will bring about some changes in both purchasing (“Lex Schweighofer” in Romania; 30% rule) and sales. When it comes to sales, HS Timber Group was very successful in Japan. Ziegler, on the other hand, will probably focus more on the European DIY market.

2022 was characterized by a march north. What Binderholz did years ago was repeated at the end of 2021 and also several times in the course of 2022: Mayr-Melnhof Holz, HS Timber Group, Ziegler and, most recently, Pfeifer Holz acquired companies in Sweden and Finland. In addition, there are the production sites of Binderholz (following the acquisition of BSW) and Rettenmeier (construction of new sawmill to start in 2024) in the Baltic States.

The “sale” of Mayr-Melnhof’s Russian sawmill took place at the turn of the year, and the Hasslacher Group had to follow suit a few months later.

In South Tyrol, there is currently a sawmill expansion and a new construction project underway at X Timber in Eggental and at Sarner Holz in Sarntal/IT. Similar developments are taking place in Switzerland.

Knowledge about global sales markets

The acquisitions in Scandinavia offer the buying companies access to new resources and high-quality lumber for their own further processing. Soft skills are another perk: Companies get sales teams which know sales markets worldwide.

Furthermore, internationalization also creates global market knowledge. The latter mostly shows one thing, i.e. that currently, no market is really going well.

In terms of positioning, the HS Timber Group is particularly global. After decades of being in business, the company knows about the needs and characteristics of markets in Europe, the MENA region, Japan and the US. With Argentina as starting point, the HS Timber Group will focus on the US, Mexico, Europe and the MENA region with a new type of wood.

In April, Binderholz opened the sawmill in Enfield/US with its cutting capacity of more than 1 million m³ a year. According to most recent information, at least one other Central European timber company will start producing in the US as well.

More mergers to come

Most market experts agree that there will be further mergers. Rising interest rates will particularly hit those companies which rely disproportionately on debt financing. “Keep calm and don’t take any financial risks” is a motto mentioned by several market participants.

Quotes from timber industrialists