Minister of Agriculture Armands Krauze (ZZS) admitted that the Latvian sawlog market is currently distorted, and it was mainly promoted by the wrong long-term auction policy of LVM, which was organized more than two years ago. As a result, Latvian timber cannot compete with Scandinavian timber.
“This policy has led to a situation where it is more profitable for an entrepreneur to buy logs in Norway, bring them to Latvia and saw them. This is an abnormal situation,” said Krauze.
He emphasized that the existing policy distorts competition and makes companies unable to compete in export markets. Also, several businessmen have reported reduced shifts at sawmills, as well as the first news that employees are being laid off.
Explaining the Ministry of Interior’s initiative to change the LVM price indexation, Krauze stated that the price of sawn logs in short-term auctions has long fallen and that the Ministry of Interior wants the market distortion to end and price indexation in long-term auctions to take place in accordance with the market situation.
On the other hand, the vice-president of the Latvian Wood Industry Federation (LKF) Kristaps Klauss explained that long-term price indexation is a generally accepted practice and in normal, peaceful conditions it would work, but a mathematical formula cannot predict the market ups and downs experienced in recent years. For example, there is currently a recession in building construction, which significantly affects woodworking.
In 2021, LVM signed long-term contracts for 2022, 2023 and 2024. As a result, the contract holders have to pay a much higher price after the contract than it is in the market, Klaus said.
He noted that already in 2022, the attention of the responsible persons was drawn to the fact that the indexation is not appropriate to the situation, but then there was still a waiting attitude and hope that the markets would settle down.
Also, Klaus emphasized that it is essential for the industry that these contracts reflect the current price of sawlogs on the market, regardless of whether the market price rises or falls.
At the same time, he expressed confidence that both LVM, ZM, and the industry itself will have learned and gained valuable insights from the unstable market conditions.
On the other hand, the representatives of LVM pointed out that the export of Latvian wood products reflects the decrease in economic activity in the most important markets for wood products in Europe. Among them, with exceptions in certain product groups, the total volume of production sales is decreasing, as well as demand and prices are falling.
LVM noted that the data on the processing segment of softwood sawlogs show that in the nine months of 2023, the exported unit value of softwood lumber in Latvia decreased by a third compared to the corresponding period of last year.
The decline in the value of LVM was explained by a pronounced decrease in demand in the construction industry.
At the same time, LVM representatives added that Finnish and Swedish building construction material producers are also facing a similar downward price trend compared to the previously experienced record high levels, but the competitiveness of Swedish building construction manufacturers is positively affected by the weakening of the Swedish krona exchange rate. Thus, the Swedish producers managed not to reduce processing capacity, contrary to the trend observed in Latvia.
The company stated that there is still high uncertainty in the market, therefore, due to falling prices of round timber, the owners of private forests have reduced the amount of logging. At the same time, LVM assured that it will continue to provide a stable, predictable flow of deliveries both to long-term partners and within the framework of short-term transactions.
The information at the disposal of the LETA agency shows that in 2024, by not selling the planned amounts of wood in accordance with the supply contracts, but by realizing the amounts in a publicly organized sales process, LVM’s revenue will decrease by 12 million euros.
Andris Ramoliņš, the owner of the timber industry and forestry company SIA “Stiga RM”, stated that there are currently difficulties in the wood industry in the entire range of products, both in the long-term segment of second-class saw logs and also for customers in short-term sales programs.
“In our opinion, only one selected group cannot be singled out, but in the event of such a policy choice, the state must honestly support all woodworkers proportionally. Only then should we expect that the amount of support will be in the range of 30-50 million euros, not the 12 million euros calculated by LVM,” said Ramoliņš.
He also expressed the view that the best solution would be to support none.
“The results of a fair sale and the price of any concluded contract should not be changed, as this would be a dangerous precedent in the future, which would significantly distort competition and not promote the inflow of investment in the development of the industry. We would have a school in hand to outbid, because we would know that there would be an opportunity to save ourselves from disproportionate risks with state support ,” said the owner of “Stiga RM”.
It has already been reported that LVM’s turnover in 2022 was 566.612 million euros, which is 39.8% more than the year before, but the company’s profit increased 2.2 times and was 242.193 million euros.
LVM manages state-owned forest lands. The sole owner of LVM is the state, while the share holder is the Ministry of Agriculture.
2024-01-01 21:22:00
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