How the Forestry Industry Works

The past five years have been highly eventful for the global forestry industry. Multiple trends – some long-term shifts, some sudden disruptions – have shaped markets from 2019 through 2024. We highlight the key trends, with an emphasis on developments in the most recent two years:

1. Post-Pandemic Volatility in Wood Demand and Prices: The COVID-19 pandemic initially caused a dip in demand in 2020 (e.g. lumber demand slackened briefly and paper consumption for offices and print media plunged). However, an unexpected surge followed: Housing and DIY booms in 2020–2021 (partly driven by low interest rates and lockdown-induced renovation fever) led to a lumber shortage. By mid-2021, lumber prices in North America hit all-time highs – over four times the normal level – creating a windfall for sawmills. This volatility continued into 2022; prices crashed back down in late 2021, spiked again early 2022, then fell as interest rates rose. Similar patterns were observed in Europe: in 2021, sawmills enjoyed strong export markets and high prices; but by 2022–2023, as construction cooled, European timber prices dropped ~30%, squeezing mills​. Result: The industry experienced record profitability followed by a sharp correction within a two-year span. By 2023, high inflation and rising borrowing costs led to a global construction slowdown – e.g. Germany saw housing construction fall well below targets, contributing to sawmill insolvencies​. Inventories of lumber piled up in some regions, and mills curtailed production, suggesting the cycle had swung to a downturn. Nonetheless, some stabilization signs appeared late 2023: North American lumber prices found a new equilibrium closer to historical norms, and European producers expected a possible bottoming out by 2024–2025​.
2. Shifts in Paper Markets – Decline of Graphic Paper, Rise of Packaging: A longer-running trend accelerated in the last five years: printing and writing paper consumption has continued to decline, especially in mature markets. The pandemic reinforced digital substitution – fewer newspapers in print, more online news; offices went paperless during work-from-home; and ad spending in print media fell. This led to permanent capacity closures in graphic paper. For example, major European paper makers converted machines from newsprint to containerboard, and North America saw closures of catalog and copy paper mills. Correspondingly, packaging paper and board demand has grown, buoyed by e-commerce (which saw a step-change increase in 2020) and sustainability trends favoring paper over plastic packaging. By 2022–2023, packaging grades like containerboard were the dominant output of many traditional “paper” companies. Global trade data reflects this divergence: the paper trade overall declined by 2023, with FAO reporting a significant drop in exports and attributing it partly to the ongoing digital displacement​​. However, paper packaging remained relatively resilient, and tissue demand remained stable or grew (hygiene products are less elastic). In the most recent two years, high energy prices (especially in Europe in 2022) temporarily pushed up costs for paper producers, which they tried to pass through to customers – packaging paper prices hit highs in 2022, then started easing by 2023 as energy stabilized and demand softened slightly. In summary, paper companies have navigated a structural shift: pivoting to packaging and specialty fiber products. Those that did so have generally fared well, while those tied to declining paper segments have seen their share of the industry’s profit pool shrink dramatically.
3. Surging Biomass Energy Use and Trade (and Subsequent Scrutiny): The last five years saw a continued boom in wood biomass as a renewable energy source. Europe led this trend in the 2010s and further amplified it around 2022 due to the natural gas crisis after Russia’s invasion of Ukraine. For instance, European power plants increased wood pellet consumption to replace Russian gas and coal. Pellet prices and demand spiked in late 2021–2022 – European spot pellet prices more than doubled at one point, and import volumes from North America climbed. Japan and South Korea also ramped up imports as new biomass power stations came online under incentive schemes. Japan’s pellet imports hit record levels through 2023–24, with monthly records like July 2024’s 673,000 tons (+17% YoY) imported​, mainly from Vietnam and Canada. This trend created a growth market for pellet producers in the U.S. Southeast, Western Canada, Vietnam, and the Baltics. However, it also brought scrutiny and regulatory debate: environmental groups in Europe questioned the carbon accounting of biomass, arguing that burning wood can be worse than coal if not done sustainably. The EU in response tightened sustainability criteria in policy (as noted in RED II/III) and there were even discussions (though not fully realized) of phasing down certain subsidies. Some individual countries pulled back support (e.g. The Netherlands announced an end to new subsidies for biomass power after 2024). Thus, by 2023 the pellet market, while still strong, saw prices come off their peaks and a more complex outlook depending on policy decisions. In the short run, biomass remains a key pillar of renewable energy in the EU (providing about 37% of EU renewable energy in 2020)​, and an increasingly large component in Japan’s energy mix as well, but its growth may moderate. The forestry industry finds opportunity here (selling residues, low-grade timber), but is also adapting to ensure the biomass is demonstrably sustainable to avoid backlash (e.g., pellet suppliers seeking SBP certification or equivalent).
4. Trade Flows and Geopolitical Factors: Global trade in forest products hit record highs in 2021, then experienced a downturn by 2023. FAO’s data shows that worldwide wood and paper product exports reached $546 billion in 2022, then fell by about 12% to $482 billion in 2023​. This drop was partly due to falling prices in 2023 (for lumber, pulp, etc., as supply caught up with or exceeded demand) and partly due to an economic slowdown. Another factor is geopolitical disruptions: The war in Ukraine in 2022 had significant effects – Russia, Belarus, and Ukraine are major wood product exporters (especially of softwood lumber, plywood, and wood pellets). Sanctions and trade restrictions essentially removed Russian and Belarusian wood from European and U.S. markets. The EU banned imports of most Russian wood products in 2022 as part of sanctions. This caused initial supply shortages – for example, Finland and the Baltics lost access to Russian birch logs used for plywood, leading to tight plywood supplies in Europe. European importers scrambled to source elsewhere, benefiting suppliers like Latin America and accelerating European self-sufficiency drives. Over 2022–2023, Russia reoriented some exports to China (timber) and other markets, but overall global trade volumes dipped. Meanwhile, high transportation costs in 2021 (container shortages) also temporarily dampened some trade; by late 2022 and 2023, freight costs normalized, easing trade again. Trade tensions like the ongoing U.S.–Canada softwood lumber dispute continued: the U.S. maintained tariffs on Canadian lumber (around 8–18%), which propped up U.S. lumber prices somewhat and incentivized more U.S. domestic production. Another trade shift: China’s role as a consumer and producer. China’s construction slowdown in 2022–2023 (due to real estate issues) reduced its demand for imported logs and lumber; this was felt by exporters in Europe and Oceania who send softwood logs to China – prices fell and some exporters redirected volume to other markets or curtailed harvest. However, China is still the largest importer of wood raw materials and a huge producer of wood products (especially plywood, furniture, paper). The industry keeps an eye on China’s economy as a swing factor for global timber demand.
5. Focus on Climate Benefits of Wood and Innovation in Wood Products: A positive trend for the forestry industry has been growing recognition of wood’s role in a low-carbon economy. From 2019 to 2024, there’s been increased investment and interest in mass timber construction (using engineered wood for mid- and high-rise buildings). Dozens of landmark wood buildings were completed or started, from 18-story wooden towers in Norway and Canada to Japan planning a 70-story hybrid timber skyscraper by 2041. This is driving innovation and new capacity for CLT and glulam. It’s also changing building codes: for example, the U.S. and Canada adopted code changes to allow timber buildings up to 18 stories, and several European countries have strategies to increase timber construction. These developments point to a new growth area for the industry with higher-value products and a strong sustainability narrative (wood buildings store carbon and offset concrete/steel). In the past two years, despite economic challenges, financing for mass timber projects has grown and big firms (even non-traditional ones like software company Oracle in the U.S.) are using mass timber in campus buildings for ESG reasons. Another innovation area is wood-based textiles and biochemicals – companies like Södra and Lenzing are investing in dissolving pulp and new fibers (e.g. “lyocell” fibers) to make fabrics, catering to fashion’s sustainability push. While small now, this could open new demand for pulp beyond paper. Nanocellulose and bio-plastics from wood are also being developed (e.g., Japan’s government and companies like Nippon Paper have been researching cellulose nanofibers for light, strong materials). These innovations haven’t yet moved the revenue needle significantly, but they represent potential new profit pools. Importantly, much of this is tied to climate initiatives – for instance, the EU and others funding bio-based materials R&D as part of green recovery plans.
6. Industry Consolidation and Restructuring: The past half-decade continued a trend of consolidation in certain segments. In North America, several mergers occurred – e.g., West Fraser (Canada) acquired Norbord to become a giant spanning lumber and OSB; Paper Excellence (a private group) acquired Domtar and is set to merge with Resolute Forest Products, consolidating pulp and paper capacity. In Europe, the pulp/paper sector saw some consolidation and capacity rationalization (like UPM closing paper mills and investing in new pulp mills in Uruguay instead). Sawmilling in Europe went through a tough time with oversupply from beetle-killed timber around 2018–2020 (in Central Europe), followed by undersupply, and now rationalization – e.g., some older mills closed; large timber companies like HS Timber (Austrian-based) expanded into new regions (they built mills in Latin America and acquired in other EU countries). Restructuring also involves conversion: many mills changed what they produce (paper machines to board, as noted, or sawmills adding kilns to make higher-value products, etc.). The result by 2024 is an industry with fewer, larger players in many segments, which can help stabilize markets and investment. However, when market swings happen, they still affect everyone significantly – as seen by mid-sized firms like Germany’s Ziegler Group (a major sawmiller) going insolvent in 2023 due to the construction crisis​. This indicates that despite consolidation, external demand factors remain decisive.
7. Resource and Supply Constraints, Climate Impacts on Forests: On the supply side, climate change is creating challenges. The period saw massive forest disturbances – notably, huge wildfires (2019–2020 in Australia, 2020 in the U.S. West, record fires in Europe and North America in 2023) and pest outbreaks (the mountain pine beetle outbreak in western Canada earlier in the 2010s, and a spruce bark beetle epidemic in Central Europe late 2010s). These events led to surges of salvage timber followed by potential shortages. For example, British Columbia’s timber supply dropped after the beetle epidemic killed vast areas of forest and subsequent fires – the provincial allowable cut was reduced, leading to permanent mill closures. Europe’s salvage logging of beetle-killed spruce from 2018–2020 flooded the market with cheap logs, depressing prices then; once that was processed, countries like Germany actually faced log supply tightness by 2022. In the last two years, Canada and Europe imposed limits on harvests to allow forests to recover, affecting output. Additionally, some countries are re-evaluating species mixes – planting more resilient species as climate warms (e.g., Sweden allowing more broadleaf planting, Germany diversifying from pure spruce stands). All this to say, the industry is adapting to a new normal where climate-related factors can swiftly change timber availability. In 2023, for instance, wildfires in Canada’s boreal forests were unprecedented – rail transport of lumber was disrupted and there is concern about future fiber supply in heavily burned areas. These supply-side shocks can cause regional price volatility (a mill might have to pay more to secure logs if local forests are off-limits or depleted). Conversely, some areas still have surplus plantation timber maturing (e.g., parts of the U.S. South have a glut of pine – a legacy of planting in the 1980s/90s – which kept log prices low even when lumber was high). So globally, wood supply is uneven: some regions have tight supply due to climate and policy, others have inventory build-ups. The industry trend is moving to optimize fiber use (getting more product out of each cubic meter via technology) and expand fiber sourcing (like using agro-forestry crops, or recycling more paper, or importing from fiber-rich regions) to manage these constraints.
8. Sustainability and Consumer Pressure: The latter part of the 2010s and early 2020s saw consumer and investor expectations around sustainability solidify. Brands and large retailers increasingly commit to zero-deforestation and prefer certified products. This has forced even reluctant players to get on board with certification and transparency. In Asia, for instance, there’s growth in certified forests because export markets demand it. The past two years saw big announcements like IKEA (one of the world’s largest wood consumers) saying it would aim for all its wood to be from more sustainable sources and investing in forestry projects. Investor pressure via ESG (environmental, social, governance) criteria means forest product companies are publishing sustainability reports, emissions targets, and so forth. The concept of the circular economy also touched forestry – boosting recycling (already paper has a high recycling rate in Europe at ~74%) and looking at wood product end-of-life (for example, trying to design wood panels that are easier to recycle or remanufacture). Sustainability is not just regulatory but market-driven, and this trend has only strengthened from 2019 to 2024. In fact, it likely helped forest products’ image as renewable materials, aiding the push for using wood in place of plastics and concrete.

To illustrate with a regional snapshot as of 2024:

• United States: Coming out of the pandemic, U.S. housing starts cooled in 2023 with higher interest rates, tempering lumber demand after the 2021 frenzy. U.S. South sawmill output continues to grow (many new mills built in last 5 years are ramping up), even as Pacific Northwest output declines (due to both resource limits and mill closures). The U.S. remains the world’s largest wood products consumer (about 18% of global industrial roundwood, 21% of sawnwood, 17% of paper/paperboard)​. Pulp and paper in the U.S. pivoted to packaging; mills in Wisconsin, Georgia and elsewhere have converted from graphic paper to containerboard, aligning with national trends. U.S. exports have been steady around $35–$40 billion annually, with pulp, paper and wood pellets going to Europe and logs/lumber to Asia. Trade disputes (softwood lumber tariffs) still color U.S.-Canada relations, and no new softwood agreement is in sight, so tariffs likely persist, maintaining slightly elevated U.S. lumber prices relative to world market. The U.S. industry has also been investing in automation and “precision forestry” – use of drones, AI in sawmills, etc., as described by McKinsey and others​​. On the policy front, there’s bipartisan support for forestry as climate strategy (e.g., bills to plant billions of trees, or use wood for carbon sequestration), but also continued debates on how much logging should occur on federal lands (with wildfire concerns making some argue for more thinning and logging to reduce fuels).
• Europe: The European industry in 2023–24 is in a challenging phase due to the triple hit of high energy costs (especially in 2022), weak construction demand, and regulatory adjustments. Sawmills in central Europe are hurting, as noted, although Scandinavian firms (which are often integrated and export-oriented) are somewhat buffered – e.g., Swedish and Finnish companies managed profitability by strong pulp prices in 2022 and a weaker local currency aiding exports. Europe’s pulp and paper sector is rapidly consolidating around packaging and specialties; for example, Stora Enso, UPM, and others have exited some paper lines and are investing in new products like cross-laminated timber, biomaterials, or expanding pulp capacity where they are cost-competitive. The war in Ukraine forced Europe to become more self-reliant or find new partners for wood supply; by 2023, Baltic countries and Finland saw log shortages without Russian imports, pushing them to harvest a bit more at home (within sustainability limits) and seek alternate import sources (Latin America or intra-Europe). EU climate policy is putting some pressure on countries with high harvest levels – e.g., there is scrutiny that Finland’s increasing cut rates have reduced its forest carbon sink, leading to discussions of possibly moderating harvests to meet EU carbon commitments​. At the same time, EU is funding recovery and resilience projects that include planting trees and promoting wood construction, so policy signals are mixed but generally favor sustainable forestry and more value-added wood use. European consumers have among the highest awareness of forest issues, and this has kept certification and responsible sourcing at the forefront (over 80% of Europe’s wood supply is from certified or controlled sources). By late 2024, European timber markets were looking for a turning point – many expect that when interest rates eventually ease, a backlog of needed housing (especially in countries like the UK, Germany) will revive wood demand. Also, reconstruction in Ukraine (after the war) could become a new demand source for lumber and panels, potentially a significant factor in a few years.
• Japan: Japan’s forestry and wood industry has been on a path of revival. One headline achievement was raising the timber self-sufficiency rate to around 41% in 2020​​, the highest in decades, driven by more use of domestic timber and wood chips for energy. This trend likely continued into 2021–2022, aided by the global “wood shock” in 2021 – when lumber imports from North America and Europe became very expensive and scarce, Japanese sawmills and suppliers turned to domestic sources to fill gaps. The government’s initiatives to connect domestic forest cooperatives with end-users (like promoting locally sourced lumber for post-and-beam housing) have started bearing fruit. Wood housing starts remain an important component (Japan builds ~50% of homes in wood), although overall housing starts are on a gentle long-term decline due to population aging. The “wood shock” did cause a spike in lumber prices in Japan in 2021, raising construction costs. By 2023 those eased as global conditions normalized, but it left an impression: the government and industry became even more motivated to utilize home-grown timber to avoid reliance on imports. Meanwhile, Japan’s paper industry is facing similar patterns to the West – declines in newsprint and printing paper, and shifts to packaging and hygiene. Companies like Oji and Nippon Paper are innovating (e.g., developing paper-based packaging to replace plastics, producing cellulose nanofiber materials, etc.). Biomass energy is a big growth area: Japan went from negligible wood pellet imports a decade ago to one of the top importers by 2023. Japanese firms have signed long-term contracts with pellet producers in Canada, Vietnam, and Southeast Asia. Additionally, Japan imports a unique fuel: palm kernel shells (PKS) from Southeast Asia, used alongside pellets in biomass plants – PKS imports also hit ~5 million tons in 2024​. The policy guaranteed high feed-in tariffs for biomass, though these will step down over time. Another recent factor: exchange rates – the yen’s depreciation in 2022–2023 made imports more expensive, again nudging domestic wood use. So Japan’s forest product sector in 2024 is characterized by increasing domestic supply engagement, stable to slightly growing demand for wood in construction (especially if modern wood buildings catch on – a large new market could open domestically), and heavy reliance on imports for certain needs (high-grade lumber from Europe, pulp from abroad, etc.) with a trend to diversify those sources (and ensure they’re legal via the revised Clean Wood Act).

9. Financial and Investment Trends: In the investment community, forestry assets and forest products companies gained attention as “green” or real asset investments. Timberland values in the U.S. South and parts of Europe climbed through this period as investors bet on rising carbon credit revenues or higher future wood demand (in the US South, institutional investors like pension funds have been buying timberland from traditional industry owners). Forest product company stocks saw volatility – 2021 had record earnings for many, boosting stock prices, then 2022–2023 saw normalization. Still, companies with strong ESG credentials often fared better in attracting capital. We also saw capacity investments: big greenfield projects like the new pulp mill in Uruguay (UPM’s 2.1 million ton pulp mill started in 2023) reflecting confidence in long-term fiber demand. On the other hand, some planned projects (like certain North American pellet plants or sawmills) got delayed or shelved in 2023 as interest rates rose and recession fears loomed. The next couple of years will likely be a period of caution and cost-cutting for many firms until economic conditions improve.

In summary, 2019–2024 was a roller coaster for the forestry industry. It featured a pandemic shock and recovery, extreme price swings, a realignment of demand toward packaging and energy uses, intensifying sustainability pressures, and significant geopolitical shifts (war and trade policy). Entering 2025, the industry is somewhat leaner and more future-facing: embracing digital tools and novel wood uses, while grappling with immediate challenges like high interest rates and climate impacts. The profit landscape has changed – companies who adapted to “mega-trends” (like e-commerce, decarbonization, and resource efficiency) have generally strengthened, whereas those in legacy segments had to reinvent or exit.

Looking ahead, the continued emphasis on sustainability and renewable materials positions the forestry sector favorably in the global economy’s green transition. Wood’s versatility – from building houses to replacing single-use plastics or providing renewable energy – means the industry could unlock new markets. However, success will depend on managing resources wisely (in the face of climate change) and navigating regulatory and market demands that are more exacting than ever. The past five years’ experience has shown that agility and a focus on sustainable value-add are key for any player in the global forestry industry.