The slowdown of the German, Italian, and Swiss economies, particularly in the construction sector, has significantly shaken the wood industry in Croatia. Following a record year in 2022, during which this sector achieved its highest results, a decline in revenue ensued, leading to a profitability of barely 0.07 percent last year, and many wood processors have disappeared from the list of the most successful companies. The reliance on exports has revealed weaknesses at a time when the main European consumers of these products have halted growth.
– The Croatian wood processing sector is not an isolated system; it is influenced by various factors from both domestic and foreign sources. The current situation in the wood processing sector is very complex due to disruptions in the European wood and wood products market, caused by the recession in several European countries, the war in Ukraine, the introduction of customs duties on exports to the USA, and many others – warned the Croatian Forests.
As explained by Nikola Požgaj, head of the Požgaj group, the sector’s curve is turning into a downward trend from 2023.
– The market situation will not improve for at least another two to three years. The cause of this is the mix of products that the industry sells, which still amounts to over 75 percent raw material exports, and only about 25 percent some form of products, of which only 15 percent are finished final products of the highest level – floors, carpentry, furniture. There are very few or almost no processors who still want to use their existing positive capital to change their business concept and invest in products with higher added value, due to the uncertainty of future relations with the state monopolist Croatian Forests. Related trends of negative business in the industry as a whole will realistically continue – assessed Požgaj.
The situation is the same as last year
According to fresh data from the State Bureau of Statistics, the situation this year is the same as last year. Some companies like PPS Galeković or the Požgaj group are managing to return revenues to the levels of the record year 2022. These players are battling the crisis through stronger exports of niche products, turning towards the demand of domestic construction, or changing their raw material procurement model.
– In the last four years, we have implemented a change in the business concept to a completely market-based model of raw material procurement, in which procurement from the state monopolist accounts for only one-fifth of total procurement and no longer poses a risk to our future business sustainability – emphasized Požgaj.
But opposite every company that manages to return to the results of 2022, there are companies whose business problems are further deepening. The source of domestic problems is the stagnation of the European economy, especially Germany and Italy, which account for more than a third of wood industry exports. Over the past two years, Germany’s growth rates have been weak, below half a percent, and they are expected to be similar this year. The same is true in Italy and Switzerland, and particularly concerning are the declining trends in the German construction sector, which is reflected in the segment of residential new construction, on which domestic wood processors traditionally rely.
American customs auctions complicate access to this market for quality domestic producers, while Chinese state-subsidized competition is driving down product prices, against which the high new tariffs imposed by the EU on these products provide little help. Namely, the Chinese are adapting and seeking new business models, moving operations to countries bordering the EU, such as Serbia, from where they attempt to sell their Chinese products, with minor processing, on the common European market.
