After the pioneering years of CLT, new cross-laminated timber production sites were a surefire success for quite some time – at least in terms of sales. For several years, demand was growing at a significantly higher rate than production output, delivery times were given in months and there was not much talk about prices. Against this background and equipped with the necessary “change”, numerous Central European timber companies invested in CLT lines with enormous potential output volumes. Now, this massively increased production capacity (see page 8) is encountering weak markets with high overall construction costs and equally high capital costs and interest rates which have not been at such a high level for decades. This results in fewer building permits, fewer orders and a cross-laminated timber price which has been falling for over a year now (see below). In September, the Holzkurier’s CLT price index (base: January 2019 = 100%) fell again and, at 86%, it was well below the pre-Covid level.
Why is CLT hit so hard now, when it was only moderately affected by the extreme ups and downs of the record years 2021 and 2022 and was previously considered to be extremely stable in terms of prices? “Even without a slump, the market would not have been able to take in the new capacities overnight,” as one manufacturer puts it. In Central Europe in particular, numerous new production sites have been started up in recent years, and five more will be added to the list in 2023, resulting in an unprecedented buyer’s market with low prices and ever shorter reaction times, which presents manufacturers with new challenges.
Highly competitive home market
At the moment, all major cross-laminated timber projects, especially those in Austria and southern Germany, are fiercely contested. “And even though we are at the lowest price level, manufacturers are still prepared to negotiate when it comes to some individual projects,” one large buyer says about the current situation. The bottom line is that it is a balancing act between reducing prices and curtailing production quantities, while maintaining shiftwork and trying to achieve at least a minimal margin. Depending on the corporate strategy and order situation, the majority of manufacturers currently work in one or two shifts.
In addition, customers get numerous offers and often place their orders at the last moment, which makes pricing and production planning even more dynamic. And since cross-laminated timber is almost exclusively manufactured for specific projects, warehousing is unnecessary.
Better than expected
Despite these challenging framework conditions, some established manufacturers and new ones alike are expecting satisfactory results in 2023. While newcomers are only just ramping up their capacities and only have small volumes available as a result, large established companies are expanding their operations to international markets. “Those who can will operate in America, Oceania or on other European markets instead,” as one industry expert puts it. Although there are no boom markets even at an international level, the competitive pressure there is said to be much lower than in Central Europe.
Meanwhile, domestic buyers are painting a differentiated picture when it comes to sentiment, depending primarily on companies’ customer bases and flexibility. While the renovations, additions of stories and public projects segments are still doing well, the single-family and residential construction segments have seen massive decreases.
Demand will increase
2024 will likely be another challenging year for the industry. There is hope, though, that the economy and thus the construction industry will see an upswing in 2025. In any case, one thing is clear: There is enormous demand for housing space and wood is the building material of the future. It is therefore probably only a matter of time before the balance between created capacities and demand is restored again.
