the impact of the global recession on hardwood trading and ... · • presentation assistance by...

Ed PepkeForest Products Marketing Specialist

UNECE/FAO Timber SectionUN Economic Commission for Europe

Food and Agricultural OrganizationGeneva, Switzerland

The impact of the global recession on hardwood trading and the road to

recovery

AHEC European American Hardwood Conference22-23 October 2009, Athens


Καλώς ήρθατε στην Αθήνα !


Welcome to Athens !


Topics

• Introduction• Economic background and forecasts• Sawn hardwood markets, 2008-2009• Current market trends• Future trends• UNECE/FAO Timber Committee forecasts• Conclusions


Introduction

• UN Economic Commission for Europe / FAO Timber Section

• Statistics, market analysis, forest resource data, long-term sector outlook studies, indicators of sawn hardwood markets

• UNECE/FAO database• Country forecasts and statements, notably at

annual session• Joint analytical effort by many experts• Annual Timber Committee Market Discussions• More information at www.unece.org/timber


UNECE/FAO Forest Products Annual Market Review, 2008-2009

• Sawn hardwood analysis by Mr. Rod Wiles, Broadleaf Consulting

• Presentation assistance by Mr. Eero-Matti Salminen, Marketing Assistant, University of Helsinki


Economic background and forecasts


The Great Recession 2007-2009

• Most severe financial shock since the 1930s• Worse economic downturn since WWII• Unprecedented, concerted policy response

avoided second Great Depression• But, significant long-term implications

– living standards– design of institutions


World GDP through 2014

-4

-2

0

2

4

6

8

10

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Rea

l GD

P G

row

th, P

PP

Emerging market/developing countriesWorldAdvanced economies

6 percentage point drop2009, then modest recovery


World GDP 2009

Much ofthe worldnegativein 2009

QQ


World GDP 2010

Growth returnsto most of the worldat end of 2009 orbeginning of 2010

QQ


Regional GDP forecasts

4.23.1-1.1World

1.50.4-4.2EU-15

2.81.6-2.7North

America

201120102009


Recovery slow

• US and western Europe– Unemployment may not reach pre-crisis levels

until 2013 or 2014– Businesses facing credit and financing

difficulties– Inflation remains low– Government deficits too high

• Eastern Europe especially hard hit• Central Asia doing remarkably well

– Fast recovery– Few long-term consequences


US housing starts

0

0.5

1

1.5

2

2.5

200220032004200520062007200820092010201120122013

Source: APA – The EngineeredWood Association, 2009

Mill

ion


Global rise in house prices

050

100150200250300

Irelan

dBrita

inSpa

inU.S. 1

0 City

France

Sweden

Den

mark U.S.Ita

lyCan

ada

Switzerl

and

Per

cent

age

grow

th 1

997-

2007

Rise in housing prices much higher inwestern Europe than in N. America,and even higher rise in eastern Europe


Housing in UNECE subregions

UNECE region housing starts

0

500

1 000

1 500

2 000

2 500

3 000

2004 2005 2006 2007 2008

Tho

usan

d st

arts

Europe North America CIS

11


European construction spending

European construction spending trends

200

250

300

350

400

450

500

550

2005 2006 2007 2008 2009 (f) 2010 (f)

Bill

ion

€

Nonresidential buildingsNew residentialResidential remodelingCivil engineering

Source: Euroconstruct, 2009

11


Have housing markets stabilized?

• Prices stabilized in most advanced economies• N. American prices consistent with historical

relationships– Large subsidies in US supporting prices– Large new and used inventories keeping

prices down• European markets not stable yet

– Not back to historical trend– Further price declines in Spain, Nordics, UK,

France, Ireland• Eastern Europe hard to predict


Sawn hardwood markets


Sawn hardwood consumption – Europe (41 countries)

• 2008 total of 15.4 million m3, a -14% from 2007• Of which 12.0 million m3 in EU-27, -18%

14.0

15.0

16.0

17.0

18.0

19.0

2004 2005 2006 2007 2008

Mill

ion

m3


Sawn hardwood production – Europe

• In line with consumption, in 2008 fell by 6.8% to 14.3 million m3

• Of which 10.5 million m3 in EU-27, -8.6% from 2007

13.5

14.0

14.5

15.0

15.5

16.0

2004 2005 2006 2007 2008

Mill

ion

m3


Major European hardwood producers

Six biggest producers of sawn hardwood in Europe

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2004 2005 2006 2007 2008

Mill

ion

m3

Turkey France Romania Germany Spain Slovakia

1


Major European sawn hardwood producers, 2008

Biggest producers of sawn hardwood in Europe, 2008

Turkey France Romania Germany Spain Slovakia Others

Turkey

France

Romania Germany

Spain

Slovakia

Others


Sawn hardwood trade in Europe

0

1

2

3

4

5

6

2004 2005 2006 2007 2008

Mill

ion

m3

Exports Imports

-23%

Exports-9%


Current market trends


Main market trends

• Europe sawn hardwood sector affected by the economic crises to a lesser extend than North America and CIS

• Sawn hardwood becoming more important to the European building sector


Main market trends

• “Cash is king” – Lack of credit insurance making things even more difficult for the producers

• Turkey remains Europe’s largest producer of sawn hardwood

• China’s influence over the UNECE region sawn hardwood markets increases but is also affected by the crises– As both consumer and producer– Log exports to China reducing available raw

materials & raising costs


Main market trends

White Oak

95

100

105

110

115

120

125

130

2005 2006 2007 2008 2009

Inde

x (2

005=

100)

US France

Beech

90

95

100

105

110

115

120

125

2005 2006 2007 2008 2009Q1

Inde

x (2

005=

100)

Germany France

Steep decline in prices on both sides of the Atlantic


Market trends – European flooring production

Eu ropean h ar dw ood flo o rin g product io n

50

60

70

80

90

1 00

1 10

19 99 20 00 2 00 1 2 00 2 200 3 20 04 20 05 2 00 6 2 00 7 20 08

Mill

ion

m2

Hardwood flooring sector especially affected

First downturn since 1991


Main European flooring species

European hardwood flooring species

0

10

20

30

40

50

60

Oak

TropicalAsh

BeechPine

MapleRed oakOther

Perc

enta

ge

2007 2008

11


Certification and increased concern about illegal trade

• Public and private green procurement policies

• Corporate social responsibility

Certified forest area as a percentage of total forest area by region

0102030405060

Western Europe

North AmericaOceaniaOther Europe and CIS

Latin AmericaAfricaAsia

2006 2007 2008 2009

Main market trends – certification


Number of CoC certificates

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

20 000

2000 2001 2002 2003 2004 2005 2006 2007 2008Q2

2009Q2FSC PEFC

• Low price premiums for certified temperate hardwood

• Low end-user interest for certified wood – indifference

• Business-to-business currently the key driver

Main market trends – certification


Prohibits all trade in plant and plant products such as sawnwood, furniture and paper that are illegally sourced from any country Requires importers to declare the country of origin of harvest and species name of all plants and plant derived materials contained in their productsEstablishing penalties, including forfeiture of goods and vessels, fines, and imprisonment for those who knowingly violate the declaration requirements.Places burden of proof on prosecuter

Main market trends – Lacey Act


Main market trends – EU FLEGT

• Action Plan for Forest Law Enforcement Governance and Trade

• Due dilligence system• Companies must ensure legality of the source• Wood has to be harvested according to country’s laws

– Properly documented– Auditied– Within and outside of Europe

• Not yet approved by the EU Agricultural Council– Thus not yet law


Future trends


Future trends

• Decline in demand could continue well in to 2010• European furniture and joinery manufacturers

may switch away from real wood in favour of alternatives– Long lead times– Difficulties in assessing future demand– Incentive to switch to materials more easily

supplied on little-and-often basis• European furniture manufacturers countering

competition by focusing on high-end, high quality and high value products


Future trends

• China’s increasing influence– World’s largest exporter of wooden furniture

Chinese furniture exports

0

5

10

15

20

25

30

199719981999200020012002200320042005200620072008

Bill

ion

$Total furniture Wooden furniture

Chinese forest products output

020406080

100120140160180200

2002

2003

2004

2005

2006

2007

2008

Bill

ion

$


Future trends

• Environmental issues becoming increasingly important– New timber procurement policies and the

impact on the raw material supply• Greenbuilding and issues of climate change,

energy security and energy cost– LEED– BREEAM


UNECE Timber Committee forecasts


UNECE Timber Committee forecasts (from October 2009)

• North America the production of sawn hardwood continued falling in 2008 and 2009, by 9.1% and 6.4% respectively – no change is expected in 2010.

• Although US domestic demand is weak, sawnwood exports are forecast to improve, rising by 7.2% in 2010.

• The European hardwood consumption and production to rise by 4.2% and 3.2% respectively.


UNECE Timber Committee forecasts (from October 2009)

• Trade restrictions on tropical timber, both from producer countries policies to manufacture greater value-added products, and importers’controls for sustainability and legality, are constraining the tropical timber trade.


Sawn hardwood forecasts – Consumption

05

10152025303540

2008 2009 2010

Milli

on m

3

USA

Europe

Russia

Source: UNECE Timber Committee, October 2009

US consumption2009, -5, 21 million m3

2010, -1, 21 million m3Europe consumption2009, -7%, 13 million m3

2010, +4, 14 million m3


Sawn hardwood forecasts – Production

0

10

20

30

40

50

2008 2009 2010

Milli

on m

3

USA

Europe

Russia


US production2009, -5%, 22 million m3

2010, -1%, 22 million m3

Europe production2009, -7, 13 million m32010, +3%, 14 million m3


Sawn hardwood forecasts – Imports

0

1

2

3

4

5

2008 2009 2010

Eur ope

Canada


European imports2009, -13, 6 million m32010, +6%, 6 million m3


Sawn hardwood forecasts -- Exports

0123456789

2008 2009 2010

USA

Eur ope

Russia


US exports2009, -6%, 2 million m3

2010, +5%, 2 million m3

Europe exports2009, -14, 5 million m32010, +3%, 5 million m3


UNECE Timber Committee forecasts for US sawn hardwood

• Consumption– 2009, -5%, 21 million m3– 2010, -1%, 21 million m3

• Production– 2009, -5, 22 million m3– 2010, -1, 22 million m3

• Exports– 2009, -6%, 2.1 million m3– 2010, +4.5%, 2.2 million m3


Timber Committee forecasts for European sawn hardwood

• Consumption– 2009, -7%, 13 million m3– 2010, +4%, 14 million m3

• Production– 2009, -7, 13 million m3– 2010, +3, 13 million m3

• Exports (including within Europe)– 2009, -14%, 4.8 million m3– 2010, +3%, 4.9 million m3

• Imports (including within Europe)– 2009, -13%, 5.6 million m3– 2010, +6%, 5.9 million m3


European tropical forecasts

0

500

1000

1500

2000

2500

2008 2009 2010

1000

m3

Consumption

Imports



Hardwood logs – Consumption


0

20

40

60

80

100

120

2008 2009 2010

USA

Eur ope

Russia


Hardwood logs – Trade


00.5

11.5

22.5

33.5

44.5

5

2008 2009 2010

Mill

ion

m3 Europe imports

Europe exports

US exports


European hardwood harvests


020406080

100120140160180

2008 2009 2010

Mill

ion

m3 Fuelw ood

Pulpw ood

Logs

Other

Fuelwood is over twice logs,Harvests pushed by renewable energy policies


US hardwood harvests


0

20

40

60

80

100

120

140

160

2008 2009 2010

Mill

ion

m3 Fuelwood

PulpwoodLogs

Other

US harvests -1.1% 2010


US hardwood lumber exports, through August 2009 vs same 2008

• World $566 million, -31%• EU-27 $144, -36• White oak, tulipwood, alder, ash, red oak,

walnut, maple, etc.


Conclusions

• Hardwood markets forecast to improve in 2010

• US exports increasing at expense of domestic consumption

• Green building important driver – could get boost if carbon sequestration counted in “harvested wood products”

• Economic recovery precarious• China and other southeast Asian countries

impacting traditional hardwood markets


Questions

• Have housing markets stabilized and will they rebound?

• Will lumber capacity come back, log supplies increase, production restart, before prices escalate?

• Is green building a market driver or a market constraint (if rating systems don’t accept sustainably produced hardwoods)?


Ed PepkeForest Products Marketing Specialist

UNECE/FAO Timber Section448 Palais des Nations

CH-1211 Geneva 10, Switzerland

Telephone +41 22 917 2872Fax +41 22 917 [email protected]

www.unece.org/timber

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