PTT Finds Overcapacity in Finland Hurting Paper Pricing

Sept. 25, 2006 - According to Pellervo Economic Research Institute (PTT), the export of paper from Finland will increase significantly this year. Last year's decline in export and production caused by the labour dispute will be caught up. In 2007, the growth will be about 2% and again the Finnish paper industry will be setting up new production records.

The PTT estimates that the price of paper will rise only slowly due to still existing overcapacity in paper industry in Europe. Despite significant increase in sawn timber prices, the Finnish sawn timber industry will exceed last year's output only slightly. This is because of rising log prices. Due to favourable market situation in the saw milling industry, there is a boom also in the Finnish roundwood market and the prices of roundwood are increasing significantly. The PTT estimates, however, that next year the growth of roundwood prices will be slower than this year.

Production and Export of Finnish Paper is Increasing,
But Advance in Price is Hard to Achieve

The demand for paper is enhancing slightly in Europe. However, production overcapacity in Europe still retards the price growth even if there is an improvement in demand. The PTT expects, however, that there is a reduction of overcapacity during the next year and the capacity utilization rates will improve. Still, there will not be any significant changes in prices yet. In pulp industry there has been, however, significant increase in demand, stocks have declined, and prices have risen. The price of pulp is, however, assumed to decline by the end of the next year. This is due to introduction of new plants especially in South America.

According to the PTT, the Finnish production and export of paper will increase this year by 16 per cent and next year by a couple of per cents. Export prices are assumed to advance only moderately. Next year the average export price will be a couple of per cents higher than this year. The PTT assesses that rivalry for market shares is currently - after last year's labour dispute in Finland - even harder than normally. This is slowing down the rise of the export price of the Finnish paper. Higher capacity utilization rates and a slight increase in paper prices will somewhat improve the profitability of the Finnish paper industry. Profitability will, however, remain still poor, as also production costs are growing.

Boom in the Sawmilling Industry
The demand for sawn timber is high in Europe. Export to the USA and elsewhere outside Europe has also been brisk. Oversupply of the recent years has, thus, temporarily eased off. The export price of the Finnish sawn timber will increase significantly this year and the profitability of the Finnish saw milling industry is improving to some extent. The price increase will not, however, have an effect on the amount of Finnish export and production. Production capacity, which has been reduced during the recent years, and the rising price of saw logs will hinder the growth of production. Price growth starts to decline next year, but the average export price will still remain approximately at this year's level. Also total output of the Finnish saw milling industry will be this and next year about the same.

Roundwood Trade in Finland Brisk and Prices Rising Sharply
The consumption of wood will be this year in Finland about ten per cent higher than last year. This is mainly due to growth in the use of pulpwood and wood chips. Increasing consumption does not, however, heighten commercial fellings in Finland. Finnish forest industry will cover the additional roundwood need mainly by using already existing roundwood stocks. Due to advanced prices of sawn timber, saw milling industry is able to pay higher logwood prices than last year. The PTT expects this to accelerate roundwood trade significantly. The overall traded amount of roundwood will be this year about 10 to 15 per cent higher than last year.

In 2007 roundwood consumption will grow approximately by one per cent. This will particularly enhance the demand for pulpwood from private forests. Commercial fellings will grow, which will increase stumpage earnings and improve the profitability of private forestry.

The Import of Roundwood Will Decrease But is Still High
The PTT expects roundwood imports to Finland to decrease this year to some extent compared to imports of last year. The availability of roundwood in the Baltic Sea region is diminishing as Swedes are returning to the markets of the Baltic States and Russia. The total amount of roundwood imported to Finland this year is estimated to be less than 20 million cubic metres. However, this is still high - two million cubic metres more than in 2004. As the Finnish forest industry will use imported wood also from stocks, this year some 30 per cent of the consumed wood is imported. In pulp and paper industry the share is even higher, 40 per cent.

SOURCE: Pellervo Economic Research Institute (PTT)

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