2016 Shippers Meeting East Anglia Timber Trade Association Overview of the Baltic woodworking industry 21 st of September 2016 Kings College, Cambridge Linas Balkus Livland Timber Limited

Content  General economy of Baltic countries in figures  Growing stocks and annual felling  Export and import of wood products  Price and exports trends  Conclusions

This time it is not as usual – who said that? Mr. Brexit

The real GDP (as percentage change on previous year) for Baltic countries does fluctuate in greater extent than that of UK Source: Eurostat database

The main reason of exercising the free labour movement within EU borders is quite clear Electrons move from higher potential to its lower level In labour market it is opposite – from lower income (expenditure) to higher one Source: Eurostat database

The population of Lithuania within last 9 years has been decreased by -11.1% The population of Latvia within last 9 years has been decreased by -10.5% Source: Eurostat database

The growing stock of forests available for wood supply are at very similar level in both Latvia and UK Source: Eurostat database

The pine an birch trees are dominating in Latvian forests Some of them find the way to sail to China- for instance birch Source: Latvia State Forest Service

The growing stock of coniferous species stay stable since 2012 Whereas that of deciduous has increased by +2.0% since that Source: Latvia State Forest Service

The growing stock of pine has been reduced by -2.0% since 2012 Whereas that of spruce trees has been increase by +3.2% within same period Source: Latvia State Forest Service

The growing stock op pine trees has been decreased by -1.8% in state sector since 2012 Similarly it has reduced in private sector by -1.6% Source: Latvia State Forest Service

The growing stock of spruce trees has been increasing steady in state sector since 2013, growing by +6.1% by end of 2015 Whereas it has decreased slightly in private sector since 2012 by - 2.7% Source: Latvia State Forest Service

The growing stock of birch do increase steady in private forests from 2012 Whereas that in state sector slightly fluctuate Source: Latvia State Forest Service

Steady felling volumes from 2013 Felling of state ownership decreases Whereas those of private ownership increases Source: Latvia State Forest Service

State decreases the feeling of the softwood type of trees Private sector increases the feeling of the hardwood type of wood Source: Latvia State Forest Service

State has been sharply decreasing felling volumes of pine trees since 2012,constituting -31.2% by2015 Source: Latvia State Forest Service

By decreasing felling of pine trees State tried to increase the price of those - but without success Sources: Latvia State Forest Service; Forest and Wood Products Research and Development Institute: Latvian Wood industry portal

Average price of 18/24/28cm diameter basket decreases, whereas price of spruce stay steady from 2015 Source: Forest and Wood Products Research and Development Institute: Latvian Wood industry portal

The output of Latvia`s production of sawn softwood is increasing Consumption of sawn softwood is around 30% from what biggest part after further processing goas for export Source: EOS

Exports of sawn softwood towards Europe increased, contrary volumes to North of Africa and Asia decreased within first 5 months 2016 vs 2015 Overall increase of 6% Source: Forest and Wood Products Research and Development Institute: Latvian Wood industry portal Exports up Towards Europe Exports down Towards Africa & Asia

Exports of sawn softwood to UK during summer holidays had decreased Only Germany reflects demand curve with appropriate price rise The utmost decrease of revenues per 1 m3 from UK attributed to competition: -11.7%(price decrease) +7.4% (GBP/EUR rate depreciating) = -4.3% Source: Forest and Wood Products Research and Development Institute: Latvian Wood industry portal; EUROSTAT database

Exports of sawn hardwood to UK 2016 first 7 months vs 2015 had decreased even harsher than that of softwood, constituting -26.1% The utmost decrease of sawn hardwood revenues per 1 m3 from UK attributed to competition : -10%(price decrease) +7.4% (GBP/EUR rate decrease) = -2.6% Source: Forest and Wood Products Research and Development Institute: Latvian Wood industry portal; EUROSTAT database

Exports of plywood to UK 2016 first 7 months vs 2015 had slightly increased whereas price decreased, constituting -11.1% The utmost decrease of plywood revenues per 1 m3 from UK attributed to competition : -11.1%(price decrease) +7.4% (GBP/EUR rate decrease) = -3.7% Source: Forest and Wood Products Research and Development Institute: Latvian Wood industry portal; EUROSTAT database Let`s blame projected Brexit!

Exports of sawn softwood towards Asia, UK & EE increased within first 5 months 2016 vs 2015 Overall rise of exports 15.8% Source: Forest and Wood Products Research and Development Institute: Latvian Wood industry portal Exports up Towards UK, Estonia & Asia

Exports of sawn softwood towards Japan, China, Iceland, Ireland, Germany & Netherland increased, contrary volumes to Latvia, the largest importer of EE softwood decreased within first 5 months 2016 vs 2015 Overall only 1% of increase of sawn softwood exports Source: Forest and Wood Products Research and Development Institute: Latvian Wood industry portal

Projected increases of sawmilling capacities in Estonia Is enough & sustainable availability of logs to cover this demand? Source: Estonian Woodworking industry, LAESTI OU

Answer: Projected felling volumes in Estonia by 2020 do provide such hopes Source: RMK Estonia

Conclusions

There is no hope of improved availability of logs in long term

Log prices are likely to stay stable in LT and LV whereas do increase in EE

Unfavorable GBP rate makes pressure on pricing fight

The benefit of weaker RU ruble could be offset by rising transport costs towards EU direction

Questions please?

Thank you!