THE CURRENT MARKET SITUATION

Trämarknaden Karlstad

November 24, 2011

Bertil Stener

THE MARKET SITUATION - and facing the reality

150

200

250

300

350

400

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Milj

oner

m3

Source: FAO

Global production of sawn softwood 1960 - 2010

Currency market

Change SEK/USD

2 year -2%

1 year -1%

Change SEK/EUR

2 year: -12%

1 year: -2%

Change SEK/JPY

2 year: 13%

1 year: 6%

Change SEK/GBP

2 year: -7%

1 year: -2%

0,5

0,55

0,6

0,65

0,7

0,75

0,8

0,85

0,9

5,0

5,5

6,0

6,5

7,0

7,5

8,0

8,5

9,0

2004

2005

2006

2007

2008

2009

2010

2011

EU

R / U

SD

SE

K/U

SD

US Dollar January 2000 – 16 November 2011

SEK / USD (left axis) EUR / USD (right axis)

8,0

8,5

9,0

9,5

10,0

10,5

11,0

11,5

12,0

2004

2005

2006

2007

2008

2009

2010

2011

SE

K/E

UR

O

SEK/ Euro Jan 2000 - 16 November 2011

1,00

1,10

1,20

1,30

1,40

1,50

1,60

10,0

11,0

12,0

13,0

14,0

15,0

2004

2005

2006

2007

2008

2009

2010

2011

EU

R / G

BP

SE

K / G

BP

British Pund January 2000 – 16 November 2011

SEK / GBP (left axis) EUR / GBP (right axis)

0,50

0,60

0,70

0,80

0,90

1,00

5,0

6,0

7,0

8,0

9,0

10,0

2004

2005

2006

2007

2008

2009

2010

2011

EU

R / 1

00 J

PY

SE

K/ 100 J

PY

Japanese Yen Jan 2000- 16 november 2011

SEK / 100 JPY (left axis) EUR / JPY (right axis)

Source: Riksbanken

Consumer confidence indicators

Source: Konjunkturinstitutet

- 120

- 100

- 80

- 60

- 40

- 20

0

20

40

60

80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sawmills Average 2000-2011 All manufacturing industry

Confidence indicator – Swedish sawmill

industry

80

90

100

110

120

130

140

150

160

2005 2007 2009 2011

Ind

ex

20

00

=1

00

Redwood Whitewood Source: Statistics Sweden Based on monthly deliveries

Great bull run, globally

Crash landing

Economic stimulus, improving

confidence, supply discipline

Swedish Export Price Index, sawn and planed

softwood Supply was boosted up,

confidence & demand was

not…

Q4 & Q1 curtailment effects

Japan – Housing starts 2011

exceeding 2010

50000

55000

60000

65000

70000

75000

80000

85000

90000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

To

tal

ho

us

ing

sta

rts

Stora Enso Wood Products

2011

2010

Japan

- Reconstruction after tsunami keep housing starts up

Stora Enso Wood Products

0

200

400

600

800

1000

1200

1400

2006

2007

2008

2009

2010

2011

E

2012

E

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

Ho

us

ing

sta

rts

, 1

00

0 u

nit

s

Non-wood

Wooden

• Reconstruction after tsunami has helped to keep housing starts above 0.8 mill.

units

• Housing starts still historically on low levels

• Housing start forecast to start trending down after 2015

Source: Historical numbers Ministry of Land, Infrastructure, Transportation; forecast SEWP

Japan

- European wood products import last year

0

50

100

150

200

250

300

Jan

2010

Mar May Jul Sep Nov Jan

2011

Mar May Jul

Mo

nth

ly im

po

rts, 1000 m

3

- Sawnwood from Europe +17% - Overall glulam imports +25%

Stora Enso Wood Products

China’s lumber imports = soaring - Canadian softwood lumber has overtaken Russia

Russia – strong export to China Trävaruproduktionen

jan-sept 2011 / jan-sept 2010: +4%

Trävaruexporten jan - aug 2011/ jan-aug 2010

- Västra Europa; +3%

- Kina; +42%

- Japan; +22% (jan-jul)

Kina 23%

Japan 6%

Östra Asien (exkl. Kina och

Japan) 2%

Centrala och södra Asien

19% Mellanöstern

9%

Nordafrika 11%

Östeuropa 14%

Västeuropa 14%

Övriga 2%

USA: housing starts 2004 – 2011 (annual figures)

0

500

1000

1500

2000

2500

2004 2005 2006 2007 2008 2009 2010 2011

1 0

00 u

nits

0

50

100

150

200

250

300

350

400

450

500

0

500

1000

1500

2000

2500

3000

3500

4000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US

D / 1

00

0 b

df

SE

K / 1

00

0 b

df

Price on SPF 2x4 Western std & btr in SEK and USD, to October 2011

SEK / 1 000 bdf USD / 1 000 bdf

Source: Random Lengths

USA: development of price on sawn softwood

Oversee export from Europe - N Africa, and M-East saved us 2008 - 2010

0

1000

2000

3000

4000

5000

6000

7000

8000

Japan USA M-East/N-Africa* Other Asia, Oceania

10

00

m3

2006

2007

2008

2009

2010

European sawnwood exports to Japan, USA, N Africa, M-East and Asia/Oceania

+65%

+300%

-95% -25%

2011-2012?

SOURCE: Stora Enso Wood Products

Europe: Sawnwood demand, main countries

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2008 2009 2010 2011 2012

Ch

an

ge t

o p

revio

us y

ear

UK

Germany

Italy

France

2010 M3

8.1

18.2

5.8

9.7

41.8

Source: Softwood Conference October 2011

Western Europe

Total volume, m3 75.4 65.3 70.2 70.8 71.4

Change, m3 -7.7 -10.1 +5.0 +0.5 +0.6

Difference - highest (2008 ) with lowest ( 2009 )volume = 10.1 Million m3

+ - 5 mill. m3

-23

-18

-13

-10-8

14

17

108

5

12

8

2

-3

-30

-20

-10

0

10

20

Austria Finland Russia Germ any Sweden

% c

ha

ng

e t

o p

rev

iou

s y

ea

r

2008 vs. 2009

2009 vs. 2010

2010 vs. 2011

Austria Finland Russia Germany Sweden Total

2008: 11.7 9.8 19.6 22.0 17.2 80.3

2009: 8.3 8.0 17.2 19.8 16.1 69.4

2010: 9.4 9.4 18.7 21.2 17.0 75.7

*2011: 9.5 9.6 19.9 22.0 16.7 77.7

*2012: 9.5 9.6 21.0 22.5 16.5 79.1

Softwod production in key European countries

2008-2011

Sources: Softwood Conference / ECE Timber Committee Note 1: Russian output 2011 is projection based on 1H 2011 development Note 2: German output for 2011 based on 2010 ECE figures

Source: Softwwod Conference, Oct 2011

+ - 5 mill. m3

Source: Euroconstruct, Concensus Forecast

Development of housing starts by region

20

40

60

80

100

120

140

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Ind

ex

20

03

= 1

00

Japan

USA

Europe

New construction - recovery remain slow

Marginal

growth

(fixed prices, 2010 years level, mill. SEK)

Value in SEK of the Swedish construction market – renovation/maintenance 65 % of the value

New residential

New prof. buildings

Renovation prof.

buildings

Renovation residential

Sweden - renovation and maintenance

Construction outlook – residential renovation

and maintenance, more stable

150 000

200 000

250 000

300 000

350 000

400 000

2008 2009 2010 2011 2012 2013 2014

Euroconstruct Western Europe (EC-15) -

renovation and maintenance

Source: Euroconstruct, Nov. 2011

(mil

lio

n E

UR

O a

t 2

01

0 p

ric

es

)

600

800

1000

1200

1400

1600

1800

2004 2005 2006 2007 2008 2009 2010 2011

1 0

00

m3

/ m

on

th

Total monthly production sawn softwood in Sweden and Finland i Sverige och Finland up to October 2011 (12 months moving average)

Sverige Finland

Sweden & Finland – total monthly production

of sawn softwood (12 months moving average)

Sweden: Jan –okt : -1%

okt – okt: -6%

Finland: Jan –okt : + 7 %

okt – okt: + 23%

Stocks of sawnwood in Sweden and Finland

0

1000

2000

3000

4000

5000

6000

2004 2005 2006 2007 2008 2009 2010 2011

1 0

00

m3

Total stocks of sawn goods in Sweden and Finland January 2004 - October 2011

Finland Sverige

Source: Skogsindustrierna

0

200

400

600

800

1000

1200

2005 2006 2007 2008 2009 2010 2011

SE

K/m

3f

Sverige Tyskland Österrike Lettland Nordvästra Ryssland Finland

Price calculated from USD to SEK

Sawlog prices softwood

Cost of whitewood sawlogs (or eq.) 1Q 2005-3Q 2011 free

at sawmill in European countries

Sweden

Source: Wood Resource Quarterly (WRQ)

Source: Statistics Sweden and Swedish Forest Agency, Skogsindustrierna

Price development for sawn goods (export price

index, EXPI) and saw logs (free road) 2006-2011

80

90

100

110

120

130

140

150

160

170

2006 2007 2008 2009 2010 2011

Index

Sawlogs price (all Sweden)

Sawn wood price (EXPI)

Stora Enso Wood Products

South

Sweden Baltic

North-

West

Russia

Capacity expanded,

heavy competition

Finland

Tight log markets,

import sources dried up,

cost pressure

Capacity expanded, log export

tax brought down harvesting

Mobilizing

new areas?

Poland,

Belarus,

Ukraine,

Romania

South

Germany

Czech

Austria

25

Rawmaterial

challenges in

most regions

- cost and

availability

Conclusions – demand 2012

• Weakening economic outlook in many European countries

– Better in Germany, France, Nordic countries

– we have gone from financial to country crisis

– no money for stimulation packages this time

• US recovery – have started, some signs, but it will take time

• Asian markets provide slightly better forecasts

– China good growth – but limited mainly to lower grades

– Japan improved housing starts from low levels

• NA & ME market on a high level, but unsafeness for 2012

• No real recovery and increase 2012 - demand about the same as 2011

• Small stocks of sawnwood in the different markets.

Market outlook

– we need supply discipline!

• Current output - not matching demand

• Market will remain supply driven

• +- 5 mill. m3 – balance the European market

• Curtailments of production come

What can we influcence ( Q4 and Q1 2012)?

- How do we reach a balance in the market?

• Finance - loan crisis? No

• Market No

• Exchange, interests No

• Products, productivity (Yes)

• Costs of raw material (Yes)

• Supply Yes

Supply Demand

Nordic production curtailments Q4 & Q1

will change the balance!

• Supply driven market

• + - 5 mill. m3 balance the

European market

• Low availability of raw material

• High price of raw material

• Rising but controlled stocks

• Q4 2011 curtailments of 800 000

m3 in Sweden & Finland!

• Q1 2012 same curtailment?

Supply Demand Background:

”Low season”

Consequence:

Q4 – 800 000 m3

Q1 – 800 000 m3?

on a Nordic base

Final messages

• Weakening economic outlook in many European countries

• No real recovery and increase 2012

• Demand about the same as 2011

• Market is supply driven

• Strong Nordic and European curtailments in production Q4

2011 and Q1 2012

• A better supply demand balance Q1 2012

• Product development and promotion ongoing

• Future: ”Wood has a good story to tell”

Swedish Wood spreads knowledge, provides inspiration and

encourages development relating to wood, wood products and

wood construction. The goal is to increase the use of wood in

Sweden and in selected international markets through

information and inspiration. Swedish Wood also aims to highlight

wood as a competitive, eco-friendly and sustainable material.

Swedish Wood is a department within the trade and employer

organisation the Swedish Forest Industries Federation. Swedish

Wood is supported by the Swedish sawmill sector.

Forestry and wood an important

part of our future!

Thank you for your attention!