Forestry outlook now

The forest sector is currently reporting that timber prices are peaking, and on the other hand, there are messages in the news about profit warnings from forest companies. "The forest sector has always been somewhat cyclical, but when looking at the long-term trends in the forest sector, there are only positive signs." estimates Rainer Häggblom, who has had a long career in the global forest industry.

 

 

According to Häggblom, the outlook for the forest sector from an investor's perspective depends on the horizon. "In the forest sector, as in other industries, the question is how economic growth will continue. There are a lot of uncertainties in the air and, for example, we are seeing some slowdown in the construction sector due to the war in Ukraine, among other things. At the same time, there is currently a clear long-term positive trend in the US housing market and there is a lot of potential in the US construction market that will be filled in the coming years." says Häggblom. Another important factor for future development is the demand for basic products such as packaging and hygiene products, which will continue to grow. "In short, these are products where we see growth in the future. As paper use has decreased, fiber has started to be used for other end-use products; the packaging business, the special paper business and the hygiene sector are growing steadily".

 

When discussing the outlook for the forest sector, climate change mitigation is at the center of the debate. Nordic forests and wood-based products play an important role in this context. Climate change mitigation is a holistic approach, where the most important issue is to reduce emissions in the production chain: "In Finland, the chemical forest industry emits an average of 56 kilograms of carbon dioxide per tonne of pulp, while the global average is more than three times that, and even higher in many individual countries. Emissions from the production process are therefore at the heart of the issue. If production capacity is transferred from Finland to other parts of the world, CO2 emissions will increase. This is therefore not just a question of forests, but a question of forestry and the forest industry, where the most important thing is to have the most modern production technology possible." mentions Rainer Häggblom. The leading countries in production technology are Finland, Sweden and certain Central European countries. In Brazil, too, there are companies that are very advanced in terms of technology and have low emissions. "When talking about climate change and carbon emissions, we should remember the big picture and understand that the most important thing is to reduce emissions. There are two ways to reduce emissions: the best production technology and the lowest possible consumption of natural resources per person." Häggblom points out.

There has been a lively debate in the media about the carbon sinks in Finland's forests, and their collapse. Climate change is a global phenomenon, which means that the focus should be on what is important. In this context, emissions are a more important issue than carbon sinks, considers Häggblom. According to Häggblom, the general debate should be conducted in a more analytical way, bearing in mind that this is a global climate change, which can be helped by reducing carbon dioxide emissions, i.e. by limiting the use of fossil raw materials. Sweden, for example, has differentiated between fossil energy targets and carbon sinks, which Häggblom believes is the right approach.

Deforestation must be avoided at all costs

In the Nordic countries, forestry is based on the idea that there should be no major changes in land use, and that the aim should be to maintain or even increase the amount of forest. In the Nordics, for example, the clearing of peatland for arable land is decreasing or disappearing, whereas in countries with high population pressure the situation is much more complex. Forest is currently disappearing in countries with rapid population growth and where forest land is being converted to agriculture or livestock farming to feed people. Tropical forests, among other things, can be said to be the opposite of a carbon sink, a 'carbon source' from which greenhouse gases are released into the atmosphere. Also, in countries with rapid population growth, everyone can be part of the solution by changing their lifestyle, for example by reducing their consumption of meat, soy or palm oil. According to Häggblom, the world is indeed a victim of very rapid population growth, and the realities of land use may be very different from what we would like.

China also plays an important role as the world's most populous country. Chinese factories are responsible for a significant part of the world's basic production, but their operations are based on the use of fossil raw materials for energy production. "China is a competitive country, but its world market production has relied heavily on a fossil fuel-driven energy infrastructure. However, there are already hopes and signs of change." says Häggblom. China's central role and the question of whether this positive trend will continue will therefore be crucial in the climate debate.

 

 

Climate change is a major challenge for humanity, but also a business opportunity. "Without forestry and the forest industry integrated into it, Finland would have almost nothing. Finland is a leading forestry country, and it is important to be a pioneer in ensuring that Finland is at the peak of resource efficiency. At the same time, we must strive to be able to make more valuable products with the resources we use – products that replace plastic, which in turn directly contributes to the massive climate crisis. Finland must be a pioneering country that shows what can be done with the forest, while at the same time taking care of conservation, biodiversity, the return from owning forests, and a better future than we have today. The valuable forest must be able to be used and protected at the same time as diversifying the related industries. Finland must play a major role in solving the nature reserve and climate problem." Häggblom highlights.

 

The aim of restoration is to speed up the process of returning the man-made environment to its natural state. The aim is to achieve development that will safeguard a more diverse range of species. What impact is the much talked about restoration regulation expected to have on forest funds and individual forest owners? "The idea of restoration is right for biodiversity, but the implementation and the different figures, targets and costs associated with it, especially in the early stages, were thoughtless and not based on research or science. This is not the right basis for restoration, because nature is dynamic and constantly renewing itself." says Häggblom. Even before the regulation came into effect, forests owned by United Bankers’ funds had already undergone voluntary restoration measures, such as the restoration of a stream last year. In addition, there are plans to restore underproductive peatlands to bogs, among other things. Recent studies by the Natural Resources Institute Finland also show that the forest sector has succeeded in doing a lot of good and increasing biodiversity.

Through its three forest funds, United Bankers owns approximately 164,000 hectares of forest land in Finland and the Baltics. In addition to reforestation, increasing the proportion of decaying and broadleaved trees in forests is an important way of halting the loss of natural resources. In addition, the funds will seek to identify other biodiversity indicators that can be used to demonstrate to investors that the right and measurable actions are being implemented in the forests owned by the funds. "The biodiversity potential of the United Bankers’ funds is very high. I believe that in ten years' time we will be able to show that biodiversity is worth paying for." emphasizes Rainer Häggblom.

 

Author

 

Marjo Åström

Investor Relations Manager, United Bankers Plc