1. European Hardwood Conference, Versailles 4th November 2005 Eastern European hardwood markets FrenchTimber

2. Introduction European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets General Introduction of the study Total Surface: 2 736 168 km 2 Total Population: 193,6 Millions persons 10 new members since the 1 th of May, 2004 Total Eastern Europe Study ordered by the French Agriculture Ministry and the Fédération Nationale du Bois.

3. History European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Introduction In the 90’s: - Opening of Central and Eastern Europe - Privatisation of the national companies - Delocalisation of part of the Western wood industry - Development of the production capacities - Start of imports from Central and Eastern Europe 2000 - 2005: - Increasing competition in Western Europe - Fall of the beech market - Development of a structured wood industry in Eastern Europe - Development of the Furniture industry

4. Questions asked by the sawmill industry  Do Eastern European countries really have access to a sufficient and competitive forest resource?  How can Western countries compete with lower labour cost and when will Eastern countries catch up with the Western Europe?  Can Eastern Europe supply both our traditional markets and the delocalised furniture industry?  What is the exchange mapping of the region? European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets

5. Aims towards two questions Is the Eastern wood industry a new competitor endanging the Western sawmill industry? And / Or Can the Western European wood industry benefit from this developing industry and the opening of those new markets? European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets

6. Plan European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets I.Economic indicators II.Hardwood forest data III.Production of Hardwood sawn timber IV.Trade flows (logs and timbers) V.Building industry VI.Furniture industry VII.Forecasts for the hardwood markets in Eastern Europe

7. I. Economic indicators II. Hardwood forest data III. Production of Harwood sawn wood IV. Trade flows (logs and timbers) VBuilding industry VIFurniture industry VIIForecasts for the hardwood markets in Eastern Europe European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets

8. Economic Indicators European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets GDP / hab en PPS Slovenia Slovakia Czech Republic Romania Poland Lituania Latvia Hungary Estonia Croatia Bulgaria UE 15 UE 25 78 52,6 70.1 31.7 46.8 47.8 43.3 61 50,7 46 29,9 109 100 Source : Eurostat, www.europa.eu.int/comm/eurostat/Economie et financeswww.europa.eu.int/comm/eurostat/Economie

9. Most developed: Czech Republic and Slovenia Less developed: Bulgaria and Romania Economic Indicators Global economic correction in Eastern Europe  But differences in the current economic situations European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets

10. Economic Indicators European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Low labour costs One of the main advantages in Eastern Europe

11. Economic Indicators European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Evolution of labour costs in Eastern Europe(1999 -2003) Source: Eurostats

12. Economic Indicators European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets - All countries are increasing minimum wages. - Romania still has an important gap. - Slow but positive evolution Source: Eurostats Evolution of minimum wage (2003 - 2005) Minimum wage in €

13. Economic Indicators European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Eco growth = 5% Economic correction of Eastern Europe on Western Standards French economic level stopped 26 18 20 16 15 12 9 7 Source : Présentation de Mr Sokic du 12 avril 2005, chercheur en Economies, Ecole Supérieure du bois Numbers of years for economic catch up Source: Presentation of Mr Sokic, Economic Researcher of the Ecole Supérieure du Bois, Nantes, France

14. I. Economic indicators II. Hardwood forest data III. Production of Harwood sawn wood IV. Trade flows (logs and timbers) VBuilding industry VIFurniture industry VIIForecasts for the hardwood markets in Eastern Europe European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets

15. Forest Data European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Dominant hardwood species Oak (+ 7,4 Millions ha) Beech (+ 5,5 Millions ha) Main Resources located in Romania, Ukraine, Poland, Czech Republic General data Total forests surface:+ 58 Millions ha Total Hardwood forests surface: + 28 Millions ha

16. Forest Data European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Surfaces of Oak and Beech forests in Eastern Europe Beech forests Oak forests

17. Certification European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets > 80 % 50 - 80 % 20 – 50 % 10 - 20 % 0 - 10 % > 80 % 50 - 80 % 20 – 50 % 10 - 20 % 0 - 10 %

18. I. Economic indicators II. Hardwood forest data III. Production of Hardwood sawn timber IV. Trade flows (logs and timbers) V Building industry VIFurniture industry VIIForecasts for the hardwood markets in Eastern Europe European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets

19. Sawntimbers European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Production Production of hardwood sawn timber from 2001 to 2005 in Eastern Europe Source: Unece, FAO

20. Sawntimbers Production European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Romania: - Leading hardwood timber producer (beech mainly) - Modern forestry could increase production Ukraine: - Difficulties to obtain relevant data - Industrial network undersized compared to the available resources - One of the future key player in Eastern Europe

21. Sawntimbers European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Consumption ( Prod + Imports-Exports) Consumption ( Prod + Imports-Exports): hardwood sawn timber from 2001 to 2005 in Eastern Europe Source: Unece, FAO

22. Sawntimbers Consumption ( Prod + Imports-Exports) European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Romania: - Important transformation industry - Development of the glue laminated industry Poland: - Main Eastern country for foreign investment - Development of a national market. - Key supplier for Western countries (flooring, parts …) Rest of Eastern Europe: - On going investment in the wood process industry - Development of a national market.

23. I. Economic indicators II. Hardwood forest data III. Production of Harwood sawn wood IV. Trade flows (logs and timbers) VBuilding Industry VIFurniture industry VIIForecasts for the hardwood markets in Eastern Europe European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets

24. Eastern Europe Eastern Europe Hardwood markets European Hardwood ConferenceFrenchTimber Trade flows 1/ Mainly within Eastern Europe Trade flows 2/ Concerns both logs and lumbers

25. Importing countries Eastern Europe Hardwood markets European Hardwood ConferenceFrenchTimber Trade flows Czech Republic Poland Slovenia Hungary Pol Cz Hun Si

26. Exporting countries Eastern Europe Hardwood markets European Hardwood ConferenceFrenchTimber Trade flows Croatia Slovakia Romania Ukraine Ukr Ro Cro Svk

27. Eastern Europe Hardwood markets European Hardwood ConferenceFrenchTimber East - East Trade flows Pol Cz Cro Si Ro Ukr Hun Svk Main internal trade flows

28. Eastern Europe Hardwood markets European Hardwood ConferenceFrenchTimber West - East Fr Deu Pol Cz Slk Si Ita Baltic Swe Main external trade flows

29. I. Economic indicators II. Hardwood forest data III. Production of Harwood sawn wood IV. Trade flows (logs and timbers) VBuilding industry VIFurniture market VIIForecasts for the hardwood markets in Eastern Europe European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets

30. Construction European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Dynamic place in the construction market Most developed and important building market: Poland Market pulled by the renovation and infrastructure building  Needs of standard infrastructures (ex: roads) Situation

31. Construction European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Indicators Evolution of building licences in Eastern Europe (2000 = base 100) Source: Eurostats

32. Construction European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Indicators Number of orders: Residential + civil building (2000 = Base 100) Source: Eurostats

33. I. Economic indicators II. Hardwood forest data III. Production of Harwood sawn wood IV. Trade flows (logs and timbers) VConstruction VIFurniture industry VIIForecasts for the hardwood markets in Eastern Europe European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets

34. Furniture European Hardwood ConferenceFrenchTimber Main Producing countries in Eastern Europe Eastern Europe Hardwood markets Data including all types of furniture and parts of furniture Production in Million € Source: www.drs-data.com

35. Furniture European Hardwood ConferenceFrenchTimber 3300 Mil € 838 Mil € 1400 Mil € 561 Mil € 515 Mil € 12532 Mil € 229 7620 10 50 Eastern Europe Hardwood markets Structure of the Furniture industry in Eastern Europe Source: www.drs-data.com

36. The Furniture Industry Furniture Romania, Czech Republic, Poland Slovenia: Privileged relationship with Italy (chairs and parts of chairs) Wood species used White oak currently fashionable!!!  Main producers of massive wood furniture (traditional)  Beech, Oak, Birch, Acacia ( external furniture) European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Baltic countries: Investment of leading furniture distributors

37. Furniture Markets Furniture European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Solid wood furniture: - Sector mainly oriented to export (more than 70 % in average) - Dependant on the orders from western and US customers Panels and veneers furniture: - Suitable for Eastern European markets (price driven) - Supply the Western European furniture industry

38. I. Economic indicators II. Hardwood forest data III. Production of Harwood sawn wood IV. Trade flows (logs and timbers) VBuilding industry VIFurniture industry VIIForecasts for the hardwood markets in Eastern Europe European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets

39. Costs in Eastern Europe Forecasts European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Increase of the Labour costs Increase of the Raw material - Logs price have increased in most of the countries. - Higher qualities may reach higher prices / West. Reduce availability of logs and greater competition. Increase of the transport costs Consequences: - New investments are made closer to the resource. - Some companies are coming back to Western Europe. - Further delocalisation to the East putting central European companies into jeopardy.

40. Markets developments: Internal Forecasts European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Increasing difference between old and up to date sawmills Increasing consumption of lumbers leaded by production of added value products (flooring, glue lam…) Increasing consumption of finished products by their own markets. Needs for specific products: large logs, higher qualities Consequences - Reduction of the number of sawmills - Increasing competition on added value products - Reduction of the competitiveness of the Eastern industry - Opportunities for the Western European industry

41. Markets developments: External Forecasts European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Reduction of offers for lumbers to Western Europe Increasing offers on added value products to Western Europe Increasing demand from Eastern Europe for specific logs and lumbers. Development of furniture sales to the North American Markets. Development of a middle class market for foreign products. Respect of Euro - criteria Consequences - Reduction of the pressure on Western European markets - Standardization of the furniture industry (trends, species) - Opportunities for the Western European Sawmills - Increasing consumption of solid wood furniture / panels. -Equal competition on foreign markets

42. Forecasts European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets - Most troubling moments are over. - Western and Eastern Europe can benefit from each other to compete with others. - Western wood industry benefits from the development of the Eastern wood industry in order to keep production in their own countries. - Collaboration and synergy are the keys to a prosperous European wood Industry. Is the Eastern wood industry a new competitor endanging the Western sawmill industry? And / Or Can the Western European wood industry benefit from this developing industry and the opening of those new markets? China is the first furniture manufacturer, mostly exporting to North America. Eastern Europe is a key to keep production in Europe.

43. European Hardwood ConferenceFrenchTimber Eastern Europe Hardwood markets Association de promotion des sciages français 6 rue Francois Ier, 75008 Paris Tel:+33(0)1 56 69 52 00 Fax: +33(0)1 56 69 52 09 www.FrenchTimber.com E-mail: contact@FrenchTimber.com Thank you Prepared with the help of Matthieu Pello, ESB engineer