It’s a mutual dependence – forestry and the forest industry are dependent on each other. So, it’s interesting for us in the forest to keep an eye on how the industry is doing. The colleagues at the sister-site Skogsforum.se entertained themselves by analyzing the Q1 reports of some of the main players in the Swedish and Finnish forest industry. Here is a summary of their reflections.
The Swedish forest industry
It’s important to point out that the major players in this business are multinational companies that are active around the World even though those mentioned in this article are seated in Sweden and Finland.
Setra presents red figures
Setra is mainly owned by the Swedish State Forest, Sveaskog. In Q1 2023 Setra presents a turnover loss of over 400 million SEK (Swedish Krona*) due to lower sales prices. However, according to Setra, the delivered volumes have still been good, and the prices have increased some during Q1.
The result for Q1 is minus 64 million SEK. According to Setra, this results from lower prices and higher costs for raw materials and energy. 
Stora Enso profit warned – the profit halved
Stora Enso presented a profit warning a week before the Q1 report. When the report was published on the 25th of April, it showed by and large no changes in the turnover but a halved result. From 503 million euros** in Q1 2022 to 234 million euros in Q1 2023. This means that the profit margin decreased from 18 to 8,6 percent compared to Q1 2022. For 2022 in total, the margin was 16,2 percent for Stora Enso.
The development of the market is a disappointment according to Stora Enso as both demand and prices have decreased on most of their products. The paper business is discontinued, and the focus is now on cardboard and wood products.
The pulp market looks bleach for the near future with decreasing pulp prices and a lack (and increased prices) of pulpwood. The demand for wood products is also weak but according to Stora Enso that is temporary. 
UPM gives gas with new pulp and nuclear power
The Finnish Forest industry UPM has no plants in Sweden but in many other countries. Like Stora Enso they are a giant in the forest industry business. The two are about the same size but with different product mixes. Stora Enso goes for cardboard and wood products and UPM for pulp and energy. Both have a turnover of approx. 130 billion SEK* to be compared to Södra’s 30 billion or SCA’s 20 (more about those two later in the article). 
UPM has expanded vastly lately by opening a new pulp mill in Uruguay. An investment of 35 billion SEK and a production capacity of 2,1 million tons of pulp annually. This almost doubles UPM’s pulp production. Furthermore, UPM is a part owner in the new nuclear power plant OL3 in Finland which means that UPM also doubles its power production.
For UPM, there are no clouds in the sky. Like everybody else, they see a decreasing demand and a need to reduce stock, but they also point out that the prices for inputs have reached their peak and the market is strong.
UPM makes a better result for Q1 2023 than for Q1 2022 and they predict that 2023 will be better in total. The profit margin for Q1 -23 was 17,1 percent to be compared to 15 percent for Q1 -22.
Billerud
Billerud’s Q1 report shows no big change in turnover but the profit decreases compared to Q1 2022. The profit margin for Q1 -23 is 13 percent compared to 22 percent in Q1 -22. The total margin for 2022 is 17 percent. A decent profit level but both analytics and the stock market seem disappointed.
Billerud writes that the market is challenged with decreasing demands, price pressure, and liquidation of stock. It seems that only the prices of liquid cardboard are stable, and even increasing. The company meets the situation with tough cost control. For example, restrictions in recruiting, internal business travel, conferences, and education.
Billerud points out that the cost development has turned, and that inflation is expected to decline during Q2. Prices for chemicals are decreasing due to lower energy prices, and from May on, new logistics deals with better terms will be activated.
So, after a tough Q2, the clouds seem to fade away. The Billerud CEO Christoph Michalski believes that the current market situation is temporary and that the second half of 2023 looks brighter.
Rottneros
Rottneros has gained on high pulp prices and high dollar value. Therefore, they have managed to increase both turnover and profit compared to Q1 2022 despite the closedown of their pulp production plant in (the town of) Rottneros. Increased sales prices and a better product mix have by far compensated for higher costs.
Also Rottneros describes the near future as challenging with decreasing pulp prices. However, it’s noted that inflation seems to decline and that chemical prices have reached their peak.
The pulpwood prices in Sweden are high and therefore the import of wood from the Baltic states was increased. This is to counteract the increased competition for raw materials within Sweden. Pulpwood is purchased in the Baltic States at a higher price to keep the prices at home (in Sweden) down. The logic in this could be discussed …
Södra
Södra is the South Swedish Forest Owner’s Association but also the major forest industry in South Sweden.
The Q1 report for 2023 looks strong even though the sawmilling division (Södra Wood) shows red figures now two quarters in a row meaning that the pulp is doing the job also this quarter. The turnover is almost the same, 8 002 million SEK* compared to 8 165 million SEK for Q1 2022. The profit drops from 1 974 million SEK in Q1 2022 to 1 085 million SEK for Q1 2023. This means that the profit margin for Q1 2023 is 14 percent (24 percent in Q1 2022). A decent level in an incipient recession after all. Before the record years 2021 and 2022, a margin of 14 percent was seen as extremely good for an industry business.
When looking at the sawmilling division at Södra (and e.g., Setra) it’s sad to see how cyclically sensitive it is. After a few extremely good years, the result falls into the basement as soon as prices and demand go down. Wood processing companies with a higher degree of refinement, like Metsä and Stora Enso, have a significantly better margin in their sawmilling divisions. This might change at Södra as their new CLT plant takes off. But most likely more refinement of the wood products is necessary to cope with the problem.
Generally, Södra has coped with the decreasing pulp prices well during Q1 2023. The pulp prices keep falling, meaning that Q2 and Q3 will be challenging also for Södra. 2023 will be a tough year that is difficult to predict.
Metsä
Metsä is mainly owned by Finnish forest owners. The company stands out with a strong report for Q1 2023. Metsä Group had a turnover for the first quarter this year of 18,6 billion SEK* and a profit of 3,1 billion SEK.
Metsä Group is divided into several segments:
Metsä Forest is the supplier of raw materials from the forest to the group. They report a relatively high activity due to high wood prices, focus on thinning, and that most of the purchased wood comes from members in Metsäliitto, the forest owner’s association that is the majority owner of Metsä Group.
Metsä Wood is manufacturing and sells EVP, Engineered Wood Products, and board, like plywood. This company reports a slowing market that is compensated by good sales for LVL (Laminated Veneer Lumber) and an increasing demand for birch plywood. The latter is due to the sanctions against Russia.
Metsä Fibre is somewhat odd as it’s a combination of pulp- and sawmills. Since Q4 -22, Metsä Fibre has seen a slowing market for lumber but a recovery during Q1 -23 for this market. As for pulp, sales increased compared to Q1 -22 but decreased compared to Q4 -22. Still, the company has a profit margin of 20 percent and delivered 647 000 tons of pulp and 307 000 cubic meters of lumber during Q1 -23.
Metsä Board manufactures different kinds of cardboard. It’s the only company within the Metsä Group that is publicly traded. The forest owners are, however through Metsäliitto, majority owners also of Metsä Board.
The company saw an increasing market for the main range during Q1 but is affected by higher prices both on chemicals and raw materials from the forest. Metsä Board had a profit margin of approx. 16 percent in Q1 2023.
Metsä Tissue which makes “soft” paper like toilet paper, experiences a positive trend but is one of the smaller companies in the group. The company went from a loss of 205 million SEK* in Q1 2022 to a profit of 500 million SEK in Q1 this year. As they make products for end users, they can follow the inflation and increase the margins.
Holmen
The report that Holmen presents is different from the others. When others are closing the papermills down, Holmen invests in theirs. When everybody complains about high electricity prices, Holmen talks about low energy costs. When the wood supply becomes more and more strained, the high wood prices generate profit for Holmen.
What’s going on here?
Holmen’s paper production is a third of the company’s turnover but almost half of the profit. Holmen writes:
“The market balance for paper weakened during Q1 but due to an uncertain supply of raw materials for many producers, the prices were kept stable. We have now moved our position forward on the market even though we have limited production. Despite lower volumes, the result was very strong, 836 million SEK*, thanks to high sales prices and low energy costs. To further strengthen our position in book paper and increase the production of our new packaging product we move on to invest 450 million SEK in updating the paper mill in Braviken.”
Good to know:
Holmen has a significant production of both water- and wind power. With high energy prices, this gives a good profit for the company. The profit margin for energy for Holmen is 84 percent.
As Holmen gets a large share of wood from their own forests, the wood prices are kept at a low level.
The sawmilling division at Holmen has, like the rest of the business difficulties in getting a good profit. But just like “the others”, Holmen believes in a bright future for wood.
SCA
Finally comes SCA who beats them all with a profit margin of 42,7 percent for Q1 2023! An extremely good result, but still a “landslide” compared to last year’s 52 percent for Q1.
The net turnover went from 5 billion SEK* in Q1 -22 to 4,8 billion SEK in the first quarter of 2023. SCA reports approx. the same trends as all the others, but their profits are higher in all divisions.
One explanation could be that SCA has lower wood prices from the forest in its area and take a lot from its own forests. This is obvious when you see that the forestry divisions of both SCA and Holmen have increased their profitability as the sister companies have to pay market prices for wood.
According to the Q1 report, SCA plans to increase felling from 4,3 to 5,4 million cubic meters until 2025. An increase of 25,6 percent in a relatively short time. One theory is that this is to keep raw material prices down when Sveaskog cut down on cutting.
Decreased demand for cardboard and a favorable situation for pulp during Q1 -23 are reported. Both prices and demand have been good for pulp. The sawmilling division has decreased its margins but is still presenting black figures, the margin was 9,5 percent. The difference between SCA and several of the competing companies is SCA’s lower costs for raw materials.
Like Holmen, SCA make good business in the energy sector.
Summary
It seems that the forest industry is doing well for the moment. Optimism rules.
The trend of decreased paper consumption has been met by closing down plants to keep the prices high, and still make good money despite lower volumes. More paper mills will close, especially in Europe, which logically should affect the pulp mills that are increasing their production. This should affect the pulp prices in the long run.
Pulpwood seems to be hard to get and the prices for it are high. One reason is that the import from Russia stopped due to the war in Ukraine. The pulp mills have a challenge in keeping the costs down to continue making good profits. Who will manage to keep the costs down? And who will have to close down? The rest of 2023 will be interesting.
As for the sawmills, those who do more than just bulk lumber seem to be the winners. Considering profit, the environment, and carbon storage one can hope that the development of engineered wood take off also in Sweden.
* 1 SEK (Swedish Krona) = 0,097 US Dollar (2nd May 2023)
** 1 EURO = 1,1 US Dollar (2nd May 2023)
