It will come as no surprise that sawmills are being pressured by high raw material costs and weakening timber sales. We saw sawmills in Finland and Sweden announcing cutbacks during the spring, and the latest annual reports indicate that profitability has been severely impacted. And as long as the border with Russia remains closed, this situation will persist. High timber costs are a direct result of the cessation of imports from Russia, which has created a severe imbalance in supply.
At the same time the market remains largely dormant. New construction projects in Europe are at low levels, despite the falls in interest rates. This is affecting demand for timber products, and the industry is not yet seeing any clear signs of recovery.
Two geopolitical factors will be crucial for a market turnaround. The first is the possibility of peace in Ukraine, which would open the way for reconstruction and, in the long term, the resumption of roundwood exports from Russia. This would benefit European sawmills both through the greater availability of raw material and an increased demand for timber products during what would be a major reconstruction process.
The second factor is the USA’s trade policy. Trump’s announcement of tariffs of 25 percent on Canada and the EU creates significant uncertainty. Canada, which already has 14.4 percent import duties imposed on timber products to the USA, would end up with tariffs totalling almost 40 percent. This might benefit European exports in the short term, but the long-term effects are difficult to predict, as protectionist measures often lead to unexpected market changes.
Increased American self-sufficiency could backfire on export-dependent sawmills in Europe.
The USA’s economic situation also plays a crucial role. The strong labor market and rising long- term interest rates are affecting the construction sector, and uncertainty about interest rates means that many investment decisions are being postponed. In Europe we see political unrest in both Germany and France, while the construction sector is struggling with low volumes and weak growth.
Swedish production of timber products has decreased from a peak in 2021 when production was just over 19 million m³, to approximately 17.5 million m³ in 2024. Stock levels at Swedish sawmills are also shifting – with inventories of spruce decreasing while pine is increasing. A ray of light in all this gloom is that pine may experience a renaissance as a construction material, something the industry has long called for.
How the industry develops in the years to come will depend largely on these geopolitical factors. All we can do is be ready to act – whatever direction the market takes.
Erik Eliasson
Marketing Manager at Norra Timber