Supply and demand. The balance between the two is important. With an export share of about 70% for sawn products, the global market is of major importance to Setra. Even though a large portion of international flows continue to go to the European market, we can see a steady rise in volumes to markets such as North Africa, the Middle East, the US and China. Since the market is becoming more and more global, flows and consumption have a considerable effect on our local markets.
On the global playing field things have changed in recent years. Above all through the steady growth in wood consumption in China which has doubled its share of the global market over the past seven years. Today, the country is the world’s second-largest market with an annual consumption of around 50 million cubic metres of softwood products (the US is the largest market with annual consumption of 75 million cubic metres). A development like this has a domino effect. Take a look at the map of the world on the right. There you can see the flows of softwood products. If one flow falls and another rises, what do you think happens?
Changes upset conditions. In addition to China’s strong development curve there are several other trends. The flows are of shifting dimensions. A giant player like the US is experiencing recovery and import needs from Europe may rise. Construction in Japan, which was previously strong, is now falling. In Canada, which has dominated exports to China together with Russia, production is expected to decrease due among other things to problems with the mountain pine beetle. Furthermore, the global construction sector is expected to increase until 2018, largely due to this growth in China and the recovery in the US. Changes and aspects such as the above have an impact on all players. Regardless of whether or not you are active in all markets. The global aspect is becoming increasingly clear in the industry. Something that does not look as if it will slow down over time.
Birth of new markets
There are many parameters that lie behind both how a market is born and how it develops. Macroeconomic and political development in the country and/or region are naturally key factors. But demographics are also significant. A young and growing population drives new construction. Take Japan as an example. There we see the opposite trend. A tax increase on housing construction that was introduced in April 2014 has had a major negative impact on order bookings for wooden buildings. Average age is high which also has an effect on new construction which is decreasing.
Compare this with the US which due to a high rate of immigration has a very advantageous demographic and therefore a very positive forecast for future housing starts. A market’s own raw material supplies are also important for its development. Is the market self-sufficient or not? Do they need imports? Another factor relates to building culture and the relationship to wood as a material. What is the tradition and has this changed?
From undersupply to oversupply
I have a positive view of the market and opportunities for wood. The need for new construction will probably grow and environmental and climate aspects that are considered when choosing materials will become increasingly important. Wood has a major advantage here. But it is very interesting to monitor and be part of this development. Forecasts and trends do not always need to be entirely correct. But let us say that the recovery in the US is faster than expected. Can the Canadian sawmills supply the US? Will the US need to import from Europe? Will Canada reduce its exports to China? And in such a case how will China make up for this loss? When this balance moves. When demand and supply shift. This is when we will see a major impact, directly and indirectly, on the flows that maintain global wood consumption. This is when the rules of the game for the global market will change.
Text: Olle Berg