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INTERNATIONAL SOFTWOOD CONFERENCE 2016 PARIS // OCT 12‐13‐14 // www.isc2016.fr
Softwood Market Development – European Production Sampsa J. Auvinen CEO, Norvik Timber Industries Board Member, Bergs Timber AB (publ) President, European Organization of the Sawmill Industry
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Situation in October 2015 at the Amsterdam ISC 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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Sawn softwood production
m3
In the EOS member countries*, total production of sawn softwood increased by 0,3% in 2015 and reached 80.3 million m3. In 2016, production is expected to increase 1,9 % to 81,8 million m3. *EOS countries: Austria Belgium Denmark Finland France Germany 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
Source: European Organization of the Sawmill Industry
2009
2010 EOS
2011
2012
2013
2014
2015 2016 est. 2017 Forecast
ISC: Above+ Italy Spain Netherlands Russia
ISC Europe
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Sawn softwood production
Germany
Austria
23 000
9 600
22 500
9 400
22 000
9 200 9 000
21 500
8 800
21 000
8 600 20 500
8 400
20 000
8 200
19 500
8 000
19 000
7 800
18 500
7 600 2010
2011
2012
2013
2014
2015 2016 est. 2017 forecast
2010
2011
2012
2013
2014
2015
2016 est.
2017 forecast
Source: European Organization of the Sawmill Industry
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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 6 000
400
5 800
200
5 600
0 2010
2011
2012
2013
2014
2015
2016 est.
2017 forecast
2010
2011
2012
2013
2014
2015
2016 est.
2017 forecast
Source: European Organization of the Sawmill Industry
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Sawn softwood production
Sweden
Finland
18 500
11 000
18 000 10 500
17 500 17 000
10 000
16 500 9 500
16 000 15 500
9 000
15 000 14 500
8 500 2010
2011
2012
2013
2014
2015 2016 est. 2017 forecast
2010
2011
2012
2013
2014
2015 2016 est. 2017 forecast
Source: European Organization of the Sawmill Industry
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Sawn softwood production
Norway
Romania 4 500
2 600
4 000
2 500
3 500 2 400
3 000
2 300
2 500
2 200
2 000 1 500
2 100
1 000 2 000
500
1 900
0 2010
2011
2012
2013
2014
2015
2016 est.
2017 forecast
2010
2011
2012
2013
2014
2015
2016 est.
2017 forecast
Source: European Organization of the Sawmill Industry
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Sawn softwood production
Latvia
UK
2 720
4 000
2 700
3 500
2 680
3 000
2 660 2 640
2 500
2 620
2 000
2 600
1 500
2 580
1 000
2 560
500
2 540 2 520
0 2010
2011
2012
2013
2014
2015 2016 est. 2017 forecast
2010
2011
2012
2013
2014
2015
2016 est.
2017 forecast
Source: European Organization of the Sawmill Industry
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Raw material supply Softwood log availability survey by EOS 1 = low; 2 = medium low; 3 = normal; 4 = medium high; 5 = high 6
5
4
3
2
1
‐ 2013
2014
2015
2016
2017
AT
BE
CH
DE
DK
FR
FI
LV
NL
NO
RO
SE
UK
Average
IT
Source: EOS
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European Sawlog Price Index (ESPI-€) 1Q/99 - 2Q/16 95 90 85
Euro/m3
80 75 70 65 60 Source: Wood Resource Quarterly
Sweden, Finland, Norway, Poland, Latvia, Estonia, Czech republic, Austria and Germany
55 50
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2016 Q2 GDP up by 0.3% in the euro area and by 0.4% in the EU28
EU28, euro area and United States GDP growth rates % change over the previous quarter
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Change in % (euro at 2015 prices) New residential construction
2015
2,9
2016 (f) 5,7
2017 (f) 4,2
2018 (o) 3,0
3,0 Million housing starts
Total Construction output for the 19 Euroconstruct countries1.
Housing starts* in the EC area
2,5 2,0 1,5 1,0 0,5 0,0
Residential renovation
1465
1,3
1562
1,4
1623
1,6
1658
1,4
Total residential construction
1,9
3,1
2,7
2,1
Non-residential construction
-0,2
2,5
2,5
1,9
Civil engineering
2,9
1,5
3,0
3,8
*=”housing permits” in Germany and the Netherlands
Total construction
1,4
1Austria,
2,6
2,7
2,4
Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland,, United Kingdom, Czech Republik, Hungary, Poland, Slovak Republik
Building renovations in the EC area 1.000 Million Euro at 2014 prices
Housing starts* in 1.000units
700 600 500 400 300 200 100 0 2012
2013
2014
2015
2016
2017
2018
Source: EUROCONSTRUCT, June 2016
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BREXIT – it’s happened before
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BREXIT BREXIT’s effect on the European or UK economy is unclear at this stage. Business activity has been very good first 8 months with housing starts being very strong but order books of the construction industry are getting thinner. Need for house building in the UK has not disappeared but the BREXIT negotiation, or lack of it is creating uncertainty. The BREXIT negotiations are scheduled to start by end March 2017. Sawntimber prices in GBP have been unsatisfactory due the drop of the GBP. Prices have started to increase and will continue to increase. Some contracts made recently in EUR. It was announced 4th October that the UK Government pledges £5bn of public money to accelerate building of tens of thousands of houses.
Source: The Royal Institute of British Architects
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Sawn softwood sales & demand ‐ Europe Demand has been improving slowly. The bottom has been reached and passed. Although it seems that the worst political crisis is behind us, uncertainty prevails. BREXIT’s impact on the British and European economy is unclear. Demand in Europe is expected to continue grow but slowly. Demand from overseas markets is followed by European customers. This is a global business.
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European Softwood Industry Development European Softwood Industry’s Indexed Development 2010 = 100 110
105
100
95
90
85 2010
2011 Softwood Production
2012
2013
Softwood Consumption
2014 Softwood Imports
2015
2016
Softwood Exports
Source: EOS
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Global Softwood Supply Demand Balance 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
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Global Softwood Supply Demand Balance The world consumption of sawn softwood in 2015 divided by continent
26%
29%
4% (Russia)
4%
24%
4%
7% 2%
Source: FAO/Skogsindustrierna
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Global Softwood Supply Demand Balance 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
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Sawn softwood exports to MENA The MENA region’s importance for European sawmilling industry is vital. Rumors about the devaluation of the Egyptian Pound and decrease of oil revenue in Algeria have kept the Pine outlook challenging. Long term outlook for the region remains positive – young demographics, etc. but the political unrest and low oil price are and will cause challenges.
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Sawn softwood exports to Japan Japanese housing starts has strong growth during the first half of 2016 beating expectations. The planed VAT increase for 2017 has been postponed until 2019. The strengthening of the Yen is expected to impact negatively the economic growth in 2016‐2017. 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 2016 Est.
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Sawn softwood exports to China
The Chinese economy has continued to grow, albeit at slower speed than before, at an annual rate of 6‐7%. The Chinese housing market showed signs of slowing in 2014 and 2015 but activity picked up end of 2015. A McKenzie analysis predicted that about 300 million people are going to move to urban areas during 2015‐ 2025. This is will be significant driver for the construction industry.
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Sawn softwood exports to China The growth of sawn timber consumption and demand from China has been extremely important particularly for Finland, Sweden and for Russia. Russia and Finland are exporting in 2016 respectively about 40% and 90% more than in 2015. Especially children's’ wooden furniture industry growth has been the driver for the Scandinavia spruce exports. Russian timber export growth has put pressure on Pine prices in China.
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US Total Housing Starts
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Sawn softwood exports to the US The US market has become a steady but small market for the European sawmills, primarily the German and Swedish producers. With the housing start growing and nearing 1.5 million starts per annum, the US market is expected to become more important for the European producers. The USD/EUR and USD/SEK rate plays an important role on the viability of the exports from Europe to the US market.
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By‐Product Sales
Chips, bark and forest chips price development EUR/MWh, DLD to client
Chips
Price of wood chips have been under pressure in Europe. There is an oversupply in pulp logs, bark and sawdust.
Bark
Forest chips
In Finland forest chips are being subsidized, putting pressure in sawmills’ by‐products. Situation has worsened by cheap energy prices and past warm winters.
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Exchange rates Currency fluctuations have dramatic effects on the industry in Europe
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Financial health of industry 2015 & 2016 H1 EBITDA Results for Selected European Sawmilling Companies Vida (EBIT) Vapo Timber EBITA Stora Enso Building & Living Sodra Timber 2016 H1 (Jan‐Apr) Setra (EBIT)
21.3%
Rusforest 25.5%
Norvik Timber Industries Moelven Metsa Wood Koskisen (EBIT) Holmen Timber Bergs Timber 2016 H1 (Dec '15‐May '16) ‐6,00%
‐3,00%
0,00%
3,00%
2015
2016 H1
6,00%
9,00% Source: Publicized annual reports
Sodra result exclude "återbäring" for member's log supply; 2015: estimated milllion SEK 481 Vapo sawmills sold end 2015 Koskisen only reports annual figures Rusforest 2016 does not include disposal on non‐current assets
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What’s next?
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Summary When we thought the European political situation had stabilized, the BREXIT vote result brought uncertainty back. European demand is expected to continue to increase, albeit slowly. Demand from the overseas markets continue to play an increasingly important role for the European sawmill industry. Exchange rate fluctuations will continue to affect the industry. Financial performance of the European sawmilling industry has improved in 2016 but remains unsatisfactory in many parts of Europe. The moderate increase in production has enabled the industry to perform better. By‐product sale challenges could slow production increases.
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Merci beaucoup!
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