Estonia’s Timber Crisis Stems from Poor Decisions & Russian War

Revenues across the country's major timber companies has shrunk up to 40% despite lower round wood prices.

Thu 16 Nov 23


Scandinavian companies are exiting Estonia in mass as surging raw material costs and energy prices have made it almost impossible for the country’s wood products to compete in global markets.

At a time when the neighbouring Finnish government has guaranteed the availability of raw materials, the Estonian industry claims that their government is pushing to reduce raw material supply.

It comes as a new report published in Estonian media reports that the country’s major timber businesses shrank by 30-40% in the second quarter of 2023, with experts now fearing that the slowdown could stretch into 2024 and even 2025.

And despite lower round wood prices (down 20-30%), which in theory should help local producers compete in European markets, the industry has concerns that the government will start limiting the availability of raw materials.

“This has resulted in Nordic groups pulling out of Estonia and local companies dialling back investments or investing outside of Estonia,” according to Henrik Välja, the Executive Manager of the Estonian Forest and Wood Industries Association.

Mr Välja added that most companies have likely already cut staff, and any further layoffs will likely follow companies going out of business.

“During a time when new sawmills are opening in Scandinavia, ours are closing shop and surrendering market share,” Mr Välja said. 

“It is the same situation with new green industries, with two wood chemistry projects shelved for lack of courage to invest. At the same time, there are around 50 similar plants in the Nordics, with another major project to open in Kemi, Finland soon.”

He is referring to the more than €2 billion invested in the Finnish Kemi pulp mill, the world’s most advanced mill, which is estimated to need 7.6 million cubic meters of timber and produce 1.5 million tons of cellulose and other bioproducts.

Metsä Fibre, part of the Metsä Group, is building the world’s most modern mill in Kemi, Finland. The bioproduct mill is more than a mill; it operates entirely without fossil fuels and produces renewable electricity, a 2.5% share of Finland’s total electricity production—footage courtesy of @metsagroup.

Amongst the drivers of the slowdown include instability around the Russian War in Ukraine, a cooling of the global economy and poor political decisions by the Estonian government.

Last month, Wood Central reported that the Estonian government was looking to German and Danish customers to reduce their reliance on Russian customers.

At the time, the Deputy Whip and Urban Planner Pärtel-Peeter Pere claimed that the government was focusing on carbon neutrality to build its reputation in European markets.

“With the best will in the world, no one orders Estonian products just like that; we have to prove ourselves,” he said.

However, difficulties around over-regulation and red tape have created a challenging business environment, according to Heiki Hepner, who works for Estonian market research company OÜ Tark Mets.

“It has to be said that the Estonian state has done everything in its power to ensure no one wants to invest or open new industries here,” he said.

“Therefore, the situation is complicated, and market visibility is low, negatively impacting the local industry’s competitive ability.”

According to data obtained by Swedbank, construction volume across the region dropped 16% during the second quarter, with a further 12% drop expected for the rest of the year.

In Sweden, new construction projects are down 57%; in Finland, 220 companies have gone bankrupt, a record.

Swedbank believes the timber and construction materials market slump in Estonia and Finland could stabilise next year, while there will likely be stagnation instead of growth.


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