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Poland Furniture Market Report -
In 2022, Polish furniture orders fell by more than 35%

[Feb 9, 2023]

Poland's booming furniture industry hit by soaring wood prices and consumer belt tightening
According to recent reports from Polish media, Poland's booming furniture industry hit by soaring wood prices and consumer belt tightening, and industry insiders have expressed concern about its development.

Poland is one of the world’s top five exporters of furniture, but the industry – which accounts for 2% of national GDP and employs around 200,000 people – struggled in 2022 and is fearful over itsf future.

During the pandemic, Poland’s furnituremakers flourished, as people focused on home improvements during lockdown. However, that boom has now ended and the industry suffered a difficult 2022.

The global economic crisis triggered by Russia’s invasion of Ukraine, which fuelled growing inflation and disrupted international trade, has forced consumers to cut back on spending. Wholesale wood prices have also risen at double-digit pace and, in extreme cases, they doubled compared to 2021, lifting production costs.

Orders for Poland’s furniture producers have fallen between 35% and 50% since the beginning of 2022, says Michał Strzelecki, director of the Polish Chamber of Commerce of Furniture Manufacturers (OIGPM).

About 90% of Polish-made furniture goes for export. In 2020, Poland’s 5.75% share of the global furniture export market was behind only Germany (6.3%) and China (39%), according to the Observatory of Economic Complexity. A report published last year by OIGPM puts Poland fourth, with a 5% share, behind Italy as well as Germany and China.

The industry, which ended 2021 with record sales of nearly 60 billion zloty (€12.8 billion), accounts for around 2% of Poland’s GDP. That is the highest figure among any EU member state and compares to a 0.7% share across the bloc as a whole.

Exporters benefit from Poland’s furniture-making tradition and know-how, its geographical proximity to the main sales markets, competitive transportation prices, and the relatively low labour costs compared to western Europe.

Refurbishing boom ends

But this success story is now under threat – at least for the near future.

Strzelecki believes many customers have postponed purchases of furniture, and it is hard to estimate when demand will pick up again. “We expect this to happen only in the second half of 2023. This is a worst-case scenario, in which we will have to reduce production capacity, and as a result, layoffs will follow,” he warns.

The Polish furniture industry employs about 200,000 people, and Strzelecki estimates that up to 20-25% of that workforce could lose their jobs. “The layoffs are already happening. But so far companies are trying to retain the most important and qualified employees,” he says.

In Poland itself – where inflation has been running at a 25-year high of over 16% since August – footfall in major home improvement retailers, such as Leroy Merlin, Jula, and OBI, fell on average by 25% this year, reports the Rzeczpospolita daily. In 2023, 30% of consumers plan to reduce spending on furniture, it adds, citing a survey by consulting company OC&C.

Rafal Szefler of the Polish Chamber of Commerce of the Timber Industry confirmed to Notes from Poland that furniture sales have dropped sharply. “People nowadays are worried about buying bread, butter and milk, not about refurbishing their houses,” he says.

Wood prices jump
To compound the fall in demand, there has also been a significant rise in wood prices in the Polish wholesale market, which are now comparable to costs in Germany and Sweden, according to Strzelecki.

Economic recovery after the pandemic stimulated demand for wood, while sanctions imposed on Russia and Belarus after the invasion of Ukraine limited supply. Simultaneously, State Forests, the body that manages Poland’s forests, introduced a new price-setting policy.

In 2021, State Forests increased the share of open auctions to 30% from 20% with closed auctions thereby reduced to 70% from 80%. Closed auctions are reserved for customers who made purchases from State Forests in previous years, and prices are generally lower compared to open bids.

Aneta Muskała, President of the Association of Polish Papermakers, told Notes from Poland that the overall volume of wood offered to the industry has also lessened compared to previous years. As a result, prices grew sharply, especially in open auctions, Muskała says.

In the second quarter of 2022, average prices for practically all wood types in Poland were tens of percent higher than a year earlier, and in extreme cases they doubled, according to a report by Bank Pekao.

For example, prices for beech timber at open auction in the second half of 2022 averaged 613 zloty per cubic meter, more than double the 305 zloty in the same period of 2021. Prices for birch skyrocketed to 626 zloty from 185 zloty, the report shows.

Changes in prices for various types of wood sold by Poland’s State Forests (source: Bank Pekao)

State Forests spokesperson Michał Gzowski acknowledges that prices have gone up, but attributes the increase to the economic recovery after the pandemic. The demand for wood is growing, while the supply is restricted by forest regeneration possibilities, he says.

“Businesses that benefit from high profits from production are competing for access to wood, and prices are rising,” Gzowski told Notes from Poland.

Side effects of sanctions
While wood costs have risen across the continent, ResourceWise, an analytics firm, noted in November that Central Europe has seen the highest increases, with sawlog prices almost doubling over the previous two years.

By comparison, the Global Sawlog Price Index (GSPI), representing 20 regions worldwide, increased by 34% over the two years to October 2022.

As production costs grow, manufacturers have to accept lower margins. The Polish furniture industry ended 2021 with record sales but also the lowest profitability in three years, according to OIGPM.

In addition, competition with producers from Romania, Bulgaria, and Belarus has intensified. Paradoxically, Belarus has strengthened its position on the furniture market after the introduction of sanctions, Strzelecki says.

"The sanctions did not fully affect the country's production. Instead, Poland could not buy raw materials from Belarus and lost its competitiveness. At the same time, it did not ban the import of furniture from the country. Compared with Polish furniture, Belarusian furniture is about 30 to 40% cheaper," he said. explain.

Belarus, along with Ukraine and Russia, used to be an important source of imports for Polish timber and wood products. According to Bank Pekao data, before the Russia-Ukraine conflict, nearly 40% of Poland's semi-finished wood products were imported from the above-mentioned countries.

In 2023, OIGPM expects a further decline in production, up to 30%. "It's hard to look at the new year with any optimism," Strzelecki concluded.