Raute’s customers in the veneer, plywood and LVL (Laminated Veneer Lumber) industries are engaged in the manufacture of wood products used in investment projects and are thus highly affected by fluctuations in construction, housing-related consumption, international trade, and transportation.
Increasing uncertainty in key customers' markets
Raute has a significant position as a supplier of technology and services in its key markets in Europe, Russia, North America and parts of South America. We believe that our renewable technology offering and global service capacity will strengthen our position in our other target markets.
Demand for wood products is driven by the construction industry and the demand for investment goods. Project deliveries as well as modernizations are treated as investments by our customers, which makes our business very sensitive for economic fluctuations. The global economy is very unpredictable in the short term due to political and other crises.
In traditional markets, performance-driven thinking and lifecycle management of business operations gain importance. Demand for advanced services will increase in the future.
In emerging markets, the market characteristics and competitive landscape are quite different: low-cost products, new raw materials and low labor costs are typical for emerging markets. In these markets, there is also demand for a new type of “low cost – easy to use” solution offering.
Business environment (Q3 2022 Interim report)
Market situation and outlook in the global economy and the financial markets, that became uncertain earlier this year due to the military action begun by Russia and the resulting sanctions, have slightly stabilized but remain uncertain. Higher inflation caused by the rise in raw material and transport costs, and poor availability of certain materials and components increase uncertainty and weaken the outlook, but these impacts have not yet become visible in demand for Raute’s customers’ products. Restrictions imposed due to the Covid-19 pandemic and its other direct impacts have mainly disappeared in Raute’s market area, with some still remaining in China.
Demand for wood products technology and technology services
Demand for Raute’s technology and services has been strong in the developed markets of Europe and North America. However, likelihood for economic downturn seems higher in Europe whereas North American demand continues stronger. In Latin America demand is on fairly good level, also as the availability of raw material in the market area is good. In Asia, demand was lower than in the developed markets, and market continues to feel uncertain, still slowly recovering from the Covid-19 measures, that have been mainly lifted, and reduced industry financing.
Investment activity among Raute’s customers remained good. The reporting period’s order intake continued on good level, but it did not include any large capacity orders. Demand for maintenance and spare parts services has been very good, indicating generally good capacity utilization rates of Raute’s customers’ production plants.
Update of the impacts of the Russian military actions on Raute’s business operations in Russia
Raute condemns Russia’s attack on Ukraine. The attack and resulting sanctions have had a significant impact on Raute’s business operations in Russia as Raute had ongoing projects for several different Russian customers. On March 4, 2022, we announced that we stopped entering into new contracts with Russian parties. Set sanctions prohibit several deliveries to Russia. With customers or deliveries that are not under sanctions, Raute is carrying out a controlled wind-down of existing agreements through completing or changing the scope of deliveries or terminating the contract. As a result of the wind-down activities, Raute’s order book for Russian customers has significantly reduced during 2022 and was EUR 6 million on September 30, 2022, after risk reservations. The remaining order book includes risks in case the controlled wind-down of remaining contracts turns out not to be possible. Raute’s assets in rubles in Russia were equal to approximately one million euros on September 30, 2022 and the assets were mainly related to the local maintenance business in Russia. Raute has no currency hedging related to Russian ruble.
Plywood, LVL and veneer industries
The market for plywood and LVL is close to EUR 50 billion a year. Investments in production technology are nearly EUR 1 billion a year in "normal" market and economic situation. There is unlimited market potential for Raute in after sales services.
- Global growth will continue in both plywood and LVL products.
- Developed ecnomies will have only modest growth and slowing economies are a concern
- Emerging economies in Asia and Africa will continue to create strong demand growth especially in plywood
- Trends in wood construction in developed countries will support especially LVL growth, but also plywood
- Supply growth will be increasingly based on plantation timber
- Natural timber-based growth expected in Russia and parts of Europe
- In addition to raw material availability, labor availability is becoming a global problem, which leads to the increase of automation