This article was published on the portal diena.lv
Publication date: July 22, 2016
The changing conjuncture of the lumber market forces manufacturers to constantly look for new opportunities, otherwise there will be no development, says Āris Brants, owner of the lumber manufacturing company SIA «Lielanteni» to Diena. The company he runs in Suntaži, Ogre region, is celebrating its 20th anniversary this year. In the 1990s, after the recovery of rural property, when assessing what to do next, the choice fell in favor of woodworking. The entrepreneur is typical self-made man – a man who became a woodworking entrepreneur through internships and self-study.
Currently, the company produces a wide range of coniferous and deciduous lumber for construction, which finds a market in the local market. The company turns and impregnates wooden stakes, saws boards, beams and laths, etc. "Lielanteni" works a lot on individual orders from builders - despite the whims of clients, working directly with the client and producing original products is the most interesting, admits Brants.
SIA "Lielanteni" has produced materials for the roof of the Dome Cathedral and Riga Castle, observation towers have also been made from the company's materials, and custom-made timber for snail and earthworm farms.
The company also produces container boards and wooden pallets - these lumbers are exported to European Union countries. Product diversification is one of the keys to success, which is why "Lielanteni" did not stop even during the crisis, when the wind whistled at the factories of many wood processors.
Since the company derives most of its income from exports, the business is sensitive to fluctuations in the foreign market.
Alarming trends
Latvian forest industry export data for the first four months of this year shows a 9.5% drop in finished timber exports compared to the same period a year earlier. The reason for this is prices.
We're used to short-term price fluctuations of a few months, but now prices have fallen for more than half a year and it's making us nervous, says a businessman about what's happening in the export of container boards and pallets.
At the end of 2015, demand for products decreased and prices fell sharply, which have not recovered to this day. The owner of SIA «Lielanteni» estimates the price drop at around 15%, which is quite significant in this market. As a result, turnover is also falling, and although the company has not reduced production volumes, it is not easy to maintain them.
The solution can be sought in technological improvements, reducing manual labor. SIA «Lielanteni» permanently employs about 20 people. It is difficult to find good employees who work accurately, so the entrepreneur would not want to reduce the number of employees.
Brant cites the influx of cheap Russian and Belarusian exports as the reason for the drop in pallet prices in Europe. Due to currency devaluation, woodworking companies from these countries are able to offer cheaper export products, which affects the prices of pallet boards and pallets in European markets.
At the same time, with the decline in global energy prices, the prices of wood chips and shavings are also decreasing, which is another unpleasant moment not only for exporters of container boards and pallets, but for wood processing in general.
Perhaps the situation could change for the better in winter, the businessman estimates. Traditionally, container manufacturers have a lot of by-products - wood chips, shavings serve pellet manufacturers, and depending on weather conditions, as demand and prices increase, it becomes a good outlet for sawmills.
Changes in the finished product market affect not only manufacturers. If prices for pallet boards fall, then they must also decrease in line with the resources – logs – otherwise producers may have to reduce or stop their operations, the entrepreneur estimates. This is not pleasant for loggers, because logging prices do not react so quickly to what is happening in the market either.
In turn, in the construction materials market, although the situation is changing, with the periodicity characteristic of the industry, it is possible to maintain volumes by actively seeking new customers and continuing cooperation with existing partners, says the woodworker.
It should be noted that the horizons of the construction industry are not so clear either. Last year, construction grew relatively little. In June, the Bank of Latvia's economic development forecast, warning about the factors hindering business activity, mentioned that the delayed development of regulatory enactments at the beginning of the EU funds planning period is hindering investment projects, especially in construction and manufacturing.
Container manufacturers are not promised easy times
Kristaps Klauss, executive director of the Latvian Wood Industry Federation (LKF), pointed out that "Lielantenus", which is a strong wood processing company with differentiated production, is less affected, but overall, container manufacturers are not currently having the easiest times.
In addition to the already mentioned influence of Russian and Belarusian manufacturers, Klaus also notes that before the economic downturn, Russia and its neighboring countries were an important target for European export goods, and their packaging required ever-increasing amounts of packaging material, which ended up in Russia and its neighboring countries and remained there.
In Europe, especially for hardwood packaging, demand has decreased as Euro pallet rental has become popular, logistics chains are being designed so that pallets can be used multiple times, and wood packaging material lasts longer.
Meanwhile, wood chips and shavings have been at low prices for a long time, and new requirements for pellet producers, to whom wood processors supply chips, may cause certain problems for wood processing companies. The latter will have to prove the origin of the raw materials.
The LKF Executive Director also points out that the business of woodworking companies is further complicated by the increase in labor costs and electricity prices.
