U.S. housing crash hits forest products sector: U.N.

GENEVA (Reuters) - The U.S. housing market crash has hit the North American forest products sector with the price of some wood products falling to a 17-year low, the U.N. Economic Commission for Europe (UNECE) said on Monday.

Chinese demand for raw materials is providing some support to producers, but Chinese processors are increasingly present as competitors for finished products, it said in its Forest Products Annual Market Review.

The UNECE, which covers North America, Europe and the former Soviet Union, said prices for some products such as sawn wood had fallen in North America to their lowest levels since 1991.

Wood product prices have fallen so far this year in Europe as markets weakened after rising in 2007, it said.

The U.S. housing market is expected to bottom out this year and start to recover slowly in 2009, it said, noting the construction crisis had led to the lowest North American building material prices in decades.

"The period of rapid housing price appreciation in the UNECE region appears to have ended and could be followed by a period of reduced construction and a lower demand for wood products," it said.

The European construction market is forecast to continue falling to the end of 2010, driven by a dramatic reduction in new residential construction in western Europe, after falling 2 percent in 2007 from its 2006 peak, it said.

The unprecedented drop of more than 50 percent in U.S. housing starts between 2005 and those estimated for this year has hit North American sawmilling output, with up to one quarter of North American capacity curtailed or closed to accommodate the lower demand, the commission said.

A 10.6 percent fall in North American output to 109.6 million cubic meters in 2007 meant that European production was greater than that of North America for the first time, it said.

European sawmill revenues fell in mid-2007 after a profitable 2006, putting the industry in a more difficult financial situation by the middle of this year, it said.

"The catastrophic market situation in North America and the downturn in Europe present challenges and require new business models if sawmills are to maintain production, marketing channels, trained employees and customer loyalty," it said.

But expanding capacity in China is having a huge impact on paper and paperboard markets and global competition for wood and pulp, while the weaker dollar has boosted U.S. exports.

China's trade with countries in the UNECE region continues to increase, with imports of hardwood logs for China's vast veneer slicing industry rising significantly in 2007 and set to continue rising this year, it said.

Chinese exports of finished and semi-finished products are benefiting consumers with lower-cost products but competing with UNECE region producers, it said.

Russian export taxes on roundwood are disrupting supplies for sawmills and pulpmills in Europe, it said of Russia's timber policy which is a source of conflict with the European Union.

Shipments of softwood logs from Russia fell by a further 44 percent to Europe and by 15 percent to Asia in the first quarter of this year, after falling in 2007, it said.

"If implemented as proposed these export taxes could halt Russian roundwood exports in 2009," it said.

An increase in Russian sawn hardwood exports to Europe and China in 2007 shows Russia is poised to become a global player in the hardwood trade, it said.

The report noted that wood costs for the global pulp industry have increased to new records in 2008, with the biggest increases seen for softwood fiber in the western United States, Spain, Chile, Finland and Japan. Higher energy costs have also pushed up pulp and paper prices.

For the fall report click on www.unece.org/trade/timber/.

(Reporting by Jonathan Lynn; editing by Christopher Johnson)