Timber has become 20–30% more expensive in the world for various reasons / Article / LSM.lv

Due to global demand and the effect of the pandemic, the price of timber has increased significantly since 2019 – by 20-30%. There is an extremely high demand in the world for high-quality wood, which is used in construction and furniture production. However, there is another side to the coin – prices have fallen for wood chips, wood chips and bark. The effect and at the same time the defect are felt by all those working in the industry.

Timber has risen in price by 20-30% in the world for various reasonsLinda Zalane00:00 / 10:55

Market imbalance

Since the end of 2019, the price of a separate assortment of timber in the global market has started to rise, which has already reached an almost record high level.

Kristaps Klauss, executive director of the Latvian Wood Industry Federation (LKF), said that the first reason for the rise in prices was to be found in Finland, when strikes began at the end of last year. From the beginning, employers and then workers went on strike.

“As a result, part of the timber that was supposed to be produced was partially removed and never produced. Demand and supply were broken down at both ends.

When this balance was upset, that is to say, it did not produce boards but at the same time did not consume wood chips and shavings, this led to some products being extremely expensive and some products difficult to sell. For example, half of the log or chips and shavings are currently extremely difficult to sell on the market, “Klaus admitted.

Then came the pandemic caused by Covid-19 and thus the crisis, frightening both buyers and sellers. Namely, buyers of timber products stopped buying and reduced the amount of products in stock, while producers reduced their production capacity, thus further stifling production.

“But the Covid-19 crisis, at least in the timber market, turned out to be shallower than previously expected. Consumption resumed very quickly, but production was unable to keep up.

In the United States, for example, a new record was set in December last year for new homes. The British construction market is also very active, consuming a lot of timber, “said the LKF CEO.

Mr Klaus emphasized that the crisis caused by Covid-19 was not equally strong in all sectors, so not all people were in financial difficulties at the time. Those whose incomes did not decline did not have the opportunity to spend money on services such as tourism and entertainment. In addition, they gained time to improve their homes.

“And in this way, people began to spend savings on services on goods, which further increased consumption. For example, Britain experienced atypically high consumption of so-called ‘do-it-yourself’ products, such as patio boards or finishing materials. People simply renovated their households,” he said. Klauss.

The third reason for the rise in prices is the trend caused by the green exchange rate, which contributes to the increasing replacement of reinforced concrete with wood in construction. For example, Europe as a whole exported a third more sawn timber or planks to the United States last year than a year earlier.

Klaus said that a large number of Latvian producers have completed their plan four or five months ahead. According to him, upsetting the balance between supply and demand does not have a positive effect.

“At present, not only in timber, but also in petroleum products – chemicals, metals – all those who produce intermediates, or products that are further used either in construction or further in the production of products – prices for those products have risen insanely high.

Timber is still relatively moderate – by 20%, sometimes by 30% for individual products. But in chemistry there is even a 200% increase in prices, “LKF executive director knew.

On the other hand, all those who produce products for household consumption or do-it-yourself shops are in a bad position, because it is not possible for them to pass on the increase in raw material prices to the final price of their products. Demand for furniture manufacturers has also increased, and they have completed their production plan by August, September, but they cannot compensate for the increase in raw material prices.

“As a result, they work at zero or at a loss. Of course, those producers who are now trying to jump into growing demand and have historically not established relationships with stable suppliers, for example, in Latvia – it is currently extremely difficult for them to buy raw materials, because intermediate producers have reserved their capacity for regular customers, “said Klaus.

Entrepreneurs acknowledge the rise in raw material prices

Aldis Circenis, co-owner of “Rīgas krēslu fabrikas”, confirmed that the increase in the price of raw materials is noticeable. However, the company has not yet calculated how much the cost base per unit produced will increase.

“But, yes! Costs are rising, but the selling price can’t always be increased. Long-term customers, of course, get some benefits – both in terms of order fulfillment and additional discounts are applied to compensate for price increases in the short term, as long as manufacturing companies can create such “As we feel the shortage, order fulfillment times are increasing. What used to work in three or four weeks now goes to six or seven,” said Circenis.

JSC “Latvijas finieris” produces birch plywood. Uldis Biķis, the chairman of the company’s council, said that the demand for this product is not growing so fast in the global market. “Changes, if they happen, are sensible along with inflation. They are perhaps 3-4%. Since our partners are mainly producers, we do not change prices rapidly, we do not have such a pricing policy.”

Bick emphasized that timber is only one of the resources for which price changes occur due to global market demand.

“We are also forced to buy quite a lot of resources at slightly higher prices than some time ago. If at the beginning of the pandemic there were bigger falls, now there are bigger rises – up to 50-70% for individual products.

Of course, this forms this further chain for manufacturers. And we, as producers, to balance income and expenditure, also, of course, try to see where there is an opportunity to earn. At such times, those markets are more attractive, and there are now regions in the world where the economy is growing faster after a pandemic, and there is also demand. Such as the American market, where many European manufacturers are trying to sell their products, “said Bick.

Kristaps Ceplis, a representative of the Latvian Wood Construction Cluster, emphasized that the producers of wooden houses are clearly experiencing an increase in the price of timber, and forecast that the rise in prices will not stop until at least the autumn. But is there already a shortage of timber in the local market?

“Everything has a price. Of course, you can buy the material you need, paying more for it, in response to what’s happening in the world. You can’t say no. It’s just a struggle.

Good, quality timber is hunting among companies all the time. It is normal. This is why the price is raised, because in foreign markets there is high demand, they are willing to pay a lot.

The local would prefer to pay less, but this is a business. The moment a manufacturer can sell more expensive, then it does. Accordingly, locals, if they want to continue production, then they have to buy more expensive. You can buy it if you are ready to pay an appropriate price, and the price is dictated by foreigners, “said Ceplis.

In Latvia, private forest owners do not benefit much from the increase in the price of wood, said Arnis Muiznieks, Chairman of the Board of the Latvian Forest Owners’ Association.

“Prices have risen for a more valuable assortment of round timber – such as saw logs, veneer logs. In turn, there are less valuable assortments, such as spruce, pulpwood, firewood, for which prices have fallen. Decrease in spruce pulpwood by 16%, for firewood by 14%. Private forests have more deciduous trees and a precisely less valuable assortment, because in the past private forests were formed by overgrowing agricultural lands, they were less tended. And if the prices for low – value assortments are low, then it could also slow down the interest of private forest owners, “said Muižnieks.

Prices have not reached 2006.2007 level

Tomas Kotovičs, the head of the communication department of the state JSC “Latvijas Valsts meži”, said that currently the winners are those forest owners who have grown a forest with a high percentage of conifer saw logs, because now is a good time to cut down and sell the trees.

In general, the tendency to plant quality species of trees in forests is growing.

“We also see private forest owners who, after cutting down deciduous trees, purposefully try to regenerate the forest with conifers. Often also with selected conifers. We also have a very high demand for plants.

And it is very gratifying, because people have realized that it is more profitable to plant a quality forest in the long run. This year, with high sawlog prices, is definitely a good lesson to invest in, to build a forest with a good species composition, where high-quality wood grows, and to re-cultivate and nurture to obtain high-quality products, “said a LVM representative.

Kotovich said that it is difficult to make predictions about future price increases, but forest industry analysts predict that the price increase and interest in sawlogs will continue until July. The rest will depend on the development of the global economy. However, Kosovic emphasized that currently wood prices have not yet reached the heights of 2006 and 2007 before the Great Depression.

Erland Krongorn, an economist at the Bank of Latvia, also said that the price of wood is currently at a high level in the global market, but it is difficult to make future forecasts.

“I can’t say how long this could go on, but these high prices won’t last for a long time, like two or three years. Probably not. But they are forecasts. Historically, if you look at wood prices, they’re relatively high right now. level than the prices of other raw materials.

But metals also show a very sharp rise in prices in the financial market. This is related to the green course, where global powers are moving, “said Krongorn, an economist at the Bank of Latvia.

Asked whether the rise in wood prices is causing tensions in the industry and, in the end, whether this situation is not an additional burden, the LKF CEO said: “It is not a burden, but it is like a party when you realize that it is fun now, but in the morning it will be extremely major headache. And now it’s not even fun anymore. ”

Klaus also admitted that inside the industry you can feel resentment, misunderstanding. It is also clear that prices will not rise forever and a rebound is expected.

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