Market Development – European Production Sampsa J. Auvinen CEO, Norvik Timber Industries President, European Organization of the Sawmill Industry
Market since early 2014
Situation in October 2014 at the Berlin ISC
• European softwood production was expected to exceed demand during the second half of 2014. • Signs of construction slow down in China. • Demand from Japan was unclear after the VAT bubble. • Demand from MENA was steady. • Construction in Europe was expected to increase 2.0% in 2015. • Financial performance of the sawmilling industry would deteriorate during Q4 2014 and Q1 2015 and possibly in Q2 as well.
Sawn softwood production ISC Europe Relative importance (%) in softwood production 2015 Europe produces 38% of the Northern hemisphere softwood BE CH 1% 0% AT 4%
CAN 20%
DE 10%
DK 0% ES 1% FI 5%
FR IT 3% LV 0% 1% NL NO 0% 1%
USA 26%
RU 15% SE 9%
UK 2% Source: European Organization of the Sawmill Industry
RO 2%
Sawn softwood production
m3
In the EOS member countries*, total production of sawn softwood increased by 3,3% in 2014 and reached 80.1 million m3. In 2015, production is expected to decrease 0,7 % to 79,6 million m3. *EOS countries: Austria Belgium Denmark Finland France Germany Italy Latvia Norway Romania Sweden Switzerland United Kingdom
140.000
120.000
100.000
80.000
60.000
40.000
20.000
0 2005
2006
2007
2008
2009
2010 EOS
Source: European Organization of the Sawmill Industry
2011
ISC Europe
2012
2013
2014
2015
2016 est.
ISC: Above+ Spain Netherlands Russia
Sawn softwood production
Germany
Austria
22.000
10.000
21.500
9.500
21.000 9.000 20.500 8.500 20.000 8.000
19.500
19.000
7.500 2010
2011
2012
2013
2014
2015
2016 est.
2010
Source: European Organization of the Sawmill Industry
2011
2012
2013
2014
2015
2016 est.
Sawn softwood production
France
Switzerland
7.400
1.600
7.200
1.400
7.000
1.200
6.800 1.000 6.600 800 6.400 600 6.200 400
6.000
200
5.800 5.600
0 2010
2011
2012
2013
2014
2015
2016 est.
2010
Source: European Organization of the Sawmill Industry
2011
2012
2013
2014
2015
2016 est.
Sawn softwood production
Sweden
Finland 11.500
18.500 18.000
11.000 17.500 10.500 17.000 16.500
10.000
16.000 9.500 15.500 9.000 15.000 14.500
8.500 2010
2011
2012
2013
2014
2015
2016 est.
2010
Source: European Organization of the Sawmill Industry
2011
2012
2013
2014
2015
2016 est.
Sawn softwood production
Romania
Norway
4.000
2.500 2.450
3.500
2.400 3.000 2.350 2.500
2.300
2.000
2.250 2.200
1.500
2.150 1.000 2.100 500
2.050
0
2.000 2010
2011
2012
2013
2014
2015
2016 est.
2010
Source: European Organization of the Sawmill Industry
2011
2012
2013
2014
2015
2016 est.
Sawn softwood production
Latvia
UK
2.900
4.000
2.850
3.500
2.800
3.000
2.750 2.500 2.700 2.000 2.650 1.500 2.600 1.000
2.550
500
2.500 2.450
0 2010
2011
2012
2013
2014
2015
2016 est.
2010
Source: European Organization of the Sawmill Industry
2011
2012
2013
2014
2015
2016 est.
Raw material supply Softwood log availability survey by EOS 1 = low; 2 = medium low; 3 = normal; 4 = medium high; 5 = high (2015 and 2016 are estimates) 5
4
3
2
1
2013
Source: EOS
2014
2015
2016
AT
BE
CH
DE
DK
FR
IT
MO
NL
NO
RO
SE
UK
Average
LV
Economic news are not encouraging Ms Lagarde in G20 Meeting 5.9.2015: “Most things are just too low. Growth is too low, productivity is too low, trade numbers are too low, investment is too low, infrastructure projects are too few and the only thing that is too high is unemployment”.
Sawn softwood sales & demand - Europe Demand has been flat at best with improvements in some European countries. Although it seems that the worst political crisis is behind us, uncertainty prevails. Demand is expected to grow slowly – affecting purchasing behavior. Demand from overseas markets is followed by European customers. This is a global business. Problem is not demand but oversupply.
Residential renovation
1,9
1553
1,2
0,6
1,1
New non-residential construction
-0,4
1,7
3,7
2,6
Non-residential renovation
1,7
2,0
1,6
1,3
Civil engineering
1,7
2,4
3,0
3,8
Total
1,2
1,9
2,4
2,6
*=”housing permits” in Germany and the Netherlands Source: EUROCONSTRUCT, June 2015
2017 (o)
1505
2013 2014
1444
0,0 2012
4,3
2010 2011
4,1
0,5 2009
2,4
1,0
2007 2008
2017 (o)
1,5
2016 (f)
1366
2016 (f)
2,0
2015 (f)
Housing starts* in 1.000 units
0,7
2015 (f)
2,5
2006
Newresidential construction
2014
Million housing starts
Change in %( euro at 2013 prices)
3,0
Building renovations in the EC area 1.000 Million Euro at 2014 prices
Total Construction output for the 19 Euroconstruct countries1.
Housing starts* in the EC area
700 600 500 400 300 200 100 0 2011 2012 2013 2014 2015 2016 2017 (f) (f) (o)
Slow growth ahead for Europe Euroconstruct declares “an end in recessionary trend”
Source: Euroconstruct
The world production of sawn softwood in 2015 (315 million m3), divided by continent
10% (Russia)
33%
31%
2%
13%
1%
7% 3%
Source: FAO/Skogsindustrierna
The world consumption of sawn softwood in 2015 divided by continent
26%
29%
4% (Russia)
4%
24%
4%
7% 2%
Source: FAO/Skogsindustrierna
The global flow of trade in softwood 2014/2015
4 mill. m3 8 mill. m3
10 mill. m3 4 mill. m3
< 1 mill. m3 9 mill. m3
2 mill. m3
Source: FAO/Skogsindustrierna
Sawn softwood exports to MENA The MENA region’s importance for European sawmilling industry is vital. Long term outlook for the region remains positive – young demographics, etc. but the political unrest is causing challenges.
Sawn softwood exports to Japan The VAT increase in April 2014 did create a bubble in the housing starts which did burst. European softwood exports to Japan have been picking up in 2015 and we are back to 2012 levels. Japan's Forestry Agency has set a target of lifting the self-sufficiency on wood supply rate to 50 percent by 2020. In 2014 the degree of self-sufficiency was 31.2%, which is the first time that the degree recovered over 30% in 26 years since 1988. Population aging - long terms prospects are challenging. Housing Starts, New Construction Starts of Dwellings 1.400.000 1.300.000 1.200.000 1.100.000 1.000.000 900.000 800.000 700.000 600.000 500.000 400.000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 est.
Sawn softwood exports to China Chinese economy is slowing down, impacting raw materials across the globe. The Chinese economy grew 6.9 percent in the July-to-September quarter from a year earlier. China is the world’s second largest market for sawn timber and therefore very important. There is also general uncertainty because of the stock market turbulence and devaluation of the currency. The underlying long term demand is expected to grow as an estimated 300 million people are moving to cities. China is committed to increasing the use of wood in future construction, as set out in a directive signed by China’s Minister of Housing and Urban-Rural Development. As China will ease family planning restrictions to allow all couples to have two children demand for ecologically built houses will increase.
US market recovering Strong construction figures for houses since April. 850 800 750 700 650 600 550 500 450 400 350
Updated until July 2015
2010
2011
2012
Started detached houses Source: NAHB/Skogsindustrierna
2013
2014
2015
Building permits for homes
Sawn softwood exports to the US
Source: Financial Times
Sawn softwood exports to the US
Exchange rates Currency fluctuations have dramatic effects on the industry in Europe
“New” markets
Financial health of industry 2014 & 2015 H1 EBITDA Results for Selected European Sawmilling Companies Vida (EBIT) Vapo Timber EBITA Stora Enso Building & Living Sodra Timber Setra (EBIT) 21.9%
Rusforest Norvik Timber Industries Moelven Metsa Wood Koskisen (EBIT)
-21.4%
Holmen Timber Bergs Timber -5,00%
-2,00%
1,00%
2014
4,00%
2015 H1
Sodra result include "återbäring" for member's log supply; 2014 about 260 mil. SEK or 6% of EBITDA for Sodra Timber Holmen 2014 EBITDA incl. 450 m SEK impairment of Braviken Koskisen only reports annual figures Vapo & Sodra report 3 times per year with Q1: Jan-Apr Q2: May-August Moelven 2015 H1 result excludes impairment loss of fixed assets
7,00% Source: Publicized annual reports
What’s next?
Nordic sawn softwood production
Setra cuts redwood lumber production by 20% due to uncertain situation in Egypt
Summary Although it seems that the European political situation has stabilized, unpredictability is likely to continue with slow economic growth. Demand from overseas markets is not likely to increase in the short term. Exchange rate fluctuations will continue to affect the industry. Financial performance of the European sawmilling industry will be poor during H2 2015 and H1 2016 . As the European sawmilling industry is more and more dependent on volatile emerging economies it will need to react faster to changes in demand. In the short term further supply restrictions will be needed or…
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