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Log cost inflation, tightening felling regulations, muted end-product demand and the disruption of Middle East & North Africa (MENA) export channels by the conflict in the Persian Gulf are combining to test the resilience of sawmills in Finland and Sweden, with the pressure being felt all the way to Central European timber yards.
In September 2025, the prime ministers of Finland and Sweden took the unusual step of jointly writing to European Commission President Ursula von der Leyen, warning that both countries were on track to miss their binding EU forest carbon-sink targets for the periods 2021-2025 and 2026-2030.
The letter was blunt. Finnish Prime Minister Petteri Orpo said, that reducing felling volumes was “not a viable option” and that it would have “dire consequences” for Nordic economies and would ripple through timber supply chains across the EU. And Sweden’s Prime Minister Ulf Kristersson called the existing framework “unreasonable and unjustified.”
By early 2026, the two governments had received little relief from Brussels, and analysts said that changes to the LULUCF (Land Use, Land-Use Change, and Forestry) regulation commanded majority support across the 27-member trade bloc, making revision politically difficult.
This high-level lobbying by Norway and Sweden highlights the central tension now confronting the Nordic sawn timber industry: that a sector already struggling with elevated sawlog costs and sluggish end-user demand has found itself additionally squeezed from above by environmental regulation, from the east by a post-Russian-sanctions supply reconfiguration and from the south by the violent disruption of its most important export corridor outside Europe – the MENA region.
The proximate cause is well understood: the cessation of Russian timber imports following Russia’s attempted full-scale invasion of Ukraine removed a significant low-cost source of pulpwood from the Nordic market, driving domestic log prices higher, while overall wood supplies tightening across the Baltic Sea region.
Nordic exporters face additional uncertainty from the EU Deforestation Regulation (EUDR), which requires companies to demonstrate that timber placed on the EU market is free from deforestation.
The introduction of EUDR has already been delayed twice, with large operators now given until December 2026 to comply, and a mandatory simplification review due in April 2026 that could trigger yet further legislative change before the law even takes effect. For mills and traders unable to finalise traceability and documentation requirements, the repeated postponements have extended uncertainty without reducing the compliance burden – an unwelcome addition to an industry already navigating log-cost inflation and LULUCF pressures.
The cost environment in the Nordic countries for raw materials is, by most historical measures, uncomfortable. In Finland, log costs have risen sharply since the Russian import ban – directly affecting mostly pulpwood and energy wood imports, but also sawlog prices, with domestic sawlog prices significantly outpacing the sawn timber price recovery. Russian exports have fallen by roughly 40% since 2019, declining to approximately 18.7 million cubic meters in 2024.
Industry representatives are candid about the consequences. The chief executive officer of the Finnish sawmill association, Sahateollisuus ry, Tino Aalto, said the halting of Russian imports had pushed prices higher, while the broader economic uncertainty had simultaneously reduced demand – a real double bind.
For companies such as Koskisen Oyj, which has committed around €80 million over three years to expand and streamline production at Kärkölä in southern Finland, maintaining its competitiveness depends on continued access to domestic raw materials at workable prices. According to a trade journal, CEO Jukka Pahta’s calculation is simple: competitive access to raw materials is not a negotiable variable, it is a precondition for the industry’s existence.
The species dimension adds further complexity. Spruce has been in relatively short supply across European markets, driving price premiums for that species and prompting some sawmills to shift production capacity toward pine processing, where raw material availability has proved more favorable. The previous abundance of spruce-heavy, bug-damaged wood (bark beetle) has dried up, forcing manufacturers back to regular harvesting, which is more constrained, thus tightening supplies.
That supply imbalance has begun to invert established usage patterns. Pine, which has historically commanded premium pricing in export-oriented MENA trade, where redwood specifications dominate joinery demand in Egypt, Saudi Arabia and Algeria, is now being pushed into construction and general-trade channels that were traditionally spruce’s domain in Central Europe.
But the adjustment has not been seamless. Central European buyers have a long-established preference for whitewood in structural grades, so substitution carries specification and commercial risks both for mills and for traders. If felling restrictions disproportionately tighten spruce availability further, the pressure on those usage conventions will intensify, reshaping not just the species mix available to buyers, but the pricing logic that has underpinned the Nordic export strategy for decades.
The regulatory backdrop is made more volatile by a genuine scientific and methodological dispute – one in which the numbers have been moving in the wrong direction for the Nordic industry.
Finland’s Natural Resources Institute (LUKE) first reported that Finnish forests had tipped from a carbon sink into a carbon source around 2021, attributing that shift to increased logging intensity, rising peatland soil emissions, a plateau in tree biomass growth and the accelerating effects of climate-driven soil decomposition.
Subsequent revisions have compounded rather than softened that finding: updated methodology and new national forest inventory data (NFI13) led LUKE to revise its 2022 LULUCF sector emissions figure sharply upward, from 4.44 Mt CO₂eq to 12.01 Mt CO₂eq. Finland’s Annual Climate Report 2025 confirmed the LULUCF sector remained a net emissions source in 2024, with the government acknowledging that, without additional land-use measures, Finland will probably miss its EU obligations.
Sweden’s situation is nominally better in that its forests remain net carbon sinks, yet both countries face the same binding EU LULUCF targets and the same threat of potential fines and European court proceedings if they miss them.
The dispute is not purely scientific, however. It is also methodological, with no standardized EU-wide basis for calculating forest carbon balances and the treatment of variables – such as peatland emissions, natural disturbances and forest reference levels – differing between EU member states. Finnish forestry sources have noted with frustration that an economy with a broadly similar forest base to Sweden’s has arrived at a starkly different, and deteriorating, sink accounting outcomes – a discrepancy that the Nordic governments are pressing Brussels to resolve through updated guidance on forest reference levels.
What is not in dispute is the regulatory direction of travel. The LULUCF framework requires the EU’s land and forest sector to achieve net carbon removals of 310 Mt CO₂ equivalent per year by 2030. Finland and Sweden, whose combined forested area approximates to the combined surface of the UK and Italy, bear a disproportionate share of that obligation. Scientific advisory bodies in Finland have proposed cutting annual harvest volumes from approximately 73 million cubic meters to around 60 million, a 15% reduction. Sahateollisuus ry estimates the total economic impact of such cuts at around €3 billion ($3.47 billion), with between 3,000 and 4,000 direct jobs at risk in sawmilling alone, against a broader forest-sector workforce of some 200,000 across the two countries.
The MENA region has long been one of the most strategically important export destinations for Nordic sawn timber. Finland and Sweden together accounted for approximately two-thirds of all European softwood lumber shipped to the region in recent years – a dominance built on volumes, reliability and species specification. Finland has historically led in whitewood (spruce) to Egypt’s construction and formwork sector, while Sweden supplies redwood (pine) for joinery across Saudi Arabia, Algeria and the Gulf.
That corridor has been badly disrupted by the Middle East conflict, which was sparked by the February 28 US/Israel strikes on Iran and its wide-ranging response across the Persian Gulf. That conflict resulted in the closure of the Strait of Hormuz and has introduced severe logistical and financial uncertainty for shipments to the MENA region. Energy prices in Europe have spiked sharply due to the suspension of Qatari LNG flows and the Hormuz blockade, squeezing industrial operating costs. Shipping to the Gulf and North Africa has become more expensive and unpredictable. Construction activity in markets such as Saudi Arabia and the UAE, where Vision 2030 infrastructure programmes had been absorbing significant volumes, now face financing challenges and cost pressures as the region’s economic hubs contend with all the instability.
Russia, which shipped about 1.7 million cubic meters to MENA in 2024 (including around 550,000 cubic meters to Egypt alone), had been aggressively competing with Nordic exporters for market share in the region as its European and North American channels closed post-sanctions. A sustained period of MENA market disruption removes a volume outlet that both the Nordic countries and Russia had been counting on – and removes it at a moment when Nordic mills are least able to absorb the redirection costs.
The other end of the Nordic export equation, Central Europe offers little in the way of compensatory relief, and not only because end-market demand has been slow to recover. The region’s sawmill sector is grappling with its own raw materials pressures that, in some respects, are more acute than those facing Nordic producers.
Germany is the most striking case. Following the bark beetle epidemic that devastated Central European spruce forests between roughly 2017 and 2022 – damaging an estimated 3-5% of Norway spruce forests in Germany and the Czech Republic – a large volume of salvage-logged timber initially flooded the market, temporarily suppressing sawlog prices.
That salvage surplus has now largely run its course. German sawmillers are increasingly sourcing from a depleted and restructured domestic forest base, with roundwood availability tightening as damaged areas are still in various stages of reforestation. This has pushed German sawlog costs steadily upward, narrowing the margin gap that had previously given Central European mills a cost advantage over their Nordic counterparts on standard construction grades.
The practical consequence for Nordic exporters is a two-edged problem. Central European buyers remain price sensitive and well-supplied from multiple origins, with Austrian, Baltic and Romanian mills all competing for standard spruce construction grades and unlikely to absorb displaced MENA volumes at current price levels.
But the shared direction of sawlog cost pressure across both regions does create one area of alignment: Nordic and Central European producers have a common interest in advocating for stable, predictable access to raw materials, be that through EU forest policy or bilateral trade frameworks. Whether that shared interest translates into coordinated market positioning remains to be seen.
The Nordic sawn timber industry enters the second quarter of 2026 facing a convergence of pressures that are individually, familiar, but collectively, unusually severe: elevated log costs with limited near-term relief; felling regulations that could tighten supplies further, regardless of whether the science behind them is contested; a MENA export corridor disrupted by geopolitical forces entirely outside the industry’s control; and a Central European end market whose own raw materials difficulties compound rather than offset any Nordic challenges.
Finnish PM Orpo’s argument to Brussels, that it is better for timber to come from Nordic forests than from Russia, carries geopolitical logic that may yet find traction in EU policy discussions. But the medium-term reality for Nordic sawmillers is a market in which every margin buffer is under simultaneous pressure. Investment decisions, species-mix strategies and export-channel diversification will all be stress-tested in the coming quarters. The industry’s ability to navigate this period will depend as much on regulatory outcomes in Brussels as on construction recovery in Frankfurt and the reopening of shipping lanes through the Persian Gulf.
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