Market Development European Production. Sampsa J. Auvinen CEO, Norvik Timber Industries President, European Organization of the Sawmill Industry

Market Development – European Production Sampsa J. Auvinen CEO, Norvik Timber Industries President, European Organization of the Sawmill Industry Ma...
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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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