Russia’s traditionally export-oriented timber market is gradually beginning to feel the effects of a ban on deliveries to Europe and other “unfriendly” countries. According to the results of the first five months, the market showed positive results, but some companies are already working on the warehouse. In the next half of the year, market participants expect production to stop due to logistics problems and the inability to replace all fallen supplies in Europe.
Exports of Russian timber in the first five months of 2022 increased by 10% to 11.2 million cubic meters, according to Roslesinforg. Despite the sanctions, there is no sharp decline in the market, including due to the redistribution of flows in “friendly” countries, the company notes.
In particular, exports to “friendly” countries increased by 12.9% to 7.8 million cubic meters: 98.85% of exports came from Asia-Pacific, of which 56.8% to China.
Russian timber was banned in Europe as part of the fifth round of sanctions. The measures will start on July 10, so deliveries under contracts concluded before April 9 are still possible. However, as market participants note, despite the fact that nominal exports are still possible, they are in fact severely constrained by logistical problems in the context of the withdrawal of the largest maritime carriers from Russia.
As Roslesinforg CEO Pavel Chashchin explained, China has been a major buyer of Russian sawmill for the past 15 years. The only change was the shift from round wood to sawn timber and finished products in the form of plywood, chipboard, he notes. Exports from Russia to this market in January-May 2022 reached 5.24 million cubic meters, which is 18.8% higher than the same period in 2021, said Mr. Chashchin. In second place, according to Roslesinforge, Uzbekistan has long been occupied by volumes – exports to the country increased by 16.5% over five months to 793.2 thousand cubic meters.
Deliveries to “unfriendly” countries, despite sanctions, also increased by 3.7% to 3.39 million cubic meters, of which 61.86% came from Europe. However, the peak of growth was recorded in April (by 2.3 times), while in May the level of exports decreased by 20.7%.
Andrei Frolov, vice-president of the Union of Manufacturers and Exporters of Russian Timber, notes that while Russian companies have not yet fully experienced the effects of sanctions, logging (especially hardwood) is already declining amid lower prices on the domestic market.
In particular, birch raw materials remained unclaimed, which are used for processing in the pulp and paper factory or for plywood logs. He explains that the bulk of the plywood and pellets were exported from Russia to “unfriendly” countries – Europe, South Korea and Japan.
According to Mr. Froloff, when the sanctions come into full force, the situation will worsen and many companies in the timber industry complex in the northwest will begin to show losses in the third quarter. He notes that at present it is impossible to replace lost pellet and plywood export volumes by supplying them to other markets due to their low capacity. So instead of working at a loss, companies will simply stop producing.
At the same time, according to Lesprom Analytics, the reduction in export volumes due to EU sanctions in the context of rising transport tariffs and the stronger ruble has already made boat production unprofitable. According to the portal, in April, timber imports to China fell by 20.1% compared to April 2021, including Russia – by 11%, to 1 million cubic meters. The decrease in timber imports is due to problems in ports due to quarantine in China, as well as a decline in the country’s construction industry, experts explain. Also, the supply of boards from Russia to Japan decreased by 22.1% (to 58.4 thousand cubic meters). At the same time, the domestic market will not be able to absorb the volumes released by exports, according to market participants who were interviewed by Lesprom Analytics. According to experts, Russia produced about 30.6 million cubic meters of sawn timber in 2021, of which only 10 million cubic meters are in demand in the domestic market. They note that most supplies in China are now unprofitable due to expensive logistics. So, at the moment, note market players, manufacturers are working in the warehouse.