Wood export ban: cheaper building materials will be made :: Money :: RBC Real Estate

How will the restrictions related to the export of timber to the EU and the USA and the suspension of FSC certificates affect the prices for sawn timber in the domestic market – we say together with experts

Photo: ilmarinfoto / shutterstock.com

In early March, the government temporarily restricted exports from Russia of certain types of wood and wood products from which paper and plywood are produced. The ban has affected countries on the list of unfriendly countries, including the United States and European Union countries. This proposal was made by the Ministry of Economic Development and the Ministry of Industry and Trade. “These measures are a logical response to the sanctions imposed on Russia and are aimed at ensuring the smooth operation of key sectors of the economy,” the economy ministry said in a statement.

The Ministry of Industry and Trade believes that the restriction “will guarantee the coverage of the needs of the domestic market in affordable raw materials, as well as will stimulate the further increase of the depth of wood processing within the country”. Birch pulp (the main raw material for paper production) and fuel chips, which are subject to the ban, are critical goods for the European Union, the ministry said. According to his estimates, for example, Russian producers of these materials account for 10% to 15% of their consumption in Finland. “Thus, it will be impossible to replace them at the same time. In turn, the ban on the export of plywood logs (raw materials for the production of plywood) under the EU anti-dumping duties on final plywood from Russia will not allow European manufacturers to increase the capacity of their own companies “at the expense of Russian raw materials,” the ministry said.

Where it leads

The consequences of banning the export of wood and some products from it to unfriendly countries will largely depend on whether it will be possible to redirect the generated capacity to other countries, according to the Association for the Construction of Wooden Houses (ADD). On the one hand, products in the domestic market will become more affordable, as supply increases and the export-related advertising campaign declines. He was the one who put pressure on prices in the domestic market recently, explains ADD Development Strategy Director Semyon Goglev.

On the other hand, the bans can lead to a significant drop in production, as there will be nowhere to sell. In this case, production costs may increase, which will affect final prices. “If we can replace exports with other countries, then the situation will be positive. “If it fails, then the cost will increase and this is unlikely to have any tangible effect on the domestic market,” he said.

However, the current situation for Russian timber exporters is not new – companies have experience in finding new markets, continued Semyon Goglev. For example, the transition from European to Asian markets has occurred in the past for external economic reasons not related to geopolitics. Now, too, we will need to look for new markets. “For example, the countries of Southeast Asia may be added to China, which now consumes the table well,” he admitted. According to him, it will take an average of one and a half seasons to redirect flows to other countries.

Timber prices are rising in 2021

In 2021, the building materials market experienced a strong rise in prices. For example, according to ADD estimates, sawmill prices have doubled and plywood prices have tripled. At the beginning of 2022, experts predicted an increase in building materials in the range of 10-15%, but no external or internal vibrations. It is now difficult to predict price dynamics, they say in ADD. After last year’s increase, prices remain at about the same level – they did not decrease or increase significantly, Semyon Goglev explained.

Saturation of the domestic market at a critical point

The measures taken (by both sides) will cause a drop in the revenues of timber exporters and a saturation of the domestic market, says Sergei Tarasyuk, director of Angara Les (Krasnoyarsk Verse). In his opinion, after the imposition of restrictions, the domestic market will be saturated, “perhaps at a critical point”. “The industry employs far more people who produce finished products than is required for the volume of domestic sales. “This ratio is about one to three,” said Sergey Tarasyuk. “If a company was export-oriented, then low domestic prices would not allow it to exceed the levels. Many companies got equipment on credit and started investment projects. “The fall in revenues will have negative consequences, until the closure of businesses,” he added.

There is still no restriction on the supply of fuel pellets for export, but their main consumer – Europe – is massively denying Russian supplies. “Consequently, there will be problems with this nomenclature, in such volumes in which Europe has taken, no one consumes pellets”, notes Sergei Tarasyuk.

The second product, whose main consumer was Europe, is pine wood, the expert continued. For Angara Les, pellets accounted for 10%, larch also 10% of total revenue. “The tumor is painful, but not critical,” added Angara Les. Now the company has decided to transfer the pine, which was sold in Europe, to cast products and distribute it throughout Russia. The company is also negotiating with the government of the Krasnoyarsk Territory to find an opportunity to convert some boilers into pellet heating. “Of course, this will be practically a loss-making sale, just to free up storage space,” said the head of the company.

Suspension of certificates

Another sanction that could affect the sawn timber market is the suspension of FSC (International Voluntary Forest Certification) trade certificates in Russia and Belarus and the blocking of controlled timber supplies from these two countries due to the current situation in the region. The decision was made in March by the International Forest Stewardship Council (FSC), and will take effect on April 8. “This means that wood and timber products from Russia and Belarus can not be used on FSC-certified products or sold as FSC-certified anywhere in the world, as long as the conflict in the region continues,” the board said in a statement.

ADD believes that after the revocation of the certificates, the Russian timber producers may face difficulties in exporting products to Western Europe, North America and Japan. “It is possible to export, but since the FSC label has been introduced in commercial chains, it will be more difficult to sell products there,” Semyon Goglev explained.

Certificates are one of the problems, as their withdrawal will not allow us to offer our products in other countries, agrees the director of Angara Les. “When the certification was introduced, the whole forest industry was in favor, wanting transparency in the forest sector. “Now these certificates are only used as a means of political and economic pressure.”

There are fears that the reviews will affect almost all foreign certifications, admitted the head of Angara Les. According to him, the issue of revocation of the certificate N 1+ has been raised – in this case, it will be impossible to sell fuel pellets. Representatives of the FSC certificate have already called all the wood from Russia and Belarus “black”, saying that it has been collected inappropriately. FSC Certificate – Revoked, PEFC – Revocation under Discussion. “We rely on these documents, without certification the European market is completely closed to us,” he said. In his opinion, in order to change the situation, it is necessary to introduce national certificates, which in no case will depend on external factors.

“Another major problem is that the logging and woodworking equipment of many companies (including ours) is foreign,” said Sergei Tarasyuk. There are reasonable concerns about how efficiently businesses will operate in the absence of spare parts, if necessary, repair and maintenance of equipment, both logging and deep woodworking equipment.

Sectoral support

The Ministry of Industry and Trade is looking for ways to support the timber industry. For example, the ministry proposes the temporary abolition of customs duties on exports of timber products, especially sawn timber. This will make it possible to divert spending in the face of Western sanctions.

The ministry is also proposing to increase the number of temporary checkpoints for timber exports. Such a decision will support companies producing export-oriented products in organizing the delivery of their products abroad.

Read also

Leave a Comment