Estonian lumber producers are facing a harsh reality, where the price of wood is falling and orders are disappearing: customers have warehouses full of cheap Russian wood before the sanctions came into effect, and the wave of repair and construction that caught people during the corona pandemic is subsiding.

In the last days before the start of the third quarter, local lumber producers became serious, because not many agreements with customers had been made for the new quarter. Both Toftan manager Martin Arula and Holttem manager Eiko Roomet stated that it is still difficult to understand what has happened, but earlier agreements would have been concluded by the same time.

“We still have a chronic lack of orders. But we go one week at a time,” said Martin Arula. Arula hopes for clarity by mid-July, when their production starts again after the collective holiday. “In the end, the solution is very likely to be that we simply try to sell a large part of our production cheaply to China, where there are still some channels, but we certainly won’t be able to make ends meet with them,” he said.

So far, few Estonian and Latvian customers have confirmed some kind of volumes and prices with Toftan, but they are many times smaller than they have been in previous quarters: approximately 25 percent of the usual production volume is covered by contracts.

Repairs and construction were put on hold

According to Martin Arula, on the one hand, they see that their customers do not have orders, because private individuals have given up buying, building and even renovating wood products. Therefore, warehouses are full of material. However, they are mostly filled with wood imported from Russia, which, according to Arula, has definitely made the situation worse for them.

The head of Combiwood, which mainly produces wooden slats, Veiko Lepmets also stated that autumn will be more difficult than the beginning of the year, and the cooling of the economy is clearly visible. “People have started to travel and consume other services instead of buying and repairing things and changing the terrace,” said Lepmets.

According to Eiko Roomet, manager of Holttem, which produces lumber and furniture parts, there are also other factors and the general cooling has an effect. Roomet noted that, for example, there has also been a rather strong cooling in the US market, where European wood industries have otherwise sent a lot of material. “This part has definitely decreased, and this amount of material will then try to compete in Europe,” he said. Romet added that Europe’s own demand has also decreased.

The customer no longer buys in stock, but visits the store several times for material

Toomas Pärtel, chairman of the board of Puumarket, which sells wood and construction materials, said that they too see that fewer transactions are being made. According to Pärtel, you can’t complain about the selection of goods, but the time is back when you have to put more emphasis on sales skills. “For quite a few years, it has been the case that there is rather a shortage of material and you have to make sure that the warehouse is properly stocked. Currently, the warehouse is stocked very well, but it can be seen that such a market will come again, where it is necessary to start fighting for customers again.”

According to Pärtel, since wood has become more expensive, the way customers go buying wood material has changed: if before they took a little in reserve, now they go to the store several times and take it quite precisely.

But now the price of wood has fallen. Pärtel noted that the latest price lists have become 10-20 percent cheaper.

According to Pärtel, the European market has cooled down and construction projects have been shelved due to fears. According to him, there are developers who have half as many projects in the works than a year ago.

The warehouses are full with stocks of Russian wood

As of July 10, wood from Russia may no longer be imported into the European Union. Before this date, the companies have stocked up their warehouses with Russian wood just in case, which leaves less space for their production, according to the producers.

Holttem manager Eiko Roomet said that this stocking is unfortunately visible. According to Roomet, they have not done business with Russia, but it has been heard that some companies have currently replenished their stocks with Russian wood.

According to Roomet, the demand for lumber from commodity groups has fallen, which is what is mainly brought from Russia.

Puumarket board chairman Toomas Pärtel said that according to statistics, the volume of wood coming from Russia should still be at last year’s level. “Our own share, which we bring directly, has been finished for a few months, but we have quite a few suppliers who have it from Russia and plan the wood around Estonia,” said Pärtel. He has heard from suppliers that the last carloads have arrived or are about to arrive from Russia.

“It is obvious that there is a lack of wood in the Baltics as a whole,” said Pärtel, looking ahead to the near future. He noted that it is difficult for manufacturers to find a replacement, and therefore such stockpiling is understandable for some companies.

“Whoever had suppliers on that side must completely restructure their company’s supply. This is a good law in the sense that if everyone is like that, no one will supply and the market will get used to working on other bases,” said Pärtel.

He described how now when driving around you can see how the stacks of wood are sometimes higher, in his opinion they were taken with fear. “In the fall, we will see when these reserves have been used up and what will actually happen,” said Pärtel. “I think that this is a very temporary time: it will be used up during the summer, the house factories are building hard. Nobody can stock up so much that they have stocked up for years, maybe for a few months.”

According to Martin Arula, the manager of Toftan, the crisis will reveal how competitive Estonia can be. At the moment, the situation looks bad.

Martin Arula stated that due to the current situation, their business will suffer if the production does not reach the customers’ warehouses. “Business is just like business, but at some point we as business managers still have to make some kind of decisions. I know many Estonian entrepreneurs whose decision has been to give up Russian wood from day one. The imported Russian wood replaces the local product, and the more difficult the market conditions, the more is complicated for us too.”

Swedish wood is also cheaper than Estonian wood

According to Martin Arula, it is important that Estonia remains competitive in difficult times. He described how in the last four years, compared to Sweden, for example, we have had a higher price of logs as a raw material, as well as the price of electricity and diesel fuel. The only cheaper cost component has been labor. “Unfortunately, now we again fall into a situation where this one component is not very helpful. It may happen that the Swedes will succeed in selling their goods cheaper on the market thanks to cheaper raw materials,” he stated.

According to Arula, it is not a big plus if our only competitive advantage is cheap labor force, which would be equal to other countries even without the coming crisis.

In Arula’s opinion, this is how Estonia should deal with how energy and fuel prices develop in the country. “If some taxes are lower somewhere, probably in a crisis situation we should also have taxes a little lower in some places so that the industry can survive.”

Toomas Pärtel, chairman of the board of Puumarket, said that reasonably priced wood has been coming from the Nordic countries for more than five years. According to Pärtel, you can see the material of factories in Sweden and Finland in the territories of house factories. “A moment ago, maybe even now, sawn logs were cheaper in Sweden than in Estonia. We have a uniform price in the market, and from our point of view, that’s nice.”

The post Estonian wood industry hit hard by falling prices and lower demand appeared first on Global Wood Markets Info.

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