International Wood Fair Klagenfurt: Current timber market developments in Austria, Italy and Europe

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Internationaler Holztag Klagenfurt 2016On 2nd of September the International Wood Day took place within the International Wood Fair Klagenfurt. There were various presentations on the timber market in countries such as Austria or Italy and worldwide.

At the beginning of the event, the "Golden Spruce" was awarded to Dr. Carl-Erik Torgersen and Dott. Marcello Lo Castro for their merits on the timber trade between Austria and Italy. Torgersen leads the wood trading company CaTo Holzhandel, based in Innsbruck, and is chairman of the Austrian Timber Trade Association. Lo Castro is the third generation owner and manager of the wood trading company Lo Castro s.p.a., based in Palermo.Verleihung Goldene Fichte

Importance of overseas markets is growing

Sampsa AuvinenThe President of the European Organisation of the Sawmill Industry (EOS), Sampsa Auvinen, gave an overview on the development of global timber key markets, from an European perspective. In 2016, the development of the production and supply of raw materials in Europe was stable, but with regional differences.

For the full year, a total production of 81.4 million cubic meters is expected, coming from the EOS countries, and thus an 0.1% increase over 2015. While the softwood timber production in Austria is stagnant, compared to 2015, Germany’s production increased significantly.

The same applies to Norway and the UK, where the weakening currencies are responsible for the increase in production. Besides Austria, the softwood timber production stagnated in France, while Switzerland encountered a slight decrease. In Latvia and Romania, the production dropped significantly, mainly due to lack of log supply. In Sweden and Finland, the production in 2016 remained constant, which contributed significantly to price stability. The GDP in the EU will increase in the upcoming years by 0.3-0.5%.

Demand is rising slowly and has bottomed out after the 2009 crisis has been overcome. Political crises worries are still uncertain. New residential construction will rise on constantly, especially in renovations, by 2018. The biggest growth in construction will thereby prevail in the Netherlands, Spain and Sweden. There is still uncertainty that grew after the UK Brexit referendum, especially for the lack of negotiations on an actual exit of Britain from the EU.

European countries produced 38% of the global softwood timber, but used only 26% of it. In consequence the importance of non-European markets is growing. One of the most important markets, especially for Scandinavian producers, was Egypt. The country now suffers from a shortage of foreign currency, a weak tourism industry and low prices for cotton and oil. On the other hand a very young population promises major growth opportunities in the long term, said Auvinen.

Japan's import market has recovered after the 2014 tax increase. The population is however greatly over-aged, making the long-term perspective transitioning from uncertain to negative. In China, the construction activity has picked up at the end of 2015, after a slowdown in 2014. Imports from Sweden, Finland and Russia in particular, have risen sharply. The growth of children's furniture industry in China has had a positive impact on Finnish spruce lumber exports. 

The US lumber market could be interesting for European producers in the coming years. There are regularly small amounts, mainly from Germany and Sweden, which go to the US. 

An overview of the biggest European sawmills shows that the Russian plants had an extremely high profitability, due to the weak ruble currency. The volatility of prices and inventory decreases, fluctuations are weakening, the markets are stabilizing. Overseas markets become more important.

There is too little invested in Austria

Christoph M. SchneiderChristoph M. Schneider, Head of the Economic Policy Department at the Chamber of Commerce of Austria, presented the current situation of the Austrian economy. He stressed that Austria has gone through 7 years of weak growth and that anywhere in the world there has been a larger growth compared to Central Europe. Only 33 of 190 countries indicate growth of under 2%. These include Germany with 1.4% decrease, ranked 173, Austria with 1.3% decrease, ranked 177 and Italy with 1.0% decrease, ranked 182. After Greece, France and Finland, the growth in Austria, from 2012 to 2015 was the weakest in the EU. 

Schneider praised the recent wage increases in Austria. With them a stronger consumption is expected. But, in order to generate a long-term growth, the grade of investments has to rise significantly. Since 2005, Austria has lost a quarter of its market share in world exports. This trend can be reversed only through increased investments. After the world economic crisis in 2009, there are still uncertainties in the economy, which had not existed before the crisis.

The uncertainty index is currently twice as high as before the crisis. The global economic climate has worsened and the expectations are not better than the current situation. Therefore, we can't talk about a recovery, said Schneider.

Helpful for the export industry is the impact of favorable commodity prices and the weak Euro. The confidence of the construction industry in Europe is increasing. However, the net investment rate in Austria has been declining from 13.5% in 2000 to currently 5.2%. This means that investments are the biggest challenge for the Austrian economy.

In the short term, there is no growth in Italy, Austria’s main market

Herbert JöbstlHerbert Jöbstl, Chairman of the Austrian Sawmill Industry, noticed the increase of harvested wood in Austria from 17 million cubic meters to 22 million cubic meters at the moment.  At the beginning of 2016, there was expected an increase in harvesting, but now the forecasts for the rest of the year are uncertain. There has been expected a significant bark beetle infetation, which didn't take place especially because of the weather until July. At the same time forest owners are holding back with harvsting besause there still is a latnent danger of a bark beetle infestation. The imports of logs to Austria have risen because of calamities in the Czech Republic, Germany and Slovenia. But it would be wrong to rely on imports, said Jöbstl. A mobilisation of roundwood in Austria would be necessary.Austrian lumber production is stable at around 9 million cubic meters. As in other countries, such as Germany, the production volume has increased, but market shares have been lost. Exports to the Levant have declined since summer 2016. A significant growth was registered in the export of laminated timber, like noted in a survey at the fair made by Fordaq. According to that producers of CLT and glulam weren't able to build up stock because of the high demand. Lumber producers were more cautious with their statements. They talk about slow markets. Housing starts in the U.S. give reason to be optimistic. In contrast to that there is no growth expected in the building economy in Italy, the Austrian main market for wood, until 2018. In the future resource efficiency and product development with the aim of rising the share of wooden buildings will be decisive, said Jöbstl.

Carl-Erik TorgersenGermany and Eastern Europe are booming

Carl-Erik Torgersen evaluated the current timber market from the perspective of the Austrian timber trade. Like Herbert Jöbstl Torgersen said the felling rate is influenced by a lack of logs, that weren't harvested because the beetle infestation wasn't by far as heavy as expected and at the same time a holding back of the forest owners with felling.As a result, the price of wood is moving in two directions, namely upstream for fresh wood and down for beetle wood. In Finland, currently, spruce logs are more expensive than pine logs. The timber trade is satisfied with the current price situation, said Torgersen. Further he explained that price increases are the more difficult to implement, the closer one gets to the end product.

Concerning international markets, Torgersen sees a boom in Germany and Eastern Europe, in terms of viewing an increase in industrial production. In southern Europe, especially in Italy, industrial production here is still in the reds. Tourism and agriculture have recovered slightly. Overall, there is hope for Italy to move upwards.

In Japan, a greater quantity of wood is needed. With lower imports from Canada and the USA, along with cheaper freights, the export environment to Japan has brightened. Carl-Erik Torgersen expects the European timber exports to the United States to trend upwards, due to the rapid recovery of the country after the financial crisis.

Italian sawn and glulam imports on the rise

Pierluigi SchifinoDott. Pierluigi Schifino from the Italian wood industry association Fedecomlegno sees a slow recovery in Italy from the crisis of 2009, which he places on a par with the Great Depression of the 1930's. The gross domestic production increased, after a dramatic decline (2015: +0.8%; 2016: +1.1% and +1.4% expected in 2017). Fedecomlegno, however, is pessimistic and sees growth for the years to come, consistently below 1%. Unemployment stands at 11.5% at the moment. At least in the big cities there was a slight recovery in the construction industry. 

In the first five months of 2016, however, the softwood lumber imports increased by 6.4% to 1.67 million cbm. The largest supplier country is Austria, with a market share of over 55%, followed by Germany with just over 10%. Imports of glulam have risen to over 221,000 cubic meters (+12.1%) in the same period. Austria has a market share of nearly 78%. All other countries are marginal on this market. Germany, in second place, has a share of only 3.5%, with a downward trend. The import amount of planed softwood timber increased by 0.8% to just over 81,000 cbm. Austria has, however, almost 21% less deliveries and lowered its market share from 50% to below 40%. 

Hope for the Italian timber industry, despite all the tragedy of the event, is on lessons learned from the earthquake in Lazio. The quake will lead to increased use of wood. It is necessary to secure buildings throughout Italy against earthquakes, even outside the current earthquake zone, said Schifino.

Earthquake will boost wood use in Italy

Emanuele OrsiniEmanuele Orsini, from the Italian Timber Federation AssoLegno, reported a significant recovery in the Italian construction industry. So its growth in the first quarter amounts to 20.6% in 2016 compared to the same period in 2015, after growth rates of previous years at 6.5% and 3.6%. 

Overall, investments in buildings in the last seven years have, however, significantly decreased. There were approximately EUR 125 billion invested in the building industry in 2015, out of which around 67 billion euros were used in residential construction and EUR 58 million in the non-residential construction. In residential construction there was considerably much more invested, with a share of two thirds in renovations of new buildings. But while the investments in renovations increased, there is still a fall in new buildings construction. The non-residential public construction is more sharply than the private sector. 

The loans to construction companies have declined dramatically. They went down from EUR 52.5 billion, with a share of 30% of all corporate loans in 2008, to EUR 15 billion and a share of 18% in 2014.

Orsini blamed the poor training of architects and engineers in wood building. He also talked about the cooperation with universities and the co-financing for research projects in the field of timber construction. There are a lot of Italian timber companies that operate without adequate training in this area, which could cause significant construction defects.

6% of all newly constructed buildings in 2014 (3025) in Italy have been built out of wood. The wood construction sector has a turnover of 658 million euros.

Also Orsini talked about the earthquake’s outcome and the rise of the timber sector. The reconstruction after the quake will last approximately eight years. The Italian Government has announced its intention to build more using wood. To develop earthquake-resistant building, there is needed a support of EUR 2-3 billion.

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