Russia has been one of the largest roundwood traders globally for many years by exporting roughly 15-20 million m3 per year between 2010-2020. The main importers of the Russian roundwood are traditionally China and Finland, importing around 90% of the total Russian export volumes. Based on the announcement of President Vladimir Putin last year, instructing the country’s government to ban the export of untreated or roughly processed wood, the roundwood exports might be heavily limited from next year on, should the legislation take force as proposed. According to the plans, the ban will apply to softwood logs and pulpwood, as well as possibly birch veneer logs. The final decision on assortments and species will be done later. Green sawnwood can also be part of the ban. Besides, the Government considers imposing limitations on the export of wood chips and some of the wood-based panels, such as OSB and particleboard.
These limitations might be in force already during this year. The consequences of the export limitations would impact the interests of trading partners and force them to find either alternative sources for the commodities or to buy more value-added products from Russia.
The implications of the roundwood export ban on the Russian forest industry were recently discussed here.
Figure 1. Russia’s Roundwood Exports in 2010-2020 (left) and by Main Destinations in 2020 (right)
China is the main consumer of Russian roundwood. In 2020, the total imports from Russia accounted for about 7.5 million m3 of wood consisting mainly of high-quality softwood and hardwood logs. The import volumes are to be replaced, and among the main countermeasures discussed are increasing supply from other countries and shifting the exports towards more value-added sawnwood products.
China: New Zealand and Europe as Options to Compensate the Loss of Russia’s volumes
New Zealand is the largest roundwood supplier in China and the import volumes from there can be increased after the Russian export ban takes place. However, the increased volumes will highly depend on roundwood prices, which should be sufficiently attractive to access some of the higher-cost supplies. The prices are increasing in China and Russia’s export ban may bring them up further. The higher prices on roundwood will result in other suppliers coming to the market, too.
Recently, New Zealand has signed an upgrade to the China free trade agreement, offering some New Zealand value-added products a reduction in tariffs. Although the tariffs on logs (and sawnwood) were already at zero levels, faster access to Chinese markets can be used in improving/extending partnerships in the log supply. However, the overall impact on increasing imports will be minor. Besides, the existence of major regulatory barriers could adversely affect China’s ability to significantly increase the log supply from New Zealand. Importers still have to pay the VAT on timber. Getting radiata pine approved in the construction end-uses in China might be an uplift but this issue is still under development.
Supply of logs from the European countries is also considered but this would be more expensive and will likely face the competition from the growing domestic demand in Europe, especially for the high-quality softwood logs. The European producers will be able to offer some hardwood to the Chinese market, but will it be price-competitive with wood from other countries?
Shifting the Chinese Imports from Russia towards More Value-added Sawnwood Products
Decreasing roundwood exports from Russia will force the Chinese forest industry to import more value-added sawnwood products, e.g. from Russia. Delivery of logs from other countries, such as New Zealand, might be less competitive for some of the producers in the country and thus Russia’s sawnwood might be the only option to satisfy the growing Chinese demand. The trend has already been developing for the last ten years and in our view, this will be strengthened even further in the future.
Figure 2. Share of Russia in Chinese Roundwood (left) and Sawnwood Imports (right)
The planned new and extension/modernization of existing sawmilling capacities in Siberia and the Far East of Russia should support the trend. The Russian Government is expecting to attract more foreign investments in the sector. Considerable investment programs are being developed in the country, providing investors with preferential terms of tax regulations and credit policies. Even so, many of the Chinese investors continue considering Russia as a country with an uncertain investment climate. Largely because of this, some of the common projects were slow/unsuccessful.
Figure 3. Selected Announced Sawmilling Investments in Russia
Finland will Continue Importing Birch Pulpwood but will have to Compensate Softwood Pulpwood
In 2020, Finland imported about 6.3 million m3 of roundwood from Russia. About 50% of the import was birch pulpwood, which will not be part of the ban. The only question in this regard is logistics. According to the first editions of the export ban acts, the country’s government considered leaving Lyttä/Vartius (located in the northern part of Karelia) as the only border crossing point to deliver non-banned pulpwood via train to Finland. Since the Finnish mills are located mainly in the central and southern parts of the country, delivering wood via Lyttä/Vartius would make logistics more complicated and expensive. However, the plans are still under discussion and adding more crossing points is very likely.
A more sensitive issue for the Finnish forest industry might be the loss of Russian softwood pulpwood volumes. In 2020, the imports covered about 2.2 million m3. Besides, about 3 million m3 of wood chips were supplied, which can also be included in Russia’s export limitations. To compensate for the loss, the deliveries from the Baltics might be increased, but the capacity of the local forest industry is limited. In this connection, intensifying wood harvesting in Finland can be again discussed and provided with additional arguments from the industry players. This would, however, raise the biodiversity and carbon stock concerns in Finland. Currently, annual wood harvesting amounts to about 65 million m3, but the level can be increased sustainably to over 80 million m3.
The Russian Forest Industry can Provide the EU’s EWP Producers with High-quality Raw Material
Significant effects of Russia’s export limitations on other countries are unlikely. However, in the light of ongoing changes and developments in the European sawn softwood market discussed in one of our previous articles, cooperation between European producers and Russian partners may reap significant benefits. The potential export ban in Russia may bring more room for sawnwood investments in the country. The new investments and the existing production can supply, for example, European engineered wood products (EWP) producers with high-quality raw material. This is an especially important and attractive option in the short-term as a response to the growing EWP market, as well as the bark beetle issues. As known, the latter has been a reason for the decreasing availability of high-quality spruce logs in Central Europe. About 120 million m3 of logs were damaged in 2019. An oversupply of damaged logs has decreased the prices of low-quality sawn goods sold in Europe. The overall availability of spruce is likely to decrease in Central Europe as foresters have already started replacing the damage-prone species with more resilient species and forestry practices. The availability of high-quality raw material (including spruce logs) in Russia may give a competitive advantage to domestic sawn softwood producers, and the increasing cooperation with them might be beneficial to the European traders in the long-term.
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