It used to be when a modular or offsite factory owner was asked why he doesn’t buy more lumber and building materials from Europe, the answer was “it’s too expensive.” That is changing quickly!
Thanks to a surging US dollar and a faltering euro, many analysts expect that the two currencies could reach parity this year—meaning one dollar would fetch you one euro.
It would be a historic moment for the global economy. The two currencies haven’t reached a 1:1 exchange rate since 2002, three years after the euro was introduced in an effort to bring stability to Europe.
Some onsite builders and a couple of panelized factories have already been using more lumber from Europe. Here are what some countries are already supplying the US.
Sweden
Swedish sawmills are quite flexible and are accustomed to trading with countries where there is sufficient demand. Since the COVID-19 pandemic gripped the world in 2Q2020, Swedish sawmills have nearly doubled their lumber exports to the US — a total volume that is roughly 5% of all Swedish lumber production.
However, domestic deliveries of lumber decreased by 5% in 2020. While the Swedish construction trade has been stable, the industry is coping with reduced demand from certain segments and other trading partners. Total production and exports have fallen approximately 15% as a result. Based on the decrease in demand, log stocks at Swedish sawmills have remained thin to allow for more flexibility in a rapidly changing market.
Finland
Finland was not a significant exporter of finished lumber to the US in 2020, as Finnish producers focused more on stable demand from the European, Japanese and Middle East/Northern Africa markets. Total production capacity of Finnish sawmills was down significantly last year. Softwood lumber production through 3Q2020 was down over 14%, and plywood production was down over 19%. It’s important to note that Finnish paper and paperboard production was also down markedly during the same period.
Log supply for Finnish sawmills is stable and slightly increasing, and they are in a good position to take advantage of the current high prices in the US.
Germany
The massive amount of beetle-killed spruce across European forests is expected to peak in 2021. This dead timber can rot much quicker than some other species in different parts of the world, so salvage efforts of hundreds of millions of cubic meters will be in full swing for the next few years.
The recent trade disputes between the US and China have presented an opportunity for European log exporters; Germany has taken advantage of the situation and has been exporting huge volumes of salvaged timber to China. The increase in sawn log exports has not impacted domestic sawmill consumption, however. Germany still manufactures a significant amount of lumber and during 2H2020, exports to the US nearly doubled.
Baltic States
The construction and lumber markets in the Baltics have been unusually active. Since August 2020, global markets have been driving the demand. Like Sweden, Baltic exporters have increased their lumber exports to the US to meet the strong demand and take advantage of historically high prices.
The BREXIT political development has also driven a strong increase in lumber demand from the UK. British importers placed tremendous orders at the end of 2020 in order to beat trade rule changes that took effect in January 2021. Log prices in Estonia and Latvia have increased about 5%, but demand for sawmill byproducts (chips) is decreasing, which is negatively impacting profitability.
Pent-up US housing demand could continue outstripping available supply in the near term, which will keep upward pressure on lumber prices. Housing starts were up 5.8% in December and 2020 starts were up 7.0% over 2019 starts, which suggests there is momentum behind the trend. Given the backlog of sold-but-not-started units (since January 2020, an average of 28% of new homes had not been started when sold), it is safe to conclude the ongoing building boom is likely to continue for several more months, which presents continued opportunities for European lumber manufacturers.
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Gary Fleisher is the Editor in Chief of Modular Home Source and Offsite Builder. Email at [email protected]
To learn more about the Offsite Construction Industry, visit: Offsite Builder, the Construction Magazine for Builders and Developers
