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12.12.2018

UniCredit Bank Austria Industry Report:
Wood processing industry records years of strong growth

  • Wood processing is of special significance for Austria, which is one of the largest consumers of timber and wood panels worldwide and exhibits high export growth in this industry
  • Sales by the wood processing industry nominally increased by 4.4 percent to EUR 8.7 billion in 2017
  • Industry growth accelerated in 2018, driven by high new residential construction activities
  • Capacity utilisation reached record highs in 2018, the number of employees increased by 2 per cent
  • The sector economy will cool down in 2019, but this is not currently expected to involve a drop in sales
  • Austria’s wood processing industry has become more innovative and competitive; the foreign trade surplus grew strongly

Wood processing in Austria has benefitted from the vibrant construction economy at home and abroad for more than 3 years. In 2017, industry sales increased on average by 4.4 per cent to EUR 8.7 billion, predominantly driven by booming residential “In 2018, the demand for timber and wood products received a further boost due to the sharp increase in domestic commercial construction and additionally recorded even stronger export growth than in the previous year. The nominal sales growth of 7.2 per cent during the first three quarters is not expected to cool down significantly until the end of the year and is expected to remain in the region of 5 per cent,” emphasized UniCredit Bank Austria economist Günter Wolf.

Wood processing passed its growth peak in the middle of the year. However, a sales increase vis-a-vis the previous year is still possible, as indicated by the further rise in producer prices of almost 1 per cent over recent months ‒ the highest since 2012 ‒ and, most of all, the yet again optimistic production and price expectations by the wood processing companies for the coming months.

Capacity utilisation reached a record high in 2018 and the number of employees increased
Wood processing capacity utilisation also increased with the strong growth in sales. The companies reported production capacity utilisation of 92 per cent for the fourth quarter of 2018, the highest figure since surveys started in the mid-1990s. The number of jobs in the industry increased further along with the utilisation figures: by 3 per cent in 2017 and by a further 2 per cent up to October 2018. On average, more than 30,000 people are again employed in the industry in 2018. Of the 1,500 new jobs which have been created in the industry as a whole since 2016, 700 are attributed to the manufacture of timber construction elements ‒ the largest individual sector of the industry with 13,300 employees. A further 600 jobs were created in the sawing industry over the last two years, where 9,600 people are employed

Wood processing will lose momentum in 2019
“The demand for wood and wood products will be weaker in 2019, predominantly because the construction industry’s growth is slowing in the sector’s most important sales markets. For the time being, however, a loss in demand from construction should not be feared as there is still sufficient need for investment in new residential construction not only in Austria,” said UniCredit Bank Austria’s Günter Wolf. Construction output in Austria is likely to increase by a further 1 to 2 per cent in real terms over the next two years.

There is also expected to be a slight increase in export orders from the large markets for Austrian wood processors, despite the slowdown in the construction industry (wood processors achieve around 45 per cent of their sales through exports). An even higher increase in demand than in the last few years can be expected on the part of the Italian construction industry, the second most important sales market for wood processors with 16 per cent of all exports. The construction industry here is expected to accelerate its growth in 2019 and 2020, primarily driven by the increase in residential building expenditure. At the same time, the expected stagnation in construction investments in Germany, the destination of 31 per cent of Austrian wood products exports, will weaken export demand.

Austria’s wood processing industry has become significantly more innovative and competitive
The success of the Austrian wood processing industry in recent years is primarily the result of the advantageous economic environment, but also a manifestation of the sector’s competitive strength. This is based on the country’s abundant raw material resources as well as the close interrelationships within the industry and the high degree of specialisation of the companies. The foundation for this was the extensive restructuring process, high investments and a significantly greater willingness to innovate on the part of the companies. The share of companies actively innovating as defined by the EU survey amounted to 40 per cent in 2012 and to 51 per cent in the latest survey in 2014, a figure in the upper third of the EU sector. Subsequently, the industry has recorded high productivity gains in all central sectors in the last few years. Measured by the value creation per employee of EUR 70,000, productivity in the Austrian wood processing industry is almost twice the EU average.

As foreign trade results show, the competitiveness of the highly processed wood products sector experienced a rapid above-average increase. In the last twenty years, the export surplus of all wood and wood products more than doubled to EUR 1.7 billion, with the greatest contributions from the “other wood products” product category (predominantly windows, doors and wood packaging). Since 1997, the export surplus in the product category has increased by EUR 35 million to EUR 824 million. The foreign trade balances for wood panels and veneers and for timber also increased, but at a slower rate. “The high growth in exports of other wood products together with the higher export prices in the product category compared to the import prices allow us to conclude that manufacturers are securing their market position not only via cost savings and price adjustments, but are also strengthening this position by specialising in high-quality niches,” said UniCredit Bank Austria economist Günter Wolf.

Austria is one of the world’s largest consumers of timber and wood panels
Wood consumption in Austria has risen significantly over the last two years as a result of the sharp increase in the volume of damaged timber and the high cutting capacity from the sawing industry. It is calculated that just under 0.9 cubic meters of timber and wood panels were consumed per person in 2017. The value is already the world’s highest after the Baltic states. This is followed by New Zealand, Sweden, Canada, Norway and Finland, with wood consumption of between 0.7 and 0.9 cubic meters per head.

In the European context, it is apparent that there is still sufficient potential demand for wood as it is calculated that only 0.3 cubic meters of timber and wood panels are “consumed” annually per EU citizen. In contrast, the countries which traditionally share the top positions in the ranking, mainly those in Western Europe, have probably already come close to reaching their consumption peak. Nevertheless, we expect slight increases in wood consumption in future even here, predominantly because wood as a raw material can make a fundamentally important contribution to creating a greener economy and curbing the greenhouse effect. This means that the economic prospects for the wood processing industry in Austria are in any event positive, as there is an abundance of the raw material and it can be extracted in a CO2 neutral way with relatively low energy expenditure.

Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Ph.: +43 (0)5 05 05-41954;
E-mail: guenter.wolf@unicreditgroup.at