FORESTA2021

Market outlook

Roundwood markets
in UNECE regions in 2021-22
Key trends and outlook

Foresta2021 – Joint Session of the UNECE Committee on Forests

and the Forest Industry and FAO European Forestry Commission

23rd November 2021

Global trends FORESTA2021

Key dynamics impacting UNECE roundwood markets in 2021-22

COVID Russian log Climate / Sustainability

rebound export ban forest health initiatives

• Strong lumber • Challenge for • Decline in BC • LULUCF

markets in US China harvests in wake
• EU Forest
and Europe of mountain pine
• Opportunity for Strategy
beetle
• Paper and other log
• Carbon forestry
packaging exporters • Fires in US West
rebounding
• Russian industrial • Temporary surge
• Housing crisis in expansion? in Central
China? European harvest

2
© 2021 Wood Resources International LLC and O’Kelly Acumen AB
COVID rebound – Strong lumber markets FORESTA2021

Sawlog prices are well above long-run average levels

Softwood sawlog prices1; USD / m3 Average 2000-21 Current (2021) • Sawlog prices in many
0 20 40 60 80 100 120 140
regions are well above
average, e.g.,
Germany
Finland
− Germany 7%
Latvia − Finland 18%
US NW − Latvia 44%
Sweden − BC 77%
Global average
• Key drivers:
NZ
US South − Strong lumber market
Canada East − Supply constraints (e.g.
Canada BC BC)
Russian NW − China log imports (e.g.
Chile Germany, NZ)
1. Delivered mill gate

SOURCE: Wood Resource Quarterly (WRI LLC) 3

© 2021 Wood Resources International LLC and O’Kelly Acumen AB
COVID rebound – Strong lumber markets FORESTA2021

Pulplog prices are mostly around long-run average levels

Softwood pulplog prices1; USD / BDMT Average 2000-21 Current (2021) • Pulplog prices around
0 20 40 60 80 100 120 140 160
average level in most
regions.
Austria
Finland
• Some exceptions (e.g.
strong prices in Finland,
Canada East
weak in Germany, Brazil).
Germany
Sweden • Key drivers:
Global average − Slight rebound in P&P and
Canada BC panel markets
US NW − Elevated sawmill residue
US South supply
Russia NW
Chile
Brazil
1. Delivered mill gate

SOURCE: Wood Resource Quarterly (WRI LLC) 4

© 2021 Wood Resources International LLC and O’Kelly Acumen AB
Russia log export ban FORESTA2021

China and Finland are both dependent on Russian logs; China

mainly for sawmills, Finland for pulp and paper
Imported wood from Russia, 2020e; Million m3 Expected to be
covered by ban • Important for Chinese
China Finland sawmill industry
Softwood Hardwood Softwood Hardwood − 10-15% of softwood log
imports, 30% of hardwood
5.3
log imports
Sawlogs 2.5 − Secondary impact on
0.7 residues for panel mills
~0
4.5 • Less impact on Finland
Pulplogs − Russian import mostly
hardwood pulplogs (not
~0 ~0 0.1
covered)
Chips 2.0 − Softwood imports mainly
as chips not covered
~0 ~0 ~0
1. Delivered mill gate

SOURCE: Customs data; WRI/OA analysis 5

© 2021 Wood Resources International LLC and O’Kelly Acumen AB
Russia log export ban FORESTA2021

Of the largest lumber-exporting regions, Russia has the greatest

potential to increase exports
Total softwood lumber exports Low High
2020e Million m3 Potential to increase lumber exports

Large potential and incentives improving with expected log export ban and investment support for sawmill
Russia 30.0
expansion and improved quality (kiln-drying). However, dependent on investment in Russian sawmill industry.

Lumber export will stabilize and log export decline following mountain pine beetle damage and salvage in BC.
Canada 26.0 Geographic shift with more export from eastern Canada and less from the west. US will remain the most
attractive export market for lumber, with only limited export to Asia from western Canada.
Some potential to increase harvest in the region; we estimate Finland could increase sawlog harvest 6-7 mln
Nordic 23.0 m3, Norway 2-3 mln m3 and Sweden 2-3 mln m3. Most lumber production is already for export, with small
domestic markets.

Central Harvests will decline in the coming 1-2 years after short-term surge related to salvage of forests affected by bark
16.0
Europe1 beetle epidemic. Long-term reduction in harvest is likely due to scale of the damage and salvage harvests.

Some countries (e.g., Czech Rep.) also impacted by bark beetle, but others (e.g., Belarus, Ukraine, Romania)
Eastern
12.0 have low wood costs, potential to increase harvest, and are attractive for sawmill investments. Strong domestic
Europe2
demand growth is likely with post-COVID economic recovery, reducing share of lumber for export.
Limited potential; export is currently at high levels due to weak domestic demand. Domestic demand will
LatAm 6.0 increase and export fall as the regions economies improves long-term. Also, a decline in planted softwood area
over the last 10-20 years will limit future size of lumber industry.
Some potential to increase export. Although log markets are tight (harvest rate of 75-85%, and log markets
Baltic 5.0 tightly coupled with Nordic region), reduced log export would enable increased domestic lumber production.
Likely strong domestic demand growth but most lumber production will remain for export.
1. Germany and Austria, 2. Belarus, Ukraine, Czech Republic, Romania, Slovenia, Poland, Slovakia, Bosnia and Herzegovina

SOURCE: Customs data; WRI/OA analysis 6

© 2021 Wood Resources International LLC and O’Kelly Acumen AB

Climate / forest health FORESTA2021

Forest damage, related to climate change, is impacting roundwood

supply in Canada and Europe – for many years to come
Canada harvest and lumber export to US; Million m3 Central European1 harvest and export; Million m3
Harvest Lumber export Harvest Log export
250 40 100 30

200
30
20
150
20 50
100
10
10
50

0 0 0 0
1990 1995 2000 2005 2010 2015 2020 2000 2005 2010 2015 2020

Implication: Reduced lumber supply to US Implication: Temporary surge in log exports

and Asia to China, supply to domestic lumber industry
1. Germany and Czech Republic

SOURCE: FAOSTAT; WRI/OA analysis 7

© 2021 Wood Resources International LLC and O’Kelly Acumen AB
Sustainability initiatives FORESTA2021

Sustainability initiatives, while arguably necessary, will have a large

impact on wood supply
Sustainability initiatives Example: Potential impact of LULUCF on Sweden wood supply
impacting forestry Estimates
Official Swedish
(intended) industry fears
• LULUCF (EU)
Target sink 2030 (MtCO2eq./year) 47.3 47.3
− Targets for increased
forest sequestration Current sink (MtCO2eq./year) 42.6 35.5
• EU Forest Strategy
Required increase of sink 4.7 11.8
− Continuous cover forestry
(selective logging)
CO2 per m3 factor 1.375 0.87
− Increased forest protection
Required addition forest
• Forest carbon markets sequestration (million m3/ year)
3.4 13.6
− NCX (US)
Impact on wood supply1 4% 15 %
− Voluntary carbon offsetting
1. If full LULUCF target achieved by reducing harvests, baseline felings ~94 million m 3

SOURCE: European Commission; Swedish Forest Industries Federation; OA analysis 8

© 2021 Wood Resources International LLC and O’Kelly Acumen AB
Roundwood market outlook FORESTA2021

Global roundwood market outlook (pricing) Tight Balanced Soft

UNECE regions Other regions

North America Europe (EU) CIS, Central Asia Asia-Pacific Latin America

Sawlogs Strong lumber Strong lumber Russia log export Strong lumber Declining exports,
market market / export ban market with reduced
Additional potential Post bark beetle Russia export ban supply and more
Sawmill expansion domestic demand
in US South, Reduced NthAm
Canada E, US NW export

Strong sawmill Central: sawmill Strong pellet Pulpmill expansion Plantations

Pulpwood
residue supply residues industry China restrictions expanding with
P&P demand on RCP import and demand (e.g. new
returning to normal Nordic: strong pulp log import from pulp mills)
production, harvest Australia
constraints
Things to • Housing starts • Sawmill expansion • Pellet / panel / P&P • Chinese housing • Afforestation for
watch for expansion with new crisis? climate
• US South expansion • LULUCF, end of sawmlls
clear-cuts? • NZ peak export
• Carbon forestry

SOURCE: WRI/OA analysis 9

© 2021 Wood Resources International LLC and O’Kelly Acumen AB
Roundwood market outlook FORESTA2021

UNECE Timber Forecasts for 2020-22 x CAGR Hardwood Softwood

Forecast roundwood removals; Million m3

Demand drivers North America Europe (EU) CIS, Central Asia
Total +0.8% +0.7% -0.8%

+1.7%
• SW lumber ++ -0.8%
297 303 307 -1.2%
Sawlogs • HW lumber + 220 221 216
135 137 132
• Plywood and veneer +

• Pulp for paper +/- -0.2% +2.0%

Pulplogs
• Pulp for other uses + 188 187 187 159 163 165
+0.6%

• Panels + 49 50 50

• Posts and poles +/-

Other 0.0% +4.7% -2.0%
industrial 18 18
15 15 15 6 7 7 17

+1.2%
• Residential heating +/- +0.1%
Wood fuel -0.8%
112 113 115
• Bioenergy plants + 62 62 62
18 18 18
2020 2021 2022 2020 2021 2022 2020 2021 2022
SOURCE: UNECE COFFI and FAO EFC Foresta2021 10
© 2021 Wood Resources International LLC and O’Kelly Acumen AB
 FORESTA2021

Contact details

Wood Resources International O’Kelly Acumen

Mr. Håkan Ekström Mr. Glen O’Kelly

Seattle Stockholm
USA Sweden

Phone: +1-425-402-8809 Phone: +46-73-56-98-039

E-mail: hakan@woodprices.com E-mail: glen.okelly@okelly.se

www.woodprices.com www.okelly.se