Manufacturer of wooden packaging since 1995
Chief Sales Officer
As usual, we are pleased to present the latest developments in the wood market. In our last communication from March of this year, we anticipated further increases in lumber prices during the second quarter of 2024. Once again, our experts have proven to be accurate in their forecasts.
Over the past seven months, the HPE Wood Price Index has shown only one direction – upwards. Even though the latest index as of June 17, 2024, recorded a marginal increase of (+0.2%), lumber prices have risen by over 20% throughout 2024. However, manufacturers have only been able to pass on this cost increase partially to end customers, bearing the brunt of it themselves.
The plywood price rose by 1.7% in June for the first time in over seven months. Similarly, the OSB price saw a strong above-average growth of 4.6%.
The situation in the USA appears to have diverged from that in Europe. Currently, the price trend in the USA is negative. This is primarily due to the challenging environment in the construction industry. In June, wood prices fell to below $480 per thousand board feet (bdft), marking their lowest level in over a year. The cause can be attributed to US data indicating reduced demand for wood and construction materials. Despite a 30-year mortgage rate in the USA below 7%, disappointing data on building permits and housing starts have significantly dampened sentiment in the housing market. Housing starts unexpectedly dropped in May 2024 to the lowest level since July 2020, declining by 5.5% from the previous month to an annualized rate of 1.27 million. Building permits also decreased by 3.8%, reaching a seasonally adjusted annual rate of 1.386 million in May 2024, the lowest since June 2020 according to preliminary estimates. These developments underscore the challenges in the housing market amidst tight credit conditions.
Currently, the Drewry World Container Index is 233% higher compared to last year. When comparing freight rates to pre-COVID times, the current index is 260% higher than in 2019. On average, customers are paying €5,117 for a 40-foot container from Asia. Drewry anticipates that due to congestion issues at Asian ports, freight rates from China will continue to rise in the coming week.
This trend is quite remarkable, as the sharply increased freight rates are leading to excessive cost hikes for imports from East Asia. Such a steep rise was unexpected by market participants and thus not factored into their calculations. For some European customers, local suppliers may become the preferred choice again. This could potentially increase the demand for wooden packaging in Europe in the medium term. As freight rates from East Asia continue to climb, local procurement of necessary goods appears increasingly attractive.
Considering that the DIY retail sector is currently placing orders for garden supplies for 2025 in Asia, European suppliers of garden products may also be favored. In both scenarios, this is likely to result in higher demand for sawn timber and consequently lead to rising prices.
Despite laws and sanctions, illegal timber keeps entering the EU.
Before the Ukraine war, Russia exported wood worth about €12.9 billion, with 25% going to the EU. Sanctions should have stopped this, but illegal wood still flows in. Reports show ongoing illegal imports through false documents and other tricks, often via Turkey and Kazakhstan. We’ve reported about it in our previous market overviews.
A recent EU study confirms that Russian birch plywood is reaching Europe through these countries. This illegal trade undermines sanctions and funds Russia’s war efforts.
The exact amount of illegal wood entering the EU is unknown, but recent reports highlight how it happens and where to act. The wood industry and individual EU states cannot tackle this alone. A unified European effort is needed, with increased vigilance from all companies to avoid violating EUTR and sanctions.
Most companies follow the laws, but some evade detection. This allows illegal timber to continue entering the EU, disrupting markets.
As reported before, we at KRONUS strictly follow the rules and buy our sawn timber only from approved and reliable sawmills. Therefore, we can ensure that the wooden products produced at KRONUS are made from timber sourced from reliable European suppliers. We also urge our customers to critically question price offers that are with lower market prices, as low prices might indicate that the wood comes from unsecured sources.
As mentioned earlier, sawn timber prices have risen by over 20% during the course of this year. However, prices for wooden packaging and garden articles supplied by Kronus have shown a different trend. Our prices have remained stable and, in some cases, have even been reduced. Nonetheless, this means that the increase in raw material costs has been mostly absorbed by manufacturers like Kronus. However, we have now reached the limit of what is sustainable. To continue providing our customers with high level of service and desired product quality, we must adjust our prices to reflect the current market situation.
Additionally, we have observed that the supply situation for certain sizes, such as wide boards over 150 mm, is becoming increasingly challenging. Sawmills are attempting to achieve even higher price increases for these products compared to others.
Currently, we anticipate that prices will remain at their elevated levels in Q3/2024. While fluctuations in either direction are possible, we do not expect significant swings.
For the second half of the year, market participants are anticipating a particular increase in production within the chemical industry. Already in April, the business climate in the German chemical sector improved significantly. Regarding the demand for various pallet types, current economic forecasts indicate a cautiously optimistic outlook. Increased purchasing power could further stimulate consumer spending. Both factors are likely to lead to heightened demand for load carriers in the latter half of the year.
The current tight inventory levels at sawmills and recent periods of negative margins are expected to further drive prices at these high levels.