HELSINKI (Reuters) – Finnish forestry collective Metsaliitto is seeing stronger demand for sawn goods in Europe as the construction business slowly improves, but it faces a potential shortage of logs, a senior executive said on Tuesday.
Ole Salven, head of Metsaliitto’s wood products business, told a Reuters Paper and Packaging Summit that log sellers have been holding out for better prices and that if they do not begin selling more, it could be forced to curtail production further.
“At the moment we are in a situation where the demand is relatively better than before,” Salven said. “As it looks now we will have a shortage of logs. So lumber prices in our market segment have increased quite dramatically in the last few months.”
Metsaliitto, a major player in the timber industry, is owned by some 130,000 Finnish forest owners. The group, which owns half the private forests in all of Finland, competes with paper producers Stora Enso (STERV.HE) and UPM (UPM1V.HE). Metsaliitto also owns a controlling stake in M-real (MRLBV.HE).
Salven said that while the construction industry had undergone a profound decline, the renovation industry had held up better and was set to show only modest slippage for 2009 and possibly grow a little next year.
“If people don’t move, they tend to renovate. So that market is especially good and it’s a big market for us. There is also an element of stocking up in order not to lose out.”
But after log prices fell some 25-30 percent from their peak in late 2007, log sellers are showing reluctance to sell at current levels even though prices have come up recently.
“Now the rumors are around there is a shortage of logs,” Salven said. “Saw mills have actually curtailed production to balance demand … And now demand for sawn timber is quite good.”
Salven said the construction market was still in negative territory, but not so acutely as before. “Now we are in a situation where the construction market has stopped falling and actually rebounded a little bit.”
Salven said that after depleting its inventory of old logs as of the end of June, Metsaliitto would like to stock up.
“We believe that demand is strong enough for us to do it,” he said. “We would like to buy, but not enough people would like to sell at levels where we think we are competitive.”
If Metsaliitto is unable to buy enough logs at competitive prices, the group is ready to curb output at its sawmills. “We will not continue to go the volume way. We will then curtail production,” Salven said. “We cannot continue to produce at losses.”
