- Positive outlook for wood demand linked to growing interest in biomass energy
- Tax incentives in Europe (France, Germany, etc.) to invest in the sector
- Dependent on the state of housing and construction markets
- Constraints related to compliance with environmental standards
- Highly exposed to weather conditions (storms, forest fires) and retaliatory measures in the context of the trade war
GLOBAL PRODUCTION OF WOOD PELLETS
(THOUSANDS OF METRIC TONS)
Demand for wood fluctuates according to the health of the construction sector, which is expected to be affected in the short term by the decline in global economic growth and higher lumber prices (4.2% increase in 2018 and 0.5% in 2019 after a 10.5% decline between 2015 and 2017), but which stands to benefit further out from demand from emerging countries as well as from major infrastructure construction projects. Wood production for heating and energy purposes will remain dependent on the variation in oil prices, (Brent expected to average USD 75 a barrel in 2019, according to Coface), especially as wood is increasingly being used as an energy source. The price of unprocessed wood increased by 3.3% in 2018, according to the latest estimates, after falling sharply in 2016 and 2017. Prices are expected to continue growing at an average rate of 2.5% per year between 2019 and 2030 according to the World Bank.
Overall, the market is evolving with the arrival of new producers – emerging economies are gaining market shares long held by countries of the United Nations Economic Commission for Europe (UNECE) – and changes in markets and demand.
Sawn wood consumption in UNECE countries is estimated to have increased by 1.9% in 2018, driven by the strength of wood pellet consumption, but is projected to soft in 2019 by 1%, according to the Committee on Forests and the Forest Industry (COFFI). In Europe and North America, environmental concerns are being reflected in changes to legal frameworks and buying habits that are encouraging the use of wood products in construction and as an energy source. In 2017, wood accounted for one third of all renewable energy. Two main sub-markets exist, with the European Union acting as the main driver of demand in each case: industrial-scale generation of bioenergy, and electricity and heating production at a residential or commercial level.
In Europe, consumption of wood-based products is expected to be affected by the slowdown in economic activity – Coface forecasts 1.7% in 2019 compared with 2.1% in 2018 – and softer demand for real estate. The region's demand for firewood is expected to continue to increase as the appetite for renewable energy grows.
In North America, the decline in demand for housing permits in the United States at the end of 2018 is expected to affect demand for wood in the country. China's tariffs on imports of US wood will also have a significant impact on external demand directed towards US wood producers, given that in 2017 Chinese imports accounted for 33% of US exports in the sector. However, President Trump’s infrastructure renovation plan would be a boon for the domestic wood market, as wood is widely used for construction. It should be noted, however, that at the time of writing, we have no certainty about whether this project is actually going to be implemented or about its scale if it does go ahead.
Japan, China and India remain key markets for European and North American wood exporters. In China, demand for wood is closely linked to the real estate market and is therefore expected to decline as a result of the gradual deceleration in economic growth (6.2% in 2019 compared with 6.5% in 2018) and the effects of the government's measures to tackle the housing bubble. In Japan, demand for wood is expected to increase in 2019 in connection with construction of infrastructure for the Tokyo Olympic Games in 2020.
Global wood production exceeded pre-crisis levels in 2017, and sawn timber production in UNECE countries, driven by export growth, particularly to China, is expected to grow by 2% in 2018. In the United States, production of wood-based products was brisk at the beginning of 2018 (5% increase year-on-year between May and July 2018 compared with 3.1% in the first quarter of 2018), but the retaliatory tariffs imposed by China on imports of US wood-based products in August 2018, in connection with the ongoing trade war, particularly between the two countries, could hurt US producers.
Wood pellet producers will benefit from growing interest in renewable energy production, since energy production is the main use of wood pellets: global wood pellet production is expected to reach 39 million tonnes in 2020, an increase of more than 50% between 2015 and 2020, half of which would be due to increased Chinese production, while energy production from wood pellets is set to double between 2018 and 2020 in Europe. In addition, the European Union aims to increase the share of renewable energy used in energy production to 32% by 2030. Moreover, the share of round wood production used as an energy source in UNECE was 17% in 2017, or 224 million m3, a 9% increase on 2013. Wood pellet production in UNECE countries rose by 4% between 2017 and 2018 and is expected to increase by 6% between 2018 and 2019 according to the Food and Agriculture Organisation (FAO).
Growth in fibreboard production will slow to 1% in 2018 from 2% in 2017 in UNECE countries. The United States has a large trade deficit in this product, and half of its imports come from China. Russia, which holds a quarter of the world's forest resources, is pursuing investment projects to capture more value added in the sector.
In Latin America, Argentina, which has lost competitiveness since 2005 and suffered a severe currency crisis last year, is trying to recover its past levels of timber exports: the latest estimates are 83,814 tonnes for 2018, 56% higher than in 2016 but still far from the 216,696 tonnes in 2005. In addition, very high inflation (47.5% in 2018 and projected at 32% in 2019 according to the International Monetary Fund) and high logistics costs are hampering the competitiveness of companies. However, the devaluation of the Argentine peso should allow timber exporters to regain some export price competitiveness. In Brazil, we expect a much better situation to continue in 2019: wood product production increased by 5.4% between September 2017 and September 2018, while wood panel consumption and exports increased by 5% and 2.3% respectively between January and September 2018 year-on-year.
In Asia, Japan, one of the largest plywood-importing countries, which sources mainly from Indonesia and Malaysia: two thirds of imports are tropical plywood and 93% of tropical plywood imports came from Malaysia and Indonesia in 2017. The increase in Malaysian and Indonesian plywood prices and the devaluation of the yen since April 2018 are encouraging substitutions in favour of locally produced conifer-based plywood.
Last update : February 2019