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Wood Costs for Swedish pulp mills, Sawmills on the Rise

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The Wood Resources Quarterly (WRQ) also reported that despite slower lumber export sales, sawlog prices in Sweden continued upward in the second quarter, reaching their highest levels on record in local currency. Log prices have increased faster in the southern part of the country where both saw logs and pulpwood prices are now higher than in the northern region. As a result, forest owners in Central and Northern Sweden are increasingly considering shipping logs southbound unless local log prices become more attractive.

Swedish sawmills continue to have lower wood costs than many of their competitors in Finland, Germany, and Austria, as reported by WRQ. However, the cost discrepancy has declined substantially from last year. Sawmills in Eastern Europe and Northwest Russia, on the other hand, currently have 15% - 30% lower wood costs than Swedish mills, with the Czech Republic being the only exception. The major reason for this disparity is the Czech's increasing log exports to neighboring Austria and Germany. So far this year, log shipments from the Czech Republic have gone up more than 30% compared with 2009.

Pulpwood costs, which account for about 60% of cash costs for Swedish pulp mills, were higher in the second quarter this year compared with the same quarter last year. Average softwood and hardwood pulp log costs have gone up 12% and 18% (in U.S. dollar terms), respectively, in 12 months, according to WRQ. In the local currency, the increases have been slightly smaller.

With many sawmills reducing production this summer and fall and, as a result, less availability of residual chips, the demand for pulp logs has increased. The pulp industry is very dependent on wood chips as this source is typically the lowest cost fiber. In 2009, slightly more than 27% of the total softwood fiber consumption was bi-products from theSwedish sawmills. It is likely that this share will be slightly lower this year because of the continued high demand for fiber and a reduction in available supply of residual chips. As a result, there will continue to be strong demand for pulp logs in the coming months. More information is available online.