Sorry for the rude title, but when I discuss with my colleagues this question pops up every time. And nobody really knows the answer. We all know that there is enormous inquiry for wooden products and a huge lack of raw material on the market.
The question I got last week from my Scandinavian partner was: “Is there a shortage of wood in Europe?”
My answer to this question was: “Not at all. There has never been so much wood in European forests since the Middle Ages. If we include also eastern Europe countries such as Ukraine and Belarus, the stock of wood is around 35 billions m3. Due to forest growth, over a billion m3 of wood is added every year. On the other hand he harvest is around 600 million m3/year. So there sure is no physical shortage. Additional building with wood is also a small player in terms of it. Even if the EU were to build 30% of its new homes with wood, that would mean only an extra demand of 15 million m3 of sawn timber.
There is evident imbalance on the demand-supply market of wooden products, especially logs, elements and semi-products.
The reasons for current imbalance:
- Lower cutting activity in the past 15 months
Right after the first lockdown in March 2020, the cutting activity has been reduced sharply. Everything was closed, but the most important issue was fear and uncertainty on the wood market. Nobody knew how Coronacrisis would hurt wood industry in the longterm. Suddenly all supplying chains in log business were broken and everybody was waiting the market reaction. Many sawmills closed down due to corona-restrictions and lack of logs and many of them remained closed until today.
- Closed furniture shops and explosion of on-line shops
Furniture shops were closed, even many DIY shops were closed during the first lockdown in early 2020. After the first shock the furniture sales moved online. I admit I was always sceptical about online furniture sales. I believed that people simply have to test the sofa, lay on the bed and seat on the char in the shop, but I was wrong.
The companies that adopted fast to online furniture retail became corona-winners. Online sales increased in some countries by over 400%. One of big corona winners are IKEA and STOKKE who increased their on-lines sales for over 100%.
When the second lockdown happened in autumn, furniture sellers were ready and so were the consumers. Furniture sales increased in autumn sharply and is booming also in 2021.
Furniture producers are filled up with orders and they are in constant chase for more and more wood.
- Tourism meltdown and people with money to spend
Practically all the countries tried to solve their economies by injecting enormous quantities of money to the market and a lot of this money came to the people in one or another way. And we must not forget that restaurants were closed and tourism ceased to exist.
During the corona lockdowns, many people started home renovations or building new homes, which certainly led to an increase in demand. These and other construction activities have been boosted by central bank policies in the USA and the EU, which have kept interest rates record low. Also, fiscal stimulus packages due to the corona crises have supported public investments e.g. to construction activities. All these have contributed to increasing demand for wood. In addition, building with wood receives a lot of attention currently because of the favourable CO2 balance. The attention for building with wood alone does not immediately lead to additional demand, but it does lead to playing the market concerning anticipated higher prices in the future. In addition, there is simply a shortage in processing capacity in the products industry, lagging behind the demand already for several years.
- Trump blocking Canada
The actions of the former US President Donald Trump are also a part of the rising prices. As early as in 2018, to protect the US domestic market, he decided to significantly increase import tariffs on Canadian timber. As a result, Canada now supplies timber to China, and the United States purchases much more softwood from e.g. Austria, Germany and Scandinavia. With the increased demand for European timber, there are now shortages. Even the oversupply from Germany and Czech Republic caused by the increased loggings in forests affected by bark beetles have not made up for these shortages, as a fair share of their supply was exported to China.
- Enormous pressure from China and other Asian countries
I saw with my own eyes how Chinese travel all over Serbia, Bosnia and Croatia seeking for wood. They are buying logs and planks like there is no tomorrow and this results in lack of logs for the local sawmills and factories. I can feel the lack of hardwood myself, too. It is harder and harder to get enough wood for my production. My opinion is that exporting hardwood logs should be prohibited.
It is not only Chinese who buy logs. A lot of wood is exported also to mid East, Vietnam and Japan.
What will the future bring?
People adopted “the new reality” extremely fast. I was pessimistic after the first lockdown, but things turned for me in unexpected way. My company has a raise in sale of 45% in 2021 and we are developing more and more new products. I never witnessed such demand in all segments of wood business as in 2021. Many of my customers are unsatisfied due to higher prices, but there is simply nothing to do. I hope this enormous inquiry will not turn into boomerang, meaning huge decline in market activity after a certain period of increased demand.
I expect that the imbalance on the market will continue to cause problems and raise the prices at least for another year. Construction activity is a robust business and many projects will be finished only in a year or two.
People still invest a lot in their homes, buy new furniture and replace old flooring and stairs. We must not forget also that many people bought new summerhouses or renovated existing ones.
But sooner or later people will start travelling again and spend money elsewhere not only for homes and summer houses. Then situation will change, hopefully not too drastically.
