On October 4th, 2017 Indufor’s Vasylysa Hänninen acted as the moderator and Antti Kämäräinen as the leading birch plywood market expert in the birch plywood roundtable in St. Petersburg, Russia. This event was organized as a part of the 19th Saint-Petersburg International Forestry Forum. Scarcity of birch veneer logs was definitely the hottest topic for discussion. Russian wood consuming companies are facing more and more challenges, regardless whether they procure fiber from their own lease forests or are totally served by the market suppliers.
In fact, it is estimated that during 2013-2017, birch veneer log prices increased by over 75% in local currency (in euros growth amounted to 16%). Furthermore, the leading Russian mills have to pay price premium on top of the general log prices. In order to secure sufficient volumes, some Russian plywood producers are forced to haul the logs from as far as 1 500 km away.
Several reasons were identified as the causes of this situation.
Firstly, the consumption balance of different wood assortments in Russia is uneven. For example, while birch plywood mills consume over 9 million m3 of logs annually, birch pulpwood consumption is considerably lower. In fact, only 2 pulp mills (IP Svetogorsk and Titan’s Arkhangelsk P&P mill) consume birch pulpwood. Additionally, there are a few particleboard producers. Therefore, harvesting companies are forced to allocate significant share of their costs to birch logs. This situation is unlikely to change in the near future, as no large birch pulpwood consuming investment projects are in the end of their pipeline. Even when implemented, Sveza’s ambitious pulp mill project in the Vologda region will not change the disbalance situation completely.
Secondly, birch veneer logs exports are escalating rapidly. Please, see my blog from February 2017. Birch veneer logs export volumes from Russia are estimated at 1.5-1.6 million m3 in 2016 vs. 1.3 million m3 in 2015. China is the leading buyer with three quarters of the total volumes in 2015 and as high as 85% in 2016, followed by neighboring Finland. Other countries, amounting to smaller volumes are Poland, Latvia and Belarus.
Recent analyses of Russian exports in the first half of 2017 demonstrate further growth of birch logs exports. Already by the end of June 2017, slightly over 1 million m3 of birch logs were exported, with China holding a 85% share. The largest exporting regions are located in the areas, where there is no birch plywood production (Primorksy, Khabarovsky Krai), but surprisingly increasing volumes also from the European part of Russia with strong domestic birch plywood industry. The exports are seen as considerable threat for logs sufficient availability and price level by the plywood industry.
Birch veneer log exports from Russia, 1st half 2017
Thirdly, easily accessible forest resources are coming to an end in Russia, leading to drastic cost increase in harvesting and logistics. As no major infrastructure investments are carried out on regular basis, unutilized forest resources are located further and further from the roads. Mild winters have not helped in solving the situation. Moreover, hardly any harvesting activities were carried out last summer due to exceptionally high levels of rainfall.
There were different opinions about the feasibility of possible export ban of birch veneer logs. Similar to heavy duties, imposed on logs exports from Russia in 2008, some fear that the export ban will cause numerous bankruptcies among the harvesting companies, leading to shortage of logs and price increase on the market. Also, implementing export ban on a national scale all over Russia seems critical for harvesting companies in Eastern Siberia and Russian Far East, where there is no domestic processing industry for birch logs. At the same time, some Russian plywood producers believe that export ban of birch veneer logs would definitely benefit their business.
If you want to learn more about the subject and Indufor’s views and solutions to the described opportunities and challenges please be in touch with me.
In my next blog, birch plywood industry structure as well as market trends will be discussed.