by Gert-Jan Nabuurs, Bas Lerink and Mart-Jan Schelhaas
“Lockdown also calls for cooldown”
Since the mid-2020, timber prices have risen sharply, and many wonder why. Is there a worldwide shortage of wood? Is the forest running low? Certainly not the latter. The current price increases are driven by a combination of reasons, as discussed below.
During the corona lockdowns, many people started home renovations or building new homes, which certainly led to an increase in demand. These and other construction activities have been boosted by central bank policies in the USA and the EU, which have kept interest rates record low. Also, fiscal stimulus packages due to the corona crises have supported public investments e.g. to construction activities. All these have contributed to increasing demand for wood. In addition, building with wood receives a lot of attention currently because of the favourable CO2 balance. The attention for building with wood alone does not immediately lead to additional demand, but it does lead to playing the market concerning anticipated higher prices in the future. In addition, there is simply a shortage in processing capacity in the products industry, lagging behind the demand already for several years. In addition, in 2020 as many sawmills and logistics were partly closed down due to corona restrictions, the supply of timber got lower and deliveries were delayed.
The actions of the former US President Donald Trump are also a part of the rising prices. As early as in 2018, to protect the US domestic market, he decided to significantly increase import tariffs on Canadian timber. As a result, Canada now supplies timber to China, and the United States purchases much more softwood from e.g. Austria, Germany and Scandinavia. With the increased demand for European timber, there are now shortages. Even the oversupply from Germany and Czech Republic caused by the increased loggings in forests affected by bark beetles have not made up for these shortages, as a fair share of their supply was exported to China. Also, in this central European region the coniferous wood price for forest owners is still not at the level of five years ago.
Is there really a shortage of wood?
No, definitely not. There is more wood in the European forests than at any time since the late Middle Ages. Including countries in eastern Europe such as Ukraine and Belarus, this stock of wood amounts to almost 35 billion m3 of wood. Due to forest growth, a billion m3 of wood is added every year. The harvest is only 600 million m3/year. So there is certainly no physical shortage. Additional building with wood is also a small player in terms of it. Even if the EU were to build 30% of its new homes with wood (equivalent to 300 000 dwellings per year), that would mean only an extra demand of 15 million m3 of sawn timber (for comparison: Sweden alone produces annually 18 million m3). A small increase. But the timber market is more than the actual stock and supply. For clarity, it is important to stress that the current price increase has nothing to do with the bioenergy market, because these are completely different types of wood and qualities.
Investing
In the slightly longer term (1-2 years), processing capacity will increase. Sawmills are already investing, which will lead to a moderation in prices. But in the longer term, more attention is certainly needed also for the forest management side of the chain. The additional supply needed, can be dealt with through additional harvesting (which is not an easy process, by the way), but above all investments must be made for the long term.
If we must get rid of fossil fuels, the demand for wood may increase. That is possible under two requirements: we should further improve efficiency and reuse of wood products. And in addition, we need to invest in good forest management and reforestation. The EU Green Deal and Timmermans’ Green Deal’s 3 billion trees are a good start.
