Víctor González Linares. Senior Lecturer. 

Santiago Vignote Peña. Professor.

Department of Forest & Environmental Engineering and Management.Technical University (UPM). Madrid.

The Spanish economy is slightly showing positive recovery signs. Construction figures and domestic consumption, which are the most relevant market drivers for forest products, are also somewhat better than in the last years. This article analyzes the projections for 2015 in several forest products markets. The conclusion is that a certain general improvement can be expected in most of them, though showing different figures and values.

1. – GENERAL ECONOMIC TRENDS.

The official estimations for 2015 confirm the upturn in the Spanish economy’s output. GDP increased 1% in 1^st quarter 2015 and 0.8% in the 2^nd quarter. These numbers were accompanied by improvement in job creation figures. The final forecast for GDP 2015 ranges from 2.5 to 3.1% depending on sources (chart 1).

For 2016, the buoyant upturn is expected to continue, though a more contained path is being discernible in the second half of the current year, once the impact on the pace of GDP of some of the recent expansionary impulses, such as the fall in oil prices and the depreciation of the euro, begins to ease. The risks of slippage from this baseline scenario are balanced, although the recent volatility on financial markets heightens the uncertainty. Still, annual average growth of 2.7% is indicated as 2016 estimation in most of the reports.

After bottoming out at -0.1% last autumn, inflation rate has progressively risen up to 0.5% in May 2015, set against the cyclical improvement and the depreciation of the euro. This has been accompanied by something of a rise in inflation expectations in recent months. The projections for the rate of change of inflation are estimated to stand at -0.2% on average in 2015, rising to 1.3% in 2016 (chart 2), though latest estimations (September 2015) consider most probable a certain increase in this inflation rate projection.

Chart 2: Index of Consumer Prices (Source: Banco de España, Eurostat).

In recent months, favourable developments in financial conditions in Spain have supported the buoyancy of the main components of domestic demand. Credit institutions have continued reducing the cost of new bank loans to households and firms. The volume of new lending business has continued to increase, while the pace of the decline in aggregate debt has eased. Household consumption is being driven by increased confidence and by the impact that

the favourable trend of labour income, lower oil prices and the personal income tax reform are exerting on household disposable income.

Business investment is being supported by the progressive improvement in financial determinants (table 1), in a setting in which the favourable demand outlook is fomenting the adoption of new investment projects. Overall, the strengthening of households’ and firms’ financial position is beginning to play a part in the non-financial private sector’s spending decisions. The contribution of net external demand is practically neutral but a growth of goods exports is expected during the year.

 Table 1: Projections of the Spanish Economy´s macroeconomic variables (annual rate of change in volume terms/% of GDP). (Source: Banco de España, INE).

The tourism, an essential sector for the Spanish economy, presage robust growth in activity. Imports from the rest of the world, associated with the consumer durable and investment good components, contribute also to the optimistic expectations, even though the bad economic environment during the last weeks of September has cooled down a bit the predictions.

Regarding the labour market, the already-high growth rate of employment quickened in the first half of 2015, continuing high job creation rates in the remaining productive sectors. In turn, registered unemployed numbers in the National Public Employment Service fell significantly (7.8% in May). Against this backdrop, the estimate is for a year-on-year rate of change of around 0.9% in the second half and for a further decline in the unemployment rate.

General parliament elections will take place in December 20th, bringing along a relative uncertainty. Therefore, it cannot be ruled out that the effects of some of the impulses currently operating may extend beyond the baseline scenario, with the result that the strong rate of recovery in domestic demand observed in the most recent period may continue in the coming months.

 

2. – FOREST PRODUCTS  MARKET DRIVERS.

With respect to construction, which plays a key role in the Spanish forest product demand and is the key market driver for sawngoods, added-value goods, boards, plywood and veneer, the investment has turned upwards in 2015 after a long period of recession (table 2). The change in this trend is essential for the timber market. In the first half of 2015 the number of housing starts increased around 21,8% compared to previous year figures. Even small, this is the best increase in the sector since 2012.

 

Table 2: Spanish economy´s variables on construction (annual rate of change in volume terms/ % of GDP). (Source: Banco de España, INE).

Residential investment continues to show signs of an incipient recovery, as indicated both by the rise in building approvals and real estate transaction figures. Of course, they still remain at low levels, very far away from the record high figures of 2007, when Spanish housing starts reached 720000 units surpassing those of France, UK and Germany (together). After that, construction market dropped dramatically until this year (chart 3), when not only statistical figures are improving but also a slight increase in prices in certain real estate market segments has been noticed.

The use of wood for construction is still small in Spain. Several initiatives have been developed to promote it in recent years, particularly “Building with Wood” and “Living with Wood”. Unfortunately, the leading organism in these activities, Confemadera (Spanish Timber Employers´ Association) has been very much affected by the crisis and the promotion activities are not significant at the moment.

Together with construction, the other key driver sectors for the Spanish forest product market are printing & packaging sectors which pull the pulp&paper production. Pulplog demand in Spain relies pretty much on eucalyptus pulp production, out of which more than half is usually exported. Pine pulp for packaging configures the smaller part of the pulp production. Domestic production of paper and board is mainly obtained from recycled paper. Therefore, the fundamentals to analyze pulp and paper are domestic demand, export of goods and imports (table 3). Good news is that they all show positive signs in estimations for 2015 & 2016.

	2014	2015 (Est.)	2016 (Est.)
Exports of goods and services	4,2	5,1	5,7
Imports of goods and services	7,6	5,3	5,9
National demand	2,2	3,1	2,6

Table 3: Projections of particular interest for the forest products market (annual rate of change in volume terms/% of GDP). (Source: Banco de España, INE).

3. – DEVELOPMENT IN FOREST PRODUCTS MARKET SECTOR.

3.0 MARKET HIGHLIGHTS FOR 2015

1.-Activity in 2015 is increasing in the forest product market in Spain.

2.-Production in sawmilling, boards and pulp industries shows positive signs and investments are being made in some existing factories.

 

Table 4: Economic value of timber product imports during 1Q 2015 (Source: AEIM).

3.-Production increased in the first half in sawmilling industry and remained similar than in 2014 in paper and board.

 4.- €/U$D Dollar exchange fluctuations are facilitating exports, particularly in sawmilling, board and pulp & paper industries.

5.-Imports of timber products (excluding furniture) increased 6% value-wise reaching around 274 million euro during 1^st quarter 2015. The main import was sawnwood that represented 25% of total imports (65 million euro value) followed by fibreboard, particle board and veneer (table 4).

6.-Softwood sawngoods & veneer imports increased 36% compared to first quarter 2014 figures (CIF Value). Most of the timber products also increased between 3 and 22%.

7.-Hardwood roundwood imports (mainly eucalyptus logs) are the main exception, decreasing 50% from 2014 figures (table).

Table 5: CIF Value of timber product imports. Comparison January-March 2015/2014 (thousand euro). Source: AEIM.

8.-Furniture imports have increased +28% and exports +10%. The increase in domestic consumption of medium and low price furniture is being supplied with imports.

3.1 ROUNDWOOD.

In 2014 the roundwood production in Spain reached 19,5 million m³ ob / 16, 2 million m³ ub (table 6). This represents around 37% of the total annual growth (approx. 52 million m³ ob) and confirms the nonexistence of any overharvesting risk.

The total offer of roundwood in Spain will probably remain at similar levels for 2015: on the one hand there will be a certain increase in softwood due to the slight recovery in construction indicated in previous sections of this report plus the good activity of packaging material demand (palleting) and the positive trend in wood energy demand for smaller logs (domestic and  exports); but on the other hand, the wood pulp activity will reflect (even if slightly) the closure of one of its plants last January. The owner company is planning to increase capacity in other group factories but still hardwood pulplog consumption will most probably not increase and the total roundwood balance will show neutral figures.

Table 6: Removals of roundwood and fuelwood, 2014 (Million m³ ob). (Source: Ministerio de Agricultura, Alimentación y Medio Ambiente -MAGRAMA)

As a matter of fact, the total figures for roundwood in 2014 and the estimation for 2015 are well in the limits of the stabilized Spanish industrial roundwood market offer, which has ranged between 14-16 million m³ ob in the last 3 decades (chart 4).

Hardwoods represented in 2014 61% of the total harvested volume, while softwood reached 39%. The split softwood/hardwood has changed in the last years: from a traditional position leaded by softwoods to a dominancy of hardwoods. The reduction of softwood in the market is bad news for proper forest management, as most of the 3 million ha planted in Spain in the second half of XX^th Century were softwoods and there is a great need for silvicultural treatments, including thinning. It is generally considered that a demand for softwoods exists, particularly for sawngood products in which Spain is a regular heavy importer, though it is brought as sawn and wood products and not as roundwood.

In 2014 approx. 75% of the total felling ended up in pulpwood & board production and 25% was used for sawmill & plywood/veneer industries (table 7). The weight of pulp & board logs has increased regularly in the last 5 years, though previously it represented around 60% of the total felling. The construction crisis affecting sawmill industry has been a significant reason for this. The biggest part of the sawngoods produced are coniferous species.