Russian wood processors short on wood

There continue to be ongoing developments in global markets, with some regions appearing to be more dynamic than others. While the U.S. is becoming the key worldwide driver due to its constrained supplies and rising demand, a look at other markets is useful to better understand how the various pieces of the puzzle fit together. Attached is a recent update on Russia and its forestry industry from Russ Taylor, Director, International WOOD MARKETS Group (now part of Forest Economic Advisors (FEA)).

Although Russia has an annual allowable harvest of ~700 million m3 per year, the harvest in 2016 was much smaller than that at 205 million m3. The potential commercial harvest is realistically considered some 340 million m3, but reaching this level would require heavy investments into roads and other infrastructure. Today, there are 43.7 million hectares of certified forest land in Russia, versus fewer than 300,000 in 2002.

Russia’s vast forest land and its relatively small scale of actual processing was one of the key themes of the International Forest Forum. The situation has been attributed partially to a lack of forest land close to the main Russian manufacturing clusters. The result has been timber shortages near existing processing operations and vast areas of essentially inaccessible timber.

In areas with a dearth of accessible timber and in which commercial log shortages are developing — such as Irkutsk in Siberia — the open-market price of sawlogs is now over US$60/m3 and is starting to marginalize mills that rely mainly on open-market log purchases. In these regions, some harvesting is being conducted on sites that provide fewer than 200 m3 of timber per hectare (by comparison, some countries in Europe identify 400 m3 per hectare as the minimum threshold for timber harvesting). Areas with low timber volumes are costly to log mainly because they require more roads and, therefore, have higher per-unit harvesting costs.

There is now a push to consider a more intensive forestry model in parts of Russia, i.e., to grow more trees faster and closer to where processing facilities are already located. Part of this model is to stimulate forestry investments under the terms of existing or new forest leases.

Other solutions that have been suggested are to optimize the forest supply chain and provide stronger links to markets and end users. This is already being achieved in Russia’s business with China: dedicated trains with 50 containers per train are now moving from Siberia to Shanghai, enabling transportation cost savings of up to US$25/m3. Targeting spruce for edge-glued panels at premium prices is becoming a market strategy for Russian exporters given that fir and other whitewoods are unsuitable for gluing (their best fit is in lower-value end uses).

Russia’s forest industry is dominated by sawmilling (35% of total output), the wood-based panel sector (24%), and pulp and paper (24%). Since 2016, however, the competitive advantage the country has enjoyed in export markets has been narrowing steadily due to a stronger ruble and inflation. If the Russian industry is to maintain its competitiveness and market share, new strategies and investments will be vital, as well as technology improvements aimed at fostering future development opportunities, e.g.,

- Improvement to the operational efficiency and profitability of its wood products industry;
- Better route-to-market strategies and an expansion of the country’s presence in selected (strategic) export markets; and
- Development of new product and business areas (over and above commodities).

Source: International Wood Markets Group

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