INTERNATIONALER HOLZTAG 2016

Softwood Market Development – European Perspective Sampsa J. Auvinen

CEO, Norvik Timber Industries President, European Organization of the Sawmill Industry

Sawn softwood production

Source: European Organization of the Sawmill Industry

AT 4%

BE 1%

CH 0%

DE 10%

DK 0% ES

1% FI 5%

FR 3%

IT 0%

LV 1%

NL 0% NO

1%

RO 2%

RU 15%

SE 9%

UK 2%

USA 26%

CAN 20%

Relative importance (%) in softwood production 2015 Europe produces 38% of the Northern hemisphere softwood

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 est.

EOS ISC Europe

Sawn softwood production

In the EOS member countries*, total production of sawn softwood increased by 1,0% in 2015 and reached 81.3 million m3. In 2016, production is expected to increase 0,1 % to

81,4 million m3.

*EOS countries:

Austria

Belgium

Denmark

Finland

France

Germany

Italy

Latvia

Norway

Romania

Sweden

Switzerland

United Kingdom

ISC:

Above+

Spain

Netherlands

Russia

Source: European Organization of the Sawmill Industry

m3

7.600

7.800

8.000

8.200

8.400

8.600

8.800

9.000

9.200

9.400

9.600

2010 2011 2012 2013 2014 2015 2016 est.

Austria

19.000

19.500

20.000

20.500

21.000

21.500

22.000

2010 2011 2012 2013 2014 2015 2016 est.

Germany

Sawn softwood production

Source: European Organization of the Sawmill Industry

0

200

400

600

800

1.000

1.200

1.400

1.600

2010 2011 2012 2013 2014 2015 2016 est.

Switzerland

6.400

6.500

6.600

6.700

6.800

6.900

7.000

7.100

7.200

7.300

2010 2011 2012 2013 2014 2015 2016 est.

France

Sawn softwood production

Source: European Organization of the Sawmill Industry

8.500

9.000

9.500

10.000

10.500

11.000

2010 2011 2012 2013 2014 2015 2016 est.

Finland

14.500

15.000

15.500

16.000

16.500

17.000

17.500

18.000

18.500

2010 2011 2012 2013 2014 2015 2016 est.

Sweden

Sawn softwood production

Source: European Organization of the Sawmill Industry

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

5.000

2010 2011 2012 2013 2014 2015 2016 est.

Romania

1.900

2.000

2.100

2.200

2.300

2.400

2.500

2.600

2010 2011 2012 2013 2014 2015 2016 est.

Norway

Sawn softwood production

Source: European Organization of the Sawmill Industry

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

2010 2011 2012 2013 2014 2015 2016 est.

UK

2.520

2.540

2.560

2.580

2.600

2.620

2.640

2.660

2.680

2.700

2010 2011 2012 2013 2014 2015 2016 est.

Latvia

Sawn softwood production

Source: European Organization of the Sawmill Industry

Raw material supply

Softwood log availability survey by EOS

Source: EOS

1 = low; 2 = medium low; 3 = normal; 4 = medium high; 5 = high

-

 1

 2

 3

 4

 5

 6

2013 2014 2015 2016

AT BE CH DE DK FR IT LV

#REF! NL NO RO SE UK Average

2016 Q2 GDP up by 0.3% in the euro area and by 0.4% in the EU28

EU28, euro area and United States GDP growth rates % change over the previous quarter

Change in % (euro at

2015 prices)

2015 2016

(f)

2017

(f)

2018

(o)

New residential construction

2,9 5,7 4,2 3,0

Housing starts* in 1.000units

1465 1562 1623 1658

Residential renovation 1,3 1,4 1,6 1,4

Total residential

construction

1,9 3,1 2,7 2,1

Non-residential construction

-0,2 2,5 2,5 1,9

Civil engineering 2,9 1,5 3,0 3,8

Total construction 1,4 2,6 2,7 2,4

Mill

ion

ho

usi

ng

sta

rts

1.0

00

Mill

ion

Eu

ro a

t 2

01

4

pric

es

Total Construction output for the 19 Euroconstruct countries1.

3,0 2,5 2,0 1,5 1,0 0,5 0,0

Housing starts* in the EC area

100

0

2012 2013 2014 2015 2016 2017 2018

Building renovations in the EC area

700

600

500

400

300

200 *=”housing permits” in Germany and the Netherlands

Source: EUROCONSTRUCT, June 2016

1Austria, Belgium, Denmark, Finland, France, Germany,

Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland,, United Kingdom, Czech Republik, Hungary, Poland, Slovak Republik

BREXIT

BREXIT’s effect on the European or UK economy is unclear at this stage.

Business activity has been very good first 7 months with housing starts being very strong but order books of the construction industry are getting thinner. Need for house building in the UK has not disappeared but the BREXIT

negotiation, or lack of it is creating uncertainty.

Sawntimber prices in GBP have beed unsatisfactory due the drop of the GBP. Prices have started to increase and will continue to increase. Some contracts made recently in EUR.

UK Manufacturing PMI

Sawn softwood sales & demand - Europe

Demand has been improving slowly. The bottom has been

reached and passed.

Although it seems that the worst political crisis is behind us,

uncertainty prevails.

BREXIT’s impact on the British and European economy is

unclear.

Demand in Europe is expected to continue grow but slowly.

Demand from overseas markets is followed by European

customers. This is a global business.

Source: EOS

European Softwood Industry Development

85

90

95

100

105

110

2010 2011 2012 2013 2014 2015 2016

Softwood Production Softwood Consumption Softwood Imports Softwood Exports

European Softwood Industry’s Indexed Development 2010 = 100

The world production of sawn softwood in 2015 (315 million m3), divided by continent

31%

7%

3%

2%

10% (Russia)

33% 13%

1%

Source: FAO/Skogsindustrierna

The world consumption of sawn softwood in 2015 divided by continent

29%

7%

2%

4% (Russia) 4%

26%

24% 4%

Source: FAO/Skogsindustrierna

The global flow of trade in softwood 2014/2015

8 mill. m3 10 mill. m3

4 mill. m3

9 mill. m3

2 mill. m3

4 mill. m3

< 1 mill. m3

Source: FAO/Skogsindustrierna

Sawn softwood exports to MENA

The MENA region’s importance for European sawmilling industry is vital.

Rumors about the devaluation of the Egyptian Pound and decrease of oil revenue in Algeria have kept the Pine outlook challenging.

Long term outlook for the region remains positive – young demographics, etc. but the political unrest and

low oil price are causing challenges.

Sawn softwood exports to Japan

Japanese housing starts has strong growth during the first half of 2016 beating expectations. The planed VAT increase for 2017 has been postponed until 2019.

The strengthening of the Yen is expected to impact negatively the economic growth in 2016-2017.

Population aging - long terms prospects are challenging.

Housing Starts, New Construction Starts of Dwellings

400.000

500.000

600.000

700.000

800.000

900.000

1.000.000

1.100.000

1.200.000

1.300.000

1.400.000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016Est.

Sawn softwood exports to China

The Chinese economy has continued to grow, albeit at slower speed than before, at an annual rate of 6-7%. The Chinese housing market showed signs of slowing in 2014 and 2015 but activity picked up end of 2015. A McKenzie analysis predicted that about 300 million people are going to move to urban areas during 2015-2025. This is will be significant driver for the construction industry.

Sawn softwood exports to China

The growth of sawn timber consumption and demand from China has been extremely important particularly for Finland, Sweden and for Russia. Russia and Finland are exporting in 2016 respectively about 40% and 90% more than in 2015. Especially children's’ wooden furniture industry growth has been the driver for the Finnish spruce exports. Russian timber export growth has put pressure on Pine prices in China.

2,000 1,750 1,500 1,250 1,000 750 500 250 0

2,250

2,000 1,750 1,500 1,250 1,000 750 500 250 0

2,250

Total Starts SF Starts 2-4 MF Starts ≥5 MF Starts

Total starts 57-year average: 1,443 mm units

SF starts 57-year average: 1,025 mm units

MF starts 52-year average: 420 m units

SAAR = Seasonally adjusted annual rate; in thousands

US Total Housing Starts

Sawn softwood exports to the US

The US market has become a steady but small market for the European sawmills, primarily the German and Swedish producers. With the housing start growing and nearing 1.5 million starts per annum, the US market is expected to become more important for the European producers. The USD/EUR and USD/SEK rate plays an important role on the viability of the exports from Europe to the US market.

Exchange rates Currency fluctuations have dramatic effects on the industry in Europe

-6,00% -3,00% 0,00% 3,00% 6,00% 9,00%

Bergs Timber 2016 H1 (Dec '15-May '16)

Holmen Timber

Koskisen (EBIT)

Metsa Wood

Moelven

Norvik Timber Industries

Rusforest

Setra (EBIT)

Sodra Timber 2016 H1 (Jan-Apr)

Stora Enso Building & Living

Vapo Timber EBITA

Vida (EBIT)

2015 2016 H1

Financial health of industry 2015 & 2016 H1 EBITDA Results for Selected European Sawmilling Companies

Source: Publicized annual reports

21.3%

25.5%

Sodra result exclude "återbäring" for member's log supply; 2015: mil SEK 481

Vapo sawmills sold end 2015

Koskisen only reports annual figures

Rusforest 2016 does not include disposal on non-current assets

What’s next?

Summary

When we thought the European political situation had stabilized, the BREXIT vote result brought uncertainty back. European demand is expected to continue to increase, albeit slowly. Demand from the overseas markets continue to play an increasingly important role for the European sawmill industry. Exchange rate fluctuations will continue to affect the industry. Financial performance of the European sawmilling industry has improved in 2016 but remains unsatisfactory in many parts of Europe. The moderate increase in production has enabled the industry to perform better.

Vielen Dank!