Plywood Industry in Russia

May 27, 2019

Global plywood production has reached a level of about 160 million m3 in the recent years. China accounts for over 70% of this. However, shifting the focus to the birch plywood business brings out a different story.

Global birch plywood consumption is expected to grow from the current 4.5 million m³ to nearly 6 million m³ by 2030. Most of this demand is expected to be satisfied by Russian plywood.


Global plywood production

 

Current status

Russian birch plywood production is concentrated in the European part of Russia in connection to the so called “birch belt”. Domestic plywood producers are the largest consumer of harvested birch logs in Russia, accounting for over 9 million m3 of logs annually.

Since 2010, plywood output has increased from 2.3 million m3 to almost 3.5 million m3, which corresponds to approximately a 3 million m3 increase in domestic consumption of birch logs.


Russian birch plywood producers

 

Russian birch plywood mills are usually significantly bigger than in the other producing countries. Typical size of Finnish plywood mill is 50 – 60 000 m3 of plywood per annum. Number wise, Russian plywood mills tend to be older and some of the production equipment is outdated. Many mills are still very labour intensive. However, labour intensity has been on a declining trend for the past decade in the wood processing industry.

In order to meet the demands, set by rapid inflation and rise in labour costs, as well as higher quality requirements, modernization investments among Russian producers have focused on veneer peeling and processing (drying, patching, scarf jointing, composing, and glue application).

Prices for veneer logs are steadily increasing in Russia. Harvesting of softwood logs for sawmills has a major impact on birch plywood producers. The development of overall harvesting volumes has not been able to match the pace of demand growth for Russian birch plywood.

Labour is still relatively inexpensive, and the mill investments concentrate on improved quality. However, automation and reliability play important roles in investments, especially in areas where availability of qualified workers is low.

Birch plywood mills’ recent capacity utilization rate has expected to have been around 90% on average. For comparison, capacity utilization rate among Finnish producers has been considerably lower and has amounted to only about 60% mainly because of less flexible business environment and working policies in comparison to the competing producer countries.

In Russia, the technically and economically available harvesting possibilities are limited due to several factors:

  • Lack of reliable forest inventory data
  • Remoteness of forest stands, poor infrastructure
  • Extensive forest management model
  • Imbalance between supply and demand (e.g. location of the processing facilities, consumed species and assortments)
  • “Climate change” (e.g. shorter harvesting window, difficulty in hauling wood out of the forest during other seasons than winter)
  • High logistic costs of transporting wood raw material to mills
  • Short-term planning creates uncertainty of wood raw material availability.

 

Recent trends

Russian plywood producers are facing more and more challenges in the availability of high-quality raw material.

Russia is experiencing a birch log deficit, which can be attributed to:

  • Increasing birch plywood production by existing players
  • Greenfield investments in medium and large plywood facilities
  • Emergence of small birch logs processors (sawnwood, veneer, plywood)
  • Increasing birch log exports, especially to China
  • Supply & availability of birch logs

Since January 1, 2019, there has been a special export limitation on birch log exports that is implemented through quotas which is linked to the average export volume of birch logs in the corresponding time period in years 2014-2016. The quota is implemented by granting export licences to qualified companies who have been involved in birch log export business in 2014-2016. This regulation is valid until May 30, 2019.

Prices are also accordingly affected by the supply shortage. Since 2013, birch veneer log prices increased by over 70% in local currency. However, in euros the growth has amounted to about modest 15%. Since 2015 prices have increased in both currencies.


Price of birch logs in Russia

 

The percentage of small-diameter logs is constantly increasing. At the same time, plywood mills are seeking for the optimal way to utilize raw material.

Spindeless peeling lines have been typical among Asian and African plywood producers. Sveza’s Kostroma mill was the first birch plywood mill in Russia to invest in new RauteLite peeling line which re-peels cores from the main lathe. This new peeling technology allows the mill to save up to 800 m³ of raw material per month. However, this does not solve the overall raw material challenge as the length of the veneer math from the core is relatively small.

 

Development outlook

There are more than 10 announced birch plywood production projects in the pipeline in Russia. Most of them are expansion of existing facilities and greenfield sites, initiated by already operating plywood companies. In case all the publicly announced projects materialise, the total domestic birch plywood log consumption will grow by nearly 30%. Geographically new mill(s) and the expansion of production capacity is expected to occur mainly in European Russia but also in Russian Far East. Companies most keen on investing into capacity expansions seem to be those that are export-oriented.

Producers, especially the largest companies, have high aspiration towards product differentiation and introduction of new products (e.g. new films and special products) but also services (cut-to-size and CNC). This will not necessarily affect current sales but in a longer term will help in reaching industrial customers. As an example, the number of certified birch plywood suppliers to the LNG shipyards has doubled since 2016. Sveza and Segezha together with Koskisen joined UPM, Metsä Wood and Latvijas Finieris as licenced producers.

However, a large concern to  the Russian plywood industry is the continuing deterioration of the quality of forest resources. In the future this may prolong the birch log deficit already tormenting the industry.

In the long-term, building of forest and access roads will ensure future availability, secured supply volumes and competitive price of wood.

Larger wood processing companies are expected to be expanding the share of their own wood supply to avoid increase in wood cost from the market throughout the supply chain. Roundwood swapping will also become a more common practice.

One option to reduce the cost burden on birch logs could be an entry to softwood plywood business resulting in synergies in raw material procurement and in an opportunity to expand product offering to even LVL.

Without modernisation, small and technically old mills will not be able to stay cost competitive. Consolidation can be expected to take place across the different producer segments. Choosing capacity of new investments, aligned with the availability and share of own resources in the total wood supply, will be the key to business success and a major competitive advantage.

This article has been also published in the Russian Forestry Review #8 in May 2019.

Indufor is a global leader in Natural Resources Management, Investment Advisory, and Strategic Industrial Development consulting. We support our customers to compete and sustainably grow in international markets. Indufor has offices in Finland, New Zealand, Australia and the United States, and representation in China. We have close to 40 years of experience in more than 100 countries. Our services support our clients to make the world more sustainable and greener.

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Jarno Seppälä

Head of Forest Industry & Bio Solutions Consulting

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