Forest sector overview – from a downturn to an investment wave

After several years of booming growth in the forest industry, the market has been depressed this year. The results of forest industry companies in Finland suffered a particularly sharp drop in the second quarter of the year, and the outlook for the second half of the year is bleak to say the least. Production profitability has been hit by declining volumes and prices of finished products, as well as higher costs for wood and other raw materials. The weak economic situation in the construction sector is expected to continue in the second half of the year, with no relief expected for the lumber market in the short term. In the chemical forest industry, supplies have been constrained by high customer inventories and the slower than expected recovery of the Chinese economy. In particular, demand for many consumer products has been depressed by weakened consumer purchasing power due to high inflation. In the current economic climate, many companies have announced production cuts and longer-than-usual maintenance shutdowns. Stora Enso also announced plans to close its pulp mill in Sunila, Kotka by the end of the year.


Although no rapid boost to overall economic performance is expected, the second half of the year is expected to be markedly better than the first. This was already indicated in early autumn when Suzano, the world's largest pulp producer, announced price increases for short-fibre pulp in Asia. Offsetting the weaker short-term outlook and the adjustment measures, the forest industry is also experiencing a wave of investment, which will increase future demand for wood raw material. Koskisen Plc started ramping up production at its new sawmill in Kärkölä in the summer, Metsä Group's new bioproduct mill in Kemi will start up in the coming weeks and the new Junnikkala sawmill in Oulu is targeted for completion by the end of the year. In continuation of the previously announced investments, Metsä Group confirmed in June that it will build a new Kerto LVL mill in Äänekoski. The investment is worth EUR 300 million and the plant is scheduled for completion in 2026.




Activity in the Finnish timber market remained strong in the early part of the year, despite a weakening industrial cycle. Domestic demand for timber has been supported by both industrial capacity increases and the need to replace imported timber from Russia. The pulpwood market has also been boosted by increased competition from the energy sector for small diameter wood. Based on statistics from the Natural Resources Institute Finland1 , the volume of timber trade in January-June this year exceeded the previous year's volume by more than a third, and market harvests were at the same level as in the reference period. When interpreting the timber market statistics, it should be noted that last year the market was disrupted by industrial disputes between UPM and the Paper Union. However, the increased demand for domestic timber is reflected in the fact that the volume of timber traded in the first half of the year is also well above previous years’ average.


Stronger demand for wood has pushed wood prices to exceptionally high levels. Average prices for coniferous logs were 4-5% higher in June and for birch logs 19% higher than a year earlier. Average prices for softwood pulpwood were 31-33% higher than the benchmark and 41% higher for birch pulpwood. Real prices for pine and birch were the highest on record and for spruce the highest since 2008. Prices of all main wood species have been on a downward trend since then, reflecting deepening challenges in the final product market and adjustment efforts by the industry. However, pulpwood and energy wood prices are expected to remain above average, with good demand for thinning sites in particular expected for the rest of the year. United Bankers' forest funds tendered the remaining felling for this year in early summer at the time of the price peak, so the price slump will not have a significant impact on the funds' outlook for this year.


1Natural Resources Institute Finland. Statistics service 2023.


Kari Kangas

Portfolio Manager, UB Timberland

+358 40 090 3133

Jyri Hietala

CEO, UB Nordic Forest Management Ltd

+358 40 359 3566


This presentation is not to be considered as a recommendation to acquire, redeem or exchange fund shares. When making investment decisions, investors should base their decisions on their own assessment of the investment and its risks and take into account their own objectives and financial situation. Fund investments always involve financial risk. The value of the investment may increase or decrease and investor may lose part or all of the invested capital. Historical performance is not a guarantee of future returns and it cannot be used to predict future returns of the fund.