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Russian industry update

Sept. 30, 2013 - Although Russia has the largest coniferous timber resource in the world, there are growing indications that the accessibility and economic viability of the resource is becoming more costly and less competitive. Russian logging costs have more than doubled in the last ten years. In addition, rail transportation costs to all export markets have increased at an average annual rate of over 11 per cent during the last ten years. Higher logging costs and rapidly rising transportation costs have made Russian log exports less competitive in key export markets such as Europe, China and Japan.

The fall in Russian log exports since 2007 (from 52 million m3 to 18 million m3) is due more to rising domestic logging and transportation costs than the Russian log export tax. "The Russian forest industry must do more to control log export costs if they want to be competitive in key log export markets", explained co-author, Gerry Van Leeuwen.

Growing sawn lumber production and exports

On the positive side, Russia's log export tax plus government incentive programs such as the "Priority Investment Program" have supported the growth of the domestic sawmill industry during the last seven years. As a result, Russian sawn lumber production has increased by about 30 per cent during the last ten years, while lumber exports have increased by over 50 per cent.

"Rapidly growing lumber production and exports from Chinese sawmills in Russia to China is a major factor in growing Russian sawn lumber exports," explained WOOD MARKETS President, Russ Taylor.

Russian lumber exports to China alone have grown from about 500,000 m3 in 2002 to over 6 million m3 in 2012. Growth of sawn lumber exports to China during the last ten years makes up the majority of Russia's total growth in lumber exports. At the same time, Russian lumber exports have become less competitive in Europe - which is why exports to China as well as the Middle East and North Africa are increasing.

Growing panelboard production and exports

Another sector of the wood products manufacturing sector that has grown rapidly during the last ten years is the panelboard sector. Production of plywood, MDF and particleboard have all experienced growth rates of well over 100 per cent during the last ten years. Despite the growth in production of these three types of panelboards, only plywood has significantly expanded on export market opportunities, to date.

The first three OSB plants in Russia are currently in the start-up stages of production. OSB is forecast to become a major new panelboard product produced in Russia. Domestic production of all panelboards will increasingly replace imports during the next few years and it appears likely that Russia will become a net panelboard exporter to neighbouring markets in the near future.

Who is investing in the Russian forest industry?
Growing federal government incentives for investors in the forest products industry has spurred mainly domestic investment in new wood products manufacturing plants in Russia during the last five years. Continuing high risk and poor financial results have discouraged many foreign investors in Russia.

"The rate of investment in sawmills and panelboard mills in Russia has been strongly affected by incentives created by the "Priority Investment Program," commented Gerry Van Leeuwen. It appears that this program will support the addition of up to 3 million m3 (1.9 billion bf, nominal count) of sawn lumber production in the next three years. Of course, this program does not include increasing Chinese sawmill investments in Eastern Russia.

For more information on the Russian forest industries, read the full report by Wood Markets.

September 30, 2013  By Wood Markets