Softwood sawlog prices have gone up faster in Europe than in any other region of the world the past two years, according to Wood Resource Quarterly (WRQ). Because wood costs account for 65-75% of the production costs when producing softwood lumber, they are the key factor determining a regions or company’s competitiveness.

In the 1Q/08, softwood sawlog prices increased in Central and Eastern Europe, while they fell in Finland, Sweden and the Baltic States as compared to the previous quarter. The price reduction in northern Europe this past winter was a break from a long upward price trend.

During the past two years, log prices in Europe have gone up 40-60% in US dollar terms both as a result of higher costs in the local currency and because of a weaker US dollar. The major reasons for the price increases in local currencies include the reduction in log exports from Russia, higher fuel costs and strong lumber markets the past few years. In 2007, the total softwood lumber production in Europe was more than 9% higher than in 2005, with the biggest increases occurring in Germany, the Czech Republic and Poland.

Sawmills in Europe have the highest wood costs in the world, with all major countries being above the global average, while sawmills in Latin America, North America and Oceania continue to have substantially lower production costs. Sawmills in Sweden and Poland have the lowest wood costs in Europe, while Germany and Austria continue to be the highest cost markets with costs more than 40% above the world average.

In 1Q/08, the WRQ Global Softwood Sawlog Price fell for the first time in almost three years. The Index, which is based on sawlog costs delivered to sawmills in 20 key regions around the world, reached an all-time record high of $91.85/m3 in the 4Q/07, but fell slightly in the 1Q/08 because of lower log prices in North America and the Nordic countries. The global average sawlog price has been fluctuating between $55/m3and $75/m3 over much of the past 13 years. However, in 2006, this pattern changed and the price has increased steadily from $73 to $92/m3 in just two years.

Another noteworthy development has been the discrepancy between low-cost and high cost wood markets. It has long been anticipated that wood raw-material costs in different regions would converge towards a global average. This prediction has not been realised. In the mid-1990s, the difference between the lowest cost region (Latin America) and highest cost region (Central Europe) was about US$75/m3. In 2000, this cost disparity fell to $45/m3, but has increased the past 8 years reaching a record $88/m3 in the 1Q/08. However, a number of factors point to a reduced wood cost difference between world regions over the next 12 months.

Global pulpwood and sawlog market updates are included in the 50-page publication Wood Resource Quarterly. The report, established in 1988 and with readers in over 20 countries, tracks wood prices in most regions around the world and also includes regular updates of international pulp, lumber and biomass markets. www.woodprices.com

Total forest, paper and packaging (FPP) deal values increased to $27.6 billion in 2007, up $1.9bn on 2006, according to PricewaterhouseCoopers’ Branching Out report.

Deal values were well up in the first quarter of 2008 reaching $11.8bn, although the outlook for the rest of this year is more uncertain.

North America’s share of deal activity remains dominant. Private equity has continued to play a key role in deals particularly in North America. New dealmakers have also emerged on the scene, such as New Zealand’s Rank Group. The FPP industry is at the heart of the drive towards sustainable development and we are seeing new investment trends reflecting this. Yet the main deal story is the lack of significant, and urgently needed, consolidation deals in Europe. FPP companies continue to operate in a challenging, and rapidly shifting, sector. Macro-economic factors have affected the industry, particularly increased fibre and transportation costs, soaring energy prices, lacklustre demand at best in North America and Europe and the impact of emerging markets on global competition. The weakness of the US dollar versus other key currencies such as the euro, the Brazilian real and the Canadian dollar have also had a substantial impact on the industry. Canadian players have been particularly hard hit, due to their dependence on the US market. The shift in currency ratios globally has played havoc with many FPP companies’ planning and supply chain configurations and is likely to have a noticeable influence on deal making going forward. The influence of private equity (PE) on the FPP industry remained strong in 2007 – over $10.4bn in deals, or around 38% of deal values included some PE participation. PE involvement slowed down in the first quarter of 2008, particularly in the pulp and paper sector, but some PE firms have substantial funds awaiting deployment. PE participation has fuelled much of the consolidation and restructuring which has taken place in FPP in North America in recent years but this remains subdued in Europe.

Clive Suckling, global forest, paper and packaging leader, PricewaterhouseCoopers, commented: “Total deal values increased in 2007, despite a lower average deal size, due to a greater number of deals. Looking ahead, the trend for the rest of 2008 is unclear. “On the one hand, developments in financial markets are making for a tougher deal-making environment – on the other, 2008 could still emerge as a record-breaking year if long-overdue consolidation in Europe takes place. Looking even further ahead, we are seeing emerging investment themes, particularly around sustainability, which continue to drive deal activity.” Timberland is a burgeoning asset class. In the past decade, many US industrial players (forest products producers) have sold forestland assets in order to improve their own financial performance. This sell-off triggered a massive upscaling of institutional investment in the US via Timber Investment Management Organisations (TIMOs) and Real Estate Investment Trusts (REITs) specialising in forestland property. TIMOs are privately owned forestland investment structures that have ballooned in size since 1990, moving from around $1bn to over US$25bn in assets under management by the end of 2007. US TIMOs are now looking to move further overseas and non-US investors are becoming interested in timberland investment, often seeing this asset class as a suitable medium for environmentally sustainable as well as profitable investment for well-balanced portfolios.

Timberland investment over the next few years will almost certainly drive substantial levels of transaction activity over a broad geographic range. There will be more institutional investment into forestland, as well as higher levels of trading of existing institutionally owned assets as portfolios are realigned. “Timber plus” investment strategies: As we look towards the future, the definition of commercial timber values will continue to expand beyond traditional sawlog and/or pulplog values to include the potential value of the wood as energy. The developing potential of forests as renewable energy and material sources is likely to drive future deals, as the full range of the possible spectrum of uses expands, from wood energy today to biofuels and value-added products in the future. A further set of opportunities is starting to arise from the environmental services (or ‘ecosystem services’) provided by forests. As time passes, awareness is increasing of the valuable role of trees and forests in carbon sequestration and hence in mitigating some of the effects of global climate change. Most notably the role of forests as a carbon sink could become a source of significant revenue – and ‘timber plus’ investment strategies are receiving growing interest.

Bio-energy: redefining the industry: Wood biomass is emerging as an important renewable energy source, creating competition on already strained fibre sourcing. Still, substantial opportunities for forest products companies are developing, these span from supplying or aggregating forest biomass, to producing wood-based energy (heat and power) to producing wood-based transport fuels and value added chemicals and other materials, as technology could make these commercially viable.

FPP companies will need supply chain partners such as oil and gas, or energy companies to exploit the opportunities. Deals in the (wood and agricultural) bio-energy area have started to pick up, although most transactions to date involve co-ventures and start ups. In 2007 global bio-energy deals increased around sevenfold to nearly $7bn in 2007, with deals concentrated in North America, followed by Asia-Pacific and Latin America. There will be more deals in the future and the forest products industry will feature. These emerging investment themes pose a challenge to established business models in the FPP industry.

They are drawing in new investors into the forestry and forest products value chain. However, where there is challenge there is opportunity provided established FPP companies can adjust their strategies. Suckling: “Global competition has fundamentally altered the competitive environment in the forest, paper and packaging industry in recent years and continues to do so. The ever stronger push for sustainability by customers, policymakers, regulators and also investors is now starting to impact strongly upon that environment and the deals outlook. “While the global credit crunch and uncertain economic outlook do pose challenges, there are some fundamental drivers for continued strong deal flow as the industry copes with key challenges. These include the need to close unprofitable capacity; cope with maturing markets and enter growing ones; secure a stable, cost effective fibre supply; and adjust to shifts in global currencies.”

Tembec has started up a new biomass boiler at the pulp mill in Tartas, France. This €33.8 million investment will supply 85 t/h of steam to the pulp mill which produces 155,000 t of specialty cellulose pulp annually. The fluidised bed boiler will burn biomass from the industrial process, bark and other harvested wood residuals to produce steam for use in the manufacture of pulp. Natural gas will only be used for start-up.

“This is an excellent investment that combines good financial returns with sound environmental stewardship. It will improve the efficiency of the mill, lower energy costs and reduce carbon emissions. I am particularly proud of the fact that this project was not just completed within the timelines and budget allotted, but it was done without a significant health and safety incident in over 100,000 man-hours of construction. It was a well-managed project,” said James Lopez, President and Chief Executive Officer of Tembec. “I extend my congratulations to the team involved in the construction and start-up of this facility. Our employees have met the challenge, and they deserve our gratitude. The efficiency of the new boiler in its initial start-up phase is already beyond our expectations. As a result of significant technological enhancements over the last few years, this mill contributes positively to the overall Group performance and to the quality of the environment in the region,” said Yvon Pelletier, Executive Vice President and President of the Pulp Group. The new biomass boiler investment involved an innovative partnership with local authorities and the financial support of the Conseil régional d’Aquitaine, le Conseil général des Landes, l’Agence de l’eau Adour Garonne. Further, Tembec benefited from interest-free term loans for the financing of the infrastructure. Tembec is a large, diversified and integrated forest products company with operations principally located in North America and in France. The company employs approximately 8,000 people.

UPM has launched carbon footprint calculations for its paper products to assist its customers to estimate their own carbon footprint. Carbon footprint calculations are available for the customers as part of the Paper Profile. The basis for UPM’s carbon footprint calculations are the ten elements of the Carbon Footprint Framework for Paper and Board Products developed by the Confederation of European Paper Industries (CEPI).

The data used in UPM’s calculations is based on annual averages of specific paper machine lines. The figures refer to fossil CO2 emissions, which are the most important greenhouse gas emissions of paper industry. Päivi Rissanen, Environmental Manager: “We want to provide our customers with data in a consistent form to assist them in estimating their own impact on the environment as accurately as possible. The Paper Profile includes essential information on different environmental parameters as well as product composition. “The carbon footprint calculation attached to it widens the scope of the document further.”

The predicted slowdown in output in the Finnish wood products industry is uppon us because of falling demand for sawn goods and an excess supply of such goods in Europe in particular, according to TTJ, a timber industry magazine.

The strength of the euro has also played a part. The situation has been exacerbated by a shortage of roundwood largely caused by the reductions in imports from Russia due to the increases in Russian timber export duties, the report stated.

The Pellervo Economic Research Institute (PTT) forescast that the lowered demand for Finnish sawn goods, caused by the weakened economic situation, would continue at least until the third quarter of this year. Fortunately, it is anticipated that the supply of sawn goods will not increase elsewhere in Europe this year, either. PTT says that this may result in a growing demand for European sawnwood in Asia and cause a new upswing in the Finnish sawmilling industry at the end of this year and early next year, TTJ reported.

A team of scientists may have solved the riddle of why plants that work with bacteria to convert atmospheric nitrogen gas into an essential biological nutrient (ammonia) tend to prevail in the world’s tropical regions rather than higher latitudes. In a paper published this week in Nature, the authors – including Dr Ying Ping Wang from The Centre for Australian Weather and Climate Research – say that nitrogen fixation has long been recognised as an important process in controlling responses of many ecosystems – particularly boreal and temperate forests – to global environmental change.

“However, there have been significant discrepancies between real-world observations and the theories used to predict nitrogen fixation patterns across major sectors of the land biosphere,” Wang says. “We believe our theory provides a unifying framework for nitrogen fixation which can explain the different levels of fixation observed in a wide range of climatically and geographically-defined terrestrial ecosystems right around the world.” The team found that nitrogen-fixing species in phosphorous-limited tropical savannas and lowland tropical forests enjoyed a clear advantage over nitrogen-fixing species found in mature forests at high latitudes, where modern-day temperatures appeared to have constrained their numbers and nitrogen-fixing abilities. The team developed two new hypotheses for understanding the distribution of nitrogen fixing plants across global ecosystems. The first is that temperature constrains the distribution of nitrogen fixation, contributing to the lack of nitrogen-fixing trees in mature forests at high latitudes. The second – that nitrogen-fixing plants hold an advantage in terms of their ability to acquire additional phosphorus – provides an explanation for the persistence of nitrogen-fixing plants in mature lowland tropical forest and savannas. “Working on the basis of these two hypotheses we have produced a new model, which should help scientists to better predict the effect of climate change on different ecosystems and the interactions between terrestrial biosphere and climate change at decadal-to-century time scales,” Wang says.

Deere & Company plans to further reduce its total global greenhouse gas emissions by 25% per dollar of revenue from 2005 to 2014.

The company has committed to the reduction goal in conjunction with its participation in the US Environmental Protection Agency’s Climate Leaders program, which Deere joined in 2007.

“John Deere’s greenhouse gas reduction goal shows the company’s commitment to sustainable practices and environmental stewardship,” said Laurie Zelnio, Director, Safety, Environment and Standards at Deere & Company.

John Deere locations worldwide will implement energy-saving projects to meet the target.

Climate Leaders is a voluntary industry-government partnership that works with companies to develop long-term comprehensive climate change strategies.

Participants set a corporate-wide greenhouse gas emissions reduction goal and annually report their progress to the EPA. Through program participation, companies create a credible record of their accomplishments, reduce their impact on the global environment, and identify themselves as corporate climate leaders.

John Deere’s energy management program began in 1973 and requires company operations to implement energy-conservation initiatives and track energy use. In response to international global-warming concerns, Deere added a worldwide greenhouse gas emissions inventory program in 2003.

Deere’s direct greenhouse gas emissions come from operations such as foundry, heattreat, painting, powerhouse, and testing. Indirect emissions result from demand for electricity or steam.

The Finnish Forest Industries Federation and the Finnish Paper Workers’ Union have concluded a new collective agreement covering workers in the paper industry for the period 1 June 2008 – 31 March 2010.

Wages will rise by about 4% at the annual level, the pay system will be reformed and workers’ job security will be improved in the face of restructuring. The present collective agreement expires at the end of May 2008.

The paper industry will adopt a new pay system that will promote workers’ multiple skills. The pay system will provide opportunities to diversify tasks and encourage workers to continue training with the help of incentives and personal development plans, as well as improving the availability of labour and thus supporting business operations. The new collective agreement includes cent and euro wage increases and will raise costs by about 4% a year. The new agreement also contains solutions that will allow plants to adopt flexible working hour models, increase occupational wellbeing and strengthen job security in restructuring situations.

Jouko Ahonen, the President of the Finnish Paper Workers’ Union: “In my opinion the solution is a balanced whole that genuinely takes both sides’ views into consideration. The agreement also includes numerous positive changes in workers’ conditions of employment. “One important goal of the agreement is to increase real cooperation at the national and local level. I also consider it positive that we were able to reach an agreement in good time before the expiration of the old agreement, without outside assistance and without confrontation.” Jari Forss, Senior Vice President, Labour Market Policy at the Finnish Forest Industries Federation: “Together with the Paper Workers’ Union we have achieved an important negotiation result that will support the paper industry’s ability to react to market changes in the face of restructuring as well as the broad development of workers’ skills. “The new pay system will improve future possibilities for both employers and workers. This is a step in the right direction and provides a good basis on which to continue development according to the principle of continuing negotiation.”

Pöyry has been commissioned to provide engineering services for the rebuild of Mondi’s Syktyvkar pulp mill in Russia worth E10 million.

The services incorporate detail engineering for mechanical, electrical and instrumentation disciplines extended over the whole pulp mill. The work will be performed by Pöyry’s Finnish and Russian experts.

Mondi Syktyvkar is in the process of modernising and expanding its pulp and paper mill in Komi Republic in Russia. When completed in 2010 the mill will be equipped for an annual production of 940 000 t of paper and board. Pöyry is a global consulting and engineering firm focusing on the energy, forest industry and infrastructure and environment sectors. Pöyry’s net sales in 2007 amounted to about E720 million and it employs 7300 experts.

UPM estimates the result for its sawn timber business will be weaker than forecast in the second quarter of 2008. Also the full year profitability outlook for the sawn timber business within the Wood Products Division is expected to further weaken markedly.

UPM will start employee negotiations for the possible closure of Leivonmäki sawmill in Finland. The Leivonmäki sawmill has generated constant losses. The continued strongly weakening market situation and the uncertainty related to raw material supply have further complicated the situation. UPM has already during spring and summer responded to the weaker markets and reduced its sawmilling by temporarily limiting production at the all of the company’s seven sawmills in Finland.

Leivonmäki sawmill employs 63 people. The sawmill, located in Central Finland, produces spruce sawn timber and its annual production capacity is 80,000 m3. The sawmill uses annually some 200,000 m3 of spruce logs. Leivonmäki sawmill was founded in 1960. UPM Timber supplies sawn timber and further processed timber products to the building, construction and joinery industries. Annual production capacity is 2.2 million m3 of WISA timber products. UPM Timber has 15 production units in Austria, Finland, France and Russia. In Finland, UPM operates seven sawmills which are located in Lappeenranta, Kajaani, Pietarsaari, Korkeakoski, Heinola, Pori and Leivonmäki. UPM Timber employs 1,450 people.