Forest owners in Finland have recently enjoyed favorable timber prices. By percentage, the stumpage and procurement prices of fiber wood species have increased by 40-50% in just a couple of years.<\/p>\n
The big question is how long these good days will last. Is the current price level the new normal, or will prices plummet back to the levels of a few years ago, or even lower?<\/p>\n
If history repeats itself, harsh times could strike quickly. In the peak year of 2006, almost 20 million cubic meters of timber arrived in Finland from the east. Then Russia restricted imports, and the flow of wood from the east halved. Around the same time, the financial crisis sent the paper markets into a tailspin.<\/span><\/p>\n The rest is a darker chapter in industrial history. UPM closed its Voikkaa and Kajaani paper mills, Stora Enso shut down its Kemij\u00e4rvi pulp mill, and Mets\u00e4liitto's leaders closed the Kaskinen pulp mill.<\/p>\n During that period, timber usage decreased more than the reduction in Russian imports, leading to oversupply of domestic wood, and stumpage prices dropped by a fifth in just a couple of years.<\/p>\n Paula Horne, the research director at PTT, does not believe stumpage prices will collapse in the same way as during the financial crisis days, but we will return to this point later.<\/p>\n Wood supply imbalance<\/strong><\/p>\n In the next boom cycle, when even new forestry factories should operate at full capacity, Finland would need approximately 90 million cubic meters of wood annually. That's 15 million cubic meters more than the current level.<\/p>\n In Finland, logging should rise to 85 million cubic meters per year, surpassing the estimated sustainable logging limit of about 80 million cubic meters provided by the Natural Resources Institute Finland (Luonnonvarakeskus).<\/p>\n Maintaining even the current logging level of about 75 million cubic meters is not guaranteed. Pressure to reduce logging to increase carbon storage in forests and preserve biodiversity in forest ecosystems is mounting.<\/p>\n In theory, the skewed wood supply balance can be rectified through four methods: (1) increasing forest growth, (2) increasing wood imports, (3) closing forest factories in Finland or elsewhere along the Baltic Sea coast, or (4) diverting some of the pulpwood used for energy production into pulp boilers.<\/p>\n Far from achieving the forest management goal<\/strong><\/p>\n At the national level, there are no easy or quick means to increase timber production because virtually all options have already been utilized.<\/p>\n The situation is similar nationwide to well-managed forest estates. Tuomo Tommola, who resides in Hartola and is known as an efficient timber producer, has achieved peak timber yields through decades of hard work.<\/p>\n He has managed his family's forests for 55 years, 40 of which as an owner. \"I have renovated sparse spruce stands on poor soils and replanted them with pine. Old fields have been planted with birch, which has also accelerated growth,\" Tommola explains.<\/p>\n Moreover, he has fertilized the growth forests, usually after the last thinning, although he denies being a fervent fertilizer user.<\/p>\n \"I haven't expanded the forest area; my goal has been to make the existing forests grow as well as possible. And at the same time, the forest area remains limited enough for our family to manage.\"<\/p>\n But what methods would Tommola use if he had to accelerate forest growth even further?<\/p>\n \"Surely, we would need to increase fertilization. Planting fast-growing birch could also be increased. However, these methods would only yield additional logging opportunities after decades.\"<\/p>\n Researchers Lauri Meht\u00e4talo and Jari Hynynen from the Natural Resources Institute Finland (Luonnonvarakeskus) have come to a similar conclusion. They believe that annual forest growth could theoretically be raised from the current 100 million cubic meters to about 120 million cubic meters.<\/p>\n However, it is not practical. Achieving even a 10 million cubic meter increase in growth would be challenging, as it would require a long-term focus on timber production in all commercial forests.<\/p>\n \"The genetic gain from planted saplings is expected to result in a 1-2 million cubic meter increase in the future. Extensive fertilization could provide an additional million cubic meters of growth. Growth could also be increased through moderate extensions of rotation periods,\" Meht\u00e4talo and Hynynen wrote in Helsingin Sanomat.<\/p>\n The latter approach would further complicate wood supply. Extending rotation periods would initially reduce annual logging volumes.<\/p>\n Likely, forest growth will decrease in the coming years rather than increase because ongoing logging, which is smaller than tree growth, is aging the forests and gradually reducing growth. (The article continues after the image.)<\/p>\n Importing wood from afar is not a viable solution<\/strong><\/p>\n Could the solution lie in increasing the import of raw timber? Either from the Baltic region or even farther, such as eucalyptus plantations in the south? According to experts, long-distance timber imports would not be a practical solution. Local timber resources are not unlimited either.<\/p>\n The Baltic Sea coastlines are becoming crowded. The Baltic countries do not have the resources or the desire to increase logging. Moreover, Baltic countries themselves need to replace the previously used Belarusian timber. Kalle Karttunen, the research director at the Central Union of Agricultural Producers and Forest Owners (MTK), points out that the scarcity of wood has also increased raw timber exports from Finland to other Baltic Sea countries.<\/p>\n Long-distance timber imports cannot be a long-term solution for Finland's wood supply. This is the opinion of Antti Viljakainen, the chief analyst at Inderes Oyj, a company specializing in equity analysis.<\/p>\n \"It wouldn't make sense to process eucalyptus on a large scale in Finland. Pulp mills need to be located close to the sources of raw timber. Transporting pulp is more profitable than transporting raw timber. In the short term, long-distance imports might ease wood supply,\" Viljakainen says.<\/p>\n Sauli Brander, who is transitioning from the position of UPM's head of forestry to international forestry matters within the company, shares the same view.<\/p>\n \"Our factories are optimized to use domestic wood species. Additionally, maritime transportation would be too expensive to make long-distance imports worthwhile.\"<\/p>\n Brander points out that this year, the wood supply situation is not yet overwhelming because factory utilization rates are low due to poor product demand and low prices. Challenges will arise when good times return, and factories need to operate at full capacity.<\/p>\n Who will be affected?<\/strong><\/p>\n The surest way to make wood supply sufficient is to close factories. This was done during the financial crisis as well, with all major forestry companies participating in closures. As expected, UPM's Sauli Brander is not eager to speculate on the order of factory closures.<\/p>\n Antti Viljakainen from Inderes doesn't do that either. However, he notes that forestry companies historically closed their oldest factories while simultaneously building new and more efficient capacity.<\/p>\n \"Look up a list of Finnish pulp mills on Wikipedia and select the oldest and smallest facilities, especially those not integrated with other production,\" Viljakainen advises.<\/p>\n Stora Enso recently announced the closure of a factory. Sunila has been using approximately two million cubic meters of raw timber annually, with the majority being imported wood. The closure of the factory will ease the wood supply for the company's valuable facilities in Southeastern Finland. Among Stora Enso's factories, you could also consider including Uimaharju in North Karelia, although it has been improved in recent years.<\/p>\n All factories belonging to Mets\u00e4 Fibre, which is part of Mets\u00e4 Group, are large and relatively new. However, the choice would ultimately be easy if one of the facilities needs to be closed \u2013 then the bells would toll for Joutseno. It operates in the context of scarce wood resources in Southeastern Finland and is not integrated into other production.<\/p>\n Mets\u00e4 Fibre's Kemi and \u00c4\u00e4nekoski facilities are globally competitive softwood pulp mills. The Rauma pulp mill from the 1990s is being saved by a newly built sawmill on the same site.<\/p>\n UPM has three pulp mills in Finland: Kaukaa, Kymi, and Pietarsaari. All of them are efficient and large. Kaukaa and Kymi are integrated with paper mills, while Pietarsaari is located near the import wood harbor. The crucial factor may be how UPM's owners assess the availability of wood in Finland's largest wood usage center in Southeastern Finland.<\/p>\n Logging can be increased PTT's research director Paula Horne reminds us that markets inevitably adapt to the prevailing situation, such as stronger demand for raw wood than supply.<\/p>\n \"In the short term, reducing the factory utilization rates in a declining economic situation balances the demand and supply of wood. Previously, production limitations were mainly imposed on sawmills, but now pulp mills have also had shutdowns.\"<\/p>\n She believes that in the long term, the markets will find a balance.<\/p>\n \"If raw wood becomes more expensive due to demand significantly outstripping supply, production at the least profitable factories will eventually become unprofitable. This would lead to a decrease in wood demand and a decrease in prices.\"<\/p>\n Horne points out that the rise in stumpage prices strengthens wood supply, which balances the demand and supply in peak periods. This happened in the first half of this year, in 2018, and also in 2008.<\/p>\n According to her, domestic industrial wood harvesting can be increased somewhat from the current level. Wood imports have also strengthened after a drop last year.<\/p>\n \"However, Russian imports cannot be completely replaced by other sources of imports. For example, there is demand for Baltic wood in Central Europe.\"<\/p>\n Based on this, Horne predicts that stumpage prices for fiber wood will not drop to the levels of past years but will stabilize at a higher level due to changes in the wood markets. This is because in the future, demand will determine the price level, not supply.<\/p>\n \"Furthermore, strong demand for energy wood will further tighten the fiber wood markets.\"<\/p>\n She predicts that there will be no rapid changes in the energy wood markets, and demand will continue at its current level.<\/p>\n \"Without political incentives, the share of wood will not change dramatically.\"<\/p>\n In plain language, this means that the demand for energy wood will continue unless the EU or future governments restrict or prohibit the use of wood in energy production.<\/p>\n Comment: Bad News Ahead In the next boom period, the new large factories in Kemi and Oulu will be running at full capacity. Perhaps Mets\u00e4 Fibre's Rauma sawmill has also been made operational.<\/p>\n At that time, Finland would need 15 million cubic meters more wood for industrial and energy production than currently. As mentioned earlier, this is practically impossible.<\/p>\n Based on Viljakainen's hint, it would have been easy to target Kotka's Sunila.<\/p>","protected":false},"excerpt":{"rendered":" Forest owners in Finland have recently enjoyed favorable timber prices. By percentage, the stumpage and procurement prices of fiber wood species have increased by 40-50% in just a couple of years. The big question is how long these good days … Continue reading