Big hopes for Russian timber industry recovery

Demand and production declining in the woodworking industry reached the lowest point. However, with this stage passed, manufacturers and authorities are to invest more in modernization, construction and infrastructure in order to return back to the pre-crisis indicators.

According to the Federal Forest Agency, results in 2009 turned out better than expected, despite decreased production and demand, and restrained financial resources.

Thus, for quick recovery of the Russian market there is lack of woodworking facilities, whereas many are cautious of investing in construction of advanced mills and enterprises. However, demand is gradually increasing as well as interest to the timber industry: currently Russia is discussing about 70 joint investment projects only with Finland.

The market is start recovering from the woodworking, as timber construction is becoming of more interest and decline in round wood export was partly won back by the increased export of sawn timber. However, the Russian timber products are not competitive enough in the foreign market as it was technically designed for the local consumers. According to John Lindal, Executive Vice President, Pöyry, Russia has the world’s largest forest fund and abundance of energy sources, which allowed the country to create a competitive pulp-and-paper industry with low cost of production.

Besides, new construction projects the Government agree that it is necessary to modernize the existing capacities and develop infrastructure. In general Russia lacks about 10 th. km of forest roads. Starting from the previous year the budget includes money for road construction with the works already started in six regions.

In 2009 volume of timber product transportation (JSC Russian Railways) decreased by 55% - timber export declined by 42.9% in January-November 2009. As for round wood, it is no use staking at recovery of export volumes this year as demand for the Russian round wood is not so big, moreover, harvesting volume is also decreasing. Thus, for example, one of the world’s largest woodworking companies Stora Enso had to close its two logging companies in Russia due to decrease in timber haulage.

The Finnish investors are still not sure about the Russian woodworking market. Although the RF Government postponed the increase of round wood export duties for a year and perhaps will postpone for more period in future (as Mr. Putin didn’t exclude such a possibility), the Russian authorities could change their decision anytime, the Finns say. Besides, the existing export duties are high for them, say in UPM-Kymmene.

One more factor for the development of the Russian woodworking sector is the growing demand from the Asian countries, first of all, China, Japan and Korea. For example, export volume of sawn timber to China increased by 62% only in the first half of 2009. Already several companies in the Far East announced their intention to construct new woodworking facilities with 2 of them (Terneyles) being constructed together with the Japanese partners and exporting sawn timber to Japan and Korea starting from summer 2009.