Russia has been one of the largest roundwood traders globally for many years by its roughly 10-20% share of the market between 2010-2020. 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. While the proposed ban is still under discussion, it is widely expected to be in force already in 2022. According to the plans, the ban should apply to softwood logs and pulpwood, as well as birch veneer logs. The ban would not mean an absolute prohibition of exports but would raise the export tax to 80%, which in practice would mean the same.
This article is about the implications of the roundwood export ban on the Russian forest industry, while the related effects and consequences to the main trading partners, such as those in Asia and Europe, will be discussed in another article coming soon.
Despite the obvious benefits, such as the increase of raw material supply and stimulation of value-added wood processing in the country, the ban may also lead to some uncertain outcomes for the Russian forest industry. First of all, this is related to small and medium-sized wood harvesting companies and forest leaseholders, who do not have their own or other wood processing facilities close by and are heavily dependent on international trade, i.e. exports. Many of them are located in the Far East of Russia, where about 20-30% of the harvested wood (mainly softwood logs) is exported to China. In our view, the local entrepreneurs would require heavy investments into new wood processing industries or other support, to survive. Social significance should also be considered. The local forest sector employs over 35 000 people in the Far East of Russia and the export ban would have an immense effect on their employment.
Amid the export ban deliberations, the country’s government is considering setting up a state-owned trading company that will be allowed to export roundwood. The plans were discussed in the Russian media back in 2018 and were recently confirmed by the Presidential Plenipotentiary Envoy to the Far East Federal District of Russia, Mr Yuri Trutnev. A similar governmental structure operated during the Soviet Union era. According to Mr Yuri Trutnev, the funds received from the commercial activity of the company can be earmarked for developing value-added wood processing centres in the country and attracting also private investments. The measures may lead to a monopolization of the international roundwood trade, but obviously can be a way of supporting the local forest industry until the region has developed sufficient further wood processing industry.
The European part of Russia will likely be less impacted by the export ban since the local forest sector has already been supplying more domestic consumption. The export volumes (over 80% of which goes to Finland) usually represent less than 10% of the roundwood harvested in the European part of Russia. The major share of the exported wood is birch pulpwood, which will not be part of the ban. The only question 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.
Once the export ban is implemented, the wood flows are expected to change. Taking into account the current volumes of softwood logs and pulpwood exported from the European part of Russia, about 3.5 million m3 of wood will need to be redirected to the domestic markets, or the ban could trigger a decline in logging. The regions having an oversupply of logs, such as Karelia and Leningrad, might be in a more unfortunate position. The local wood harvesting companies and forest leaseholders should already start finding new customers. Minor log volumes might be consumed by pulp and other mills, but the main focus should be on the sawmilling industry. The sawmilling capacity utilization rate in Russia is about 80-90%. The future surplus of domestic roundwood should be used by improving the utilization rate of existing sawmills or building new capacity. The global sawnwood market is growing and some of its segments (e.g., the construction sector in Europe and the US) have good opportunities for Russian producers. Acceptance of lower diameter logs is another important measure in the increasing capability of local sawmills.
Overall, the potential roundwood export ban may have several pros and cons. New opportunities lie in the increasing raw material availability in the local wood markets and the stimulation of new value-added wood processing investments. The forest industry sector in the Far East of Russia is likely to suffer. Considerable support and investments, including those from international partners, would be required. Expanding and developing the sawmilling and other wood processing industries in Russia should increase the demand for wood and compensate for the loss of wood exports for many of the harvesting companies and forest leaseholders in the country. However, the new investments need to be in line with the global wood product market demand and trends.
We at Indufor can support your business by providing world-class feasibility and due diligence studies of your investments in Russia. We do wood flow analyses, availability, and supply assessments, sawmill and plywood mill technical assessments, as well as market studies globally on sawnwood and other wood products. Close cooperation with Clients, hearing and understanding their needs and requirements are the core of our business attitude.
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