Interview: Revival of small and mid-sized hardwood sawmills May 27, 2009
Interview with Manfred Reinkemeier, CEO of Abalon Hardwood, on the occasion of Interzum 2009, in Cologne, Germany.
For almost a year now the price for beech lumber has been headed downwards. When will this price erosion for edged beech lumber come to an end? The general recession is felt across the beech lumber market which, as expected, shows a weaker demand worldwide. The inevitable production cutbacks since mid 2008 were followed by the dramatic drop in prices from the autumn of 2008. Meanwhile, all beech sawmills have wisely reduced their processing and have adapted to subdued demand; even the forest administrations have reacted accordingly. Whether this leads to a necessary normalization of lumber prices, it remains to be seen.
What is the current situation of Abalon sawmills in Austria and Germany?
We currently operate only one shift at our plant Abalon Hessen in Schwalmstadt/Germany as well as at our associated company in Austria. Naturally, the limitative factor is the turnover in the current conditions. In the first quarter of 2009 we have unexpectedly sold about 25% more than in the previous year, albeit at the low prices imposed by the market. This shows that a certain demand still exists. Our cooperation with our customers is clearly proven at a difficult time like this; even our effort to avoid extreme price fluctuations is welcomed. Furthermore, we can partly avoid the dramatic fall in prices for beech lumber. Therefore, we also offer fixed-width, lumber, boards / squared timber for the packaging industry as well as beech and oak ties.
How do you see the strengths/weaknesses when it comes to size?
In the case of hardwood sawmills which exceed 200,000 m3 of annual cutting capacity we cannot speak of "economies of scale" any more. Above a certain size, disproportionate investments are even necessary. For a 500,000 m3 beech sawmill, the required supra-regional log procurement only has transportation costs higher with 5-10 euros for every processed cubic meter. This cannot be obtained through any of the other expense factors.
It’s just as our American partners usually say about oversized sawmills: "You can't feed the beast - and then it starts to eat you!"
We think that medium and even smaller hardwood sawmills in the respective product segment are more competitive because in the long term they face no log supply problems, among other things. During the latest sawmill congress in Rosenheim it was appropriately ascertained that sawmills would have to say goodbye to a supra-regional log supply. The old motto "the bigger, the better" doesn’t apply to sawmills any more, considering the scarce resources and the high log transportation costs - at least not if a functioning purchase competition exists. This conclusion seems to already gain acceptance in the larger softwood industry.
Your competitor Pollmeier launched various legal proceedings against the federal state of Hesse because of the support given to your new sawmill project in Schwalmstadt. How do you see these activities?
I do not wish to comment on these proceedings since Abalon is neither a litigant nor represented by a counsel. However, it is known that Pollmeier has lost the first procedure by the European Commission. My only concern with Pollmeier’s action is their absolutely peculiar conduct as an entity which received 5-10 times more subsidies than we did. That’s all I had to say about this, but of course everybody is entitled to their own opinion!
Apart from that, I don’t think it’s a good thing to turn against somebody; therefore, we concentrate on our customers, suppliers and employees as well as on the development of our operational competitive advantages. Activities beyond cooperative competition do not correspond to our style. If someone wants to counteract in our favour, they would earn above all a high level of recognition and many sympathies from us.
What will be the future situation on the beech lumber market?
Due to the dramatic drop in lumber prices some colleagues have already turned away from the beech standard lumber – and probably everybody has intensely dealt with the question of the most competitive products and markets. In particular for the closer raw material markets there continues to be a trend towards special and refined hardwood products. However, the edged and surface-worked standard lumber might be more marketable for the farther export markets and would ultimately have lower transportation costs than the traditional saw-rough resp. unedged timber (which may still have a certain authorization, however, in certain areas).
The beech as a species might have altogether a very good and stable perspective, because there is probably no other hardwood species worldwide which is so sustainable, in a sufficient amount and available, which is economic and has such a varied application spectrum like beech. Overall, everything that can be desired is that as many beech sawyers as possible survive the crisis, because a varied beech sawmilling industry can only help the spreading and use of the beech species, and this general spreading of the beech - by whoever that might be - is very important for us, the manufacturers of standardized beech products!
