Manufacturer of wooden packaging since 1995
Chief Sales Officer
We'd like to provide a concise market overview for Q4/2023 with a short outlook into Q1/2024 of the lumber, packaging, and gardening industries. With this market overview, we'd like to highlight key market trends and dynamics that should support you in your purchasing decisions.
The worldwide economy is still navigating choppy waters, and there aren’t many positive signs on the horizon. High global interest rates continue to strain many industries around the globe. The construction industry is affected ahead of all others. As this industry is the primary consumer of lumber worldwide, this development has a global impact on the timber market. But other industries are suffering as well. Especially energy-intensive industries have moved some of their production abroad, which has had a negative effect on pallets and pallet collar consumption in the EU, particularly in Germany.
Consumers are still acting cautiously during times of uncertainty. Spending on consumer goods is now more deliberate than before. Lower energy costs than in the winter season 2022-2023 could have a positive effect on consumer purchasing behaviour in Q4/2023. They might also last into Q1/2024, especially if energy costs remain moderate. Additionally, the “grow your own food” trend could positively impact the gardening sector. This trend is quite understandable and reasonable in times of uncertainty.
There are also some positive aspects from the B2B side to mention. PMI indexes in Germany and the US have increased for the first time in several months. The increase in the PMI can be explained by the fact that in 2022, at this point, there was a massive increase in energy prices, and compared to the current situation in 2023, the outlook seems more positive at first glance. It might be the case that the positive PMI sentiment is short-lived, as other market indicators are currently stagnant or negative. Still, it could also be evaluated as a positive sign, at least more optimistic than before.
Additionally, Scandinavian sawmills have reported a positive outlook for the coming months. In Sweden, the orders on hand indicator have been increasing in recent months. Finnish sawmills are no longer ready to decrease their prices for sawn timber, arguing that there is improved market potential in China driven by the extremely low freight costs from Europe to China. Furthermore, sawmills in Europe and North America, such as Stora Enso or West Fraser, report negative EBIT for wood products due to lower demand and prices. This also shows that sawmills do not have any more room for price negotiations.
As a logical step, price increases on the log side were announced in October. For example, Södra increased basic log prices for spruce and pine with immediate effect. Södra’s CEO, Peter Karlsson, justifies the recent price increases with high industry demand and the building up of inventories for winter. Additionally, Karlsson reported improved sales conditions in the lumber markets for spruce and pine. Log prices in Norway are currently at an all-time high.
However, the wood prices are still under pressure, although some signs of stabilization or even first attempts at price increases are seen on the market. So, wooden packaging and gardening product producers are still competing for more minor demands and trying to minimize prices. However, price declines on the material side are either tiny or stagnant. So, further price reductions for the finished products such as pallet collars, pallets, raised beds, and wooden houses are made at the cost of manufacturers’ margins, which have been continuously reduced over the past months. Some market experts believe that not all producers might survive in such tough market conditions. This trend leads many producers in Eastern Europe to use illegal imports of wood and wooden items from Russia and Belarus through Kazakhstan and Kyrgyzstan, which is absolutely against European law and is totally unacceptable from our point of view. More information and our suggestions on this matter can be found in our previous market overview.
What can be said with a certain degree of certainty is that the prices for sawn timber on the European level are still under pressure. However, considering the negative profit some of the sawmills reported, their readiness to consider further price declines is more than limited. Moreover, some sawmills have already scientifically reduced their production output, number of shifts, and stock level. That is a significant risk in getting material at the current price level if demand for wooden products rises on the market.
Looking ahead to Q1/2024, we consider increased lumber prices the most probable scenario based on the abovementioned market insights. Therefore, our recommendation for customers making short or mid-term purchases would be to continue their regular purchasing activities based on their current needs. For customers planning deliveries already for 2024, our strong recommendation would be not to wait till the start of Q1/2024 but to make purchases with deliveries already during Q4/2023.
As mentioned earlier, sawmills are not prepared for further significant price reductions. While prices for finished goods like pallet collars, pallets, and various wooden gardening products are still under pressure, manufacturers are bearing the brunt of further price reductions from their profits. Our industry operates on low margins, so this approach can only be temporary. As a result, most producers do not offer more extended price guarantees for their products. Prices are typically fixed for 1-2 weeks or a maximum of 1 month. This demonstrates that most producers are also considering the potential change in the price trend.
In Germany, starting from December 1, 2023, a CO2 emissions tax is being added to road charges, increasing the cost per kilometre by 70-80% and, in some cases, even double, especially for older and less eco-friendly vehicles.
For Euro VI category vehicles, the charge is set to increase by around 83% (+ €0.158 per kilometre). Preliminary estimates suggest that this change will result in a 7.9% increase in the overall cost of driving per kilometre in Germany.
For trucks to and via Germany, this translates to an increase in transportation costs, starting in December, from 50 to 150 EUR per delivery. Further information can be found here.
Exceptionally low prices for EPAL pallets from Ukraine have led the European Pallet Association (EPAL) to respond by announcing that they will withdraw licenses after the first violation of EPAL rules. According to EPAL CEO Bernd Dörre, this action is primarily due to the inability to guarantee that the sawn timber used for EPAL production in Ukraine comes from legal sources. This creates an unfair competition situation between European and Ukrainian manufacturers. As a result, customers should be mindful of this situation and request official confirmation from suppliers that their products comply with all European regulations.
Additionally, EPAL reports an increased number of scammers offering EPAL pallets and other types of wooden packaging at incredibly low prices. The request may come from fake accounts of well-known companies or simply from fake companies. Therefore, we call on you to be cautious and not agree on prepayments with new and unknown suppliers or customers.
The highly fluctuating exchange rate between the Swedish Krona and the Euro is another challenge that needs to be addressed for deliveries to customers in Sweden. Year-to-date, the SEK has depreciated by approximately 5.7% against the EUR. This represents a significant shift that suppliers need to take into account.
Traditionally, we have established long-term partnerships with our customers. Consequently, our Swedish customers encounter more significant challenges when importing goods from the EU. To assist our Swedish customers during this challenging period, we have developed several proposals to address the current situation. Please contact your designated Account Manager for more information on these proposals.
Price trends in Europe and the US are meanwhile aligned. Both indexes are showing a sideward movement with some slight decreases recently.
The latest HPE index from 23.10.2023 shows a decrease of 1,5% following the overall trend of the last 7 months.
Plywood and OSB prices continue to decrease, mainly due to weak demands from the construction industry.
Lumber prices have recently dropped to approximately $480 per thousand feet, edging closer to their pre-pandemic levels. This decline is due to a combination of factors, including higher interest rates and the usual seasonal slowdown in the real estate market.
In September 2023, the United States saw a 7% increase in new housing construction, reaching 1.36 million starts. This marks a recovery from August’s three-year low of 1.27 million but fell short of the anticipated 1.38 million starts. This more modest growth is attributed to reduced housing demand resulting from higher mortgage rates.
Despite this, the persistent shortage of available homes offers some relief for builders. Additionally, limited lumber supplies from North American sources and decreased softwood lumber imports from Europe during the third quarter have helped prevent a more significant price drop.
Prices for wooden pallets are still under pressure due to the low demand from the market. However, we call on all market participants to act more carefully, especially when receiving surprisingly low pallet offers. Extremely low-price levels could be caused by using illegally imported material. Overall demand on the pallet market is unsatisfactory. So, many pallet producers react to it with a reduced number of shifts and items produced.
Another challenge producers must solve today is securing raw materials of necessary quality. Quite a considerable amount of available material on the market is affected by bark beetles. Sawn timber with signs of insect holes can be purchased at lower prices. Still, importing your products to overseas countries like China, the USA, Australia, India, and many other third countries could create issues. We recommend critically checking the quality of low-price offers, ensuring that the offered quality meets your needs, especially for export to third countries.
In the upcoming weeks and months, we’ll see if sawmills can make the price changes they want, but it will be challenging due to tough market conditions. However, it’s also clear that they can’t keep operating at a loss forever. So, they’re determined to raise prices.
Wood product manufacturers are currently facing an even more challenging situation. On one side, some sawmills are trying to raise prices to keep their business running, but on the other, the increased supply is tempting some customers to push wood product prices down further. As mentioned earlier, these additional price reductions are solely at the expense of the manufacturers.
The increased PMI index and the anticipated lower energy prices could be the first signs of an improvement in the market situation. Of course, it remains to be seen whether this is indeed a turning point.
The current average price level is nearly at a 24-month low. Therefore, it is highly unlikely that we will see a significant further decrease in raw material prices. Most probably, prices will stabilize at the current level for Q4, with slight fluctuations within a small range.
Hence, our recommendation for short or midterm purchases is to maintain regular purchasing activities based on your needs. For customers planning deliveries already for 2024, we strongly recommend making purchases with delivery until the end of Q4/2023 to avoid potential price increases.
The market is presently quite dynamic, and shifts in demand, customer preferences, interest rates, or other market factors have the potential to influence price trends in various directions. Consequently, we must diligently observe market indicators and maintain flexibility, ready to adapt our strategy in response to market shifts.
At KRONUS, we are well-equipped to tackle upcoming challenges and keep a vigilant eye on the market. We will keep you updated on any significant market developments.