The decision to close the panels factory of the HS Timber Group in Siret and the timber production at the Group’s sawmill in Rădăuți came as a shock. But it is only the tip of the iceberg announcing a tidal wave of cutting production and closing facilities in the Romanian wood industry, given that the industrial production since September last year have been decreasing each month by 10% compared to the corresponding months of 2020, the most economically critical year of the pandemic.
Cutting production can be witnessed in both the wood-processing and furniture industries. In the face of a 40% reduction in bids compared to the usual years at the main tenders organized by the National Forests Authority and a 2.5-fold increase in timber prices on stump, it is normal to reduce and close production capacities.
What are the effects of closing the Siret factory and reducing the timber production capacities of HS Timber Group in Romania?
First, it should be noted that 50% of the wood resource processed in the HS Timber Group’s units came from imports. In 2021, Eurostat statistics show a historical maximum of roundwood imports, with a total of 3 million cubic meters imported. Of these, 2 million cubic meters of softwood logs have as main beneficiary the HS Timber Group sawmills.
The reduction of the Group’s production capacities in Romania will be reflected in the lack of all related products on the Romanian market and industry: timber, panels, boards, pellets. Also noteworthy is the technical capacity of the HS Timber Group’s factories to process thin softwood logs. In the absence of this superior recovery, forest maintenance works – especially the first thinnings – become inefficient and economically unattractive.
The social impact of the dismissal of 600 employees in the Siret-Rădăuți area of Suceava is not negligible, as Adrian Popoiu, the mayor of Siret, laments the situation: “It is a big trouble for the town!”
The forestry sector and the wood industry represent a complex ecosystem, with many interdependencies, the disturbances at the level of a segment affect the whole ecosystem.
Another highlight: the re-affiliation of HS Timber Group to the FSC certification system was recently announced, which shows the overcoming the critical image moment of the last 4-5 years of the group, by implementing solid due diligence systems – including the Timflow wood tracking system. Systems that exceed, through voluntary commitments, the requirements of the most demanding national legislation and international certification standards.
I would also like to point out that the factories of the HS Timber Group represent a peak of the competitiveness of the Romanian wood processing industry – see also the very solid financial results registered each year.
The fact that such a competitive and financially sound industry group is making decisions to reduce production capacity and close down facilities must give us all something to think about.
What are the national effects of the downturn in the timber industry?
For the past year we have been witnessing downsizing the activity in the wood industry, forced to cut its production because of the scarce wood resource available in the artificially diminished market, which also came at much higher prices!
In order to quantify the effects of the downsizing, I invite you to extrapolate the reduction of the timber production capacity by 30% of HS Timber Group at the level of the wood industry in Romania, with a total turnover of 7.1 billion Euros, 150,000 employees, and a foreign exchange contribution in Romania’s trade balance of 3.5 billion Euros!
But beyond the macroeconomic effects, sometimes more abstract and harder to perceive, the reduction in activity is reflected in the reduction of supply and I would note the effects of price increases on consumers:
- the prices of softwood timber have doubled in the last year in Romania, from an average of 600-640 lei / m3 at the beginning of last year to a maximum of 1,200-1,500 lei / m3.
- the price of pellets increased by 70-80%, from 1,000 lei / tonne to 1,700 -1,800 lei / tonne.
- including furniture, price increases are from 15% to 60%, depending on the quality, with higher increases for solid wood furniture!
What are the causes of the escalation of the crisis in the wood industry?
The crisis in the wood industry is an artificial one, due to the implementation of inadequate legislative measures, which have led to blockages and the artificial restriction of the available timber resource.
The escalation of the crisis has been constantly signalled by the Romanian Association of the Wood Industry – Prolemn:
- at the beginning of 2021 we signalled the blockages that will be induced by the forced, and dysfunctional implementation of SUMAL 2.0, with inadequate technical features. Short-term blockages have led to depletion of stocks and the beginning of a price spiral. After overcoming the initial problems of operationalization and technical malfunctions, the architectural problems remained, with persistent blockages in the evaluation of the wood mass on the small properties – a blockage that removed from the market a potential of 3-4 million cubic meters on the small forest properties and vegetation outside the forest fund. The administrative costs incurred, and in particular the obstacles to freedom of trade, cumbersome and inapplicable procedures, including for imports, were also mentioned in the HS Timber Group’s statement.
- In the autumn of 2021, against the background of the artificial resource deficit and the energy crisis, the price of firewood increased by 30-40%, and in some areas even more, leading to diverting the high-quality resource needed for the wood-processing industry, to firewood.
- In the autumn of 2021, the prices of the wood resource – the main industrial assortments – were already double compared to the beginning of 2021. The softwood log reached from 360 lei / m3 at the beginning of the year to averages of 700 lei / m3 and even much above these values.
- The decline in the production of the wood industry in Romania started to be visible in the industrial production indices starting with September 2021, but all the signals drawn by Prolemn were ignored by the authorities.
- The worst escalation of the crisis was caused by the promotion by the Ministry of Environment, Waters and Forests of the Order 1947/2021 which provides for the retroactive review of the environmental assessment of forest management plans – including those who had a legal environmental permit and were approved by order of the Minister.
- Order 1947/2021 and the environmental assessment procedure have the potential to force the revision of the environmental assessment of the forest management plans for 70% of the total forest area in Romania, leading to the suspension of the forest management plans during the review period!
- The order has been challenged in court by owners of private forests and private forest administrators, and has been suspended in the preliminary proceedings, but uncertainty persists. Some EPAs are of the opinion that the suspension of the order is only applicable to those who have sued, the Ministry has not communicated whether it is initiating a procedure to amend the order or wants its further implementation. It is a mess in which there is no certainty about the resource that will be available in the market.
- Under the pressure of this legislative chaos, the National Directorate of Forests – Romsilva has taken a decision that we consider wrong, to offer at the main tenders for the production of 2022 a volume of only 2.5 million cubic meters, reduced by 40% compared to the usual values, under the conditions of a stipulated harvest of 9.5 million cubic meters in 2022. For comparison, the possibility of harvesting given by the forest management plans for the state-owned forests communicated by Romsilva is 11 million cubic meters, and if the volume is augmented with that remaining to be harvested while FMPs are valid, the possibility of harvesting is 13 million cubic meters per year!
- The result of this reduced supply of wood in the market – the adjudication prices increased to panic levels, unsustainable, increases to a national average of 391 lei / m3, an increase of 250% compared to the last price a year ago, of 177 lei / m3.
- For softwood, the national average award price was 573 lei / cubic meter, with a peak of 718 lei / cubic meter average price at the Suceava Forestry Division.
- For comparison, the softwood saw log, shaped, on the forest road, has prices of maximum 110 lei / m3 in Europe. Compare this with the prices in Romania, while taking into account that the sorting efficiency from wood on stump to saw log is maximum 65-70%, to which must be added the operating costs!
Public policy paradoxes for the forest and timber industry: the fundamentals are solid, the policies are bad
At the Forum of Forests, Wood Industry and Green Economy, it was shown that wood from sustainably managed forests of Romania is a resource for development, decarbonization and reduction of energy costs.
The foundations of sustainable forest management are solid: Romania’s forest area is constantly growing, Romania’s forests have primary structures, identical to natural forests in a very high proportion, of over 91%, with huge biodiversity. We harvest less than 40% of the net forest growth, according to INS and Eurostat, well below the European average of 70%. How do we capitalize on the timber resource in Romania’s sustainably managed forests?
Current impact:
Economic and social impact:
- economic impact: turnover – 7.1 billion Euros. Exports – 3.5 billion Euros annually.
- social impact: 150,000 direct jobs, 300,000 jobs indirectly.
- 5 million households that heat with firewood and biomass.
Environmental impact:
- environmental services – ecosystem benefits – air, water, soil protection, biodiversity.
- 24 million tonnes of CO2 net carbon sequestration in forests and wood products.
- 14 million tons of CO2 emissions saved using wood, through the substitution effect of wood products, by avoiding the use of other materials with a higher carbon footprint.
- at least 13 million tons of CO2 emissions replaced by thermal energy used to heat the 3.5 million households that heat with wood, by avoiding the use of fossil fuels!
What is to be done?
The crisis in the timber industry is artificial, but if its duration is prolonged, the effects of decapitalizing the timber industry and reducing production capacities will be felt in the long run.
The Romanian Association of the Wood Industry – Prolemn calls for the rapid start of an advisory process in consideration of the following measures:
- elimination of blockages induced by the environmental assessment of forest management plans.
- establishing the harvest figure and the supply of timber by Romsilva in compliance with the Regulation on the capitalization of timber, GD 715/2021, art. 5, at the level of the possibility provided by the forest arrangements.
- financing of the forestry sector – on the line of investments in the accessibility of the forest fund and environmentally friendly exploitation technology, logistics for storage and sorting of the wood mass through the National Strategic Plan 2023-2027.
- removing unnecessary barriers and administrative costs induced by SUMAL in the movement of timber, more than the requirements of European Regulation 995/2010 (EUTR).
(Main image source: HS Timber Panels Siret, Wikimedia Commons)