The optimistic prognosis for Russia’s timber industry had to be changed when, by the end of the year, the small boom in timber and paper production seemed to have ended. Consequently the more bullish predictions for growth in output for the year were revised.

RF Minecononrazvitiya (RFM), the Ministry of Economic Development, reduced its forecast for production increase in 2004 to 3%.

The Russian timber sector itself blames the disappointing year on the government’s unstable policy on tariff regulation, the

confusion surrounding the new Forest Code and the country’s generally slack economic performance.

In 2004, the average monthly rate of growth in the timber, woodworking, and pulp and paper industries fell by 0.5% compared with 2003. For the first 11 months, production increased by 2.9%.

The volume of timber hauling fell by 2% from January-November (to 89.9 million m3) as a result of loss-making enterprises (more than 50%) and a lack of investment in production assets. A reduction in harvesting meant that sawn wood output was only 98.1% of the 2003 figure but the volume of lumber and woodworking waste – used for cellulose and wood pulp – increased by 15.7%.

Production growth

&#8220The timber industry blames disappointing growth on the government’s unstable policy on tariff regulation, confusion surrounding the new Forest Code, and Russia’s slack economic performance”

Woodworking production grew due to greater use of capacities but the growth in the number of production lines slowed. Chipboard production increased by 12.9% for 11 months of 2004; plywood production increased by 13% (to 2 million m3); and hardboard production rose by 7.6%. The RFM put the growth down to favorable economic conditions abroad and rising domestic demand for value-added goods.

Economists say that Russia’s pulp and paper industry will be very profitable in the near future, but this won’t help the Russian timber businesses which are in need of serious modernisation and the capital to do it. Attracting investment is proving difficult as most of companies in the sector are small.

From January-October 2004 the value of timber and pulp and paper products export revenues increased 1.2 times, according to RFM. Export volumes of plywood increased by 19%, sawn wood by 14.8%, and rough timber by 9%.

Forestry summit

At a forestry summit in Helsinki in November, prime minister Mikhail Fradkov said that the Russian government was not considering increasing export duties for round timber. He underlined that the question should be coupled with the development of investment potential, technological co-operation and the import of machinery, otherwise it could seriously limit the sector’s production development. Mr Fradkov also said that Russia aimed to reduce exports of rough timber soon, and measures for increasing timber conversion were in the new forest code.

The government repeatedly stresses the necessity of the new forest code, but timber businesses ecologists and the public continue to criticise the document. The code is now in its 17th version. It has been approved by the government and is scheduled to be adopted by June. But given the negative reaction of many influential groups, including the sawmillers and timber exporters association implementation by this date seems unlikely. The main point of contention remains the premise that auctions are the only means of allotting lend-lease deals for woodland.

As for tariff regulation, the government abolished export duty for several types of softwood cellulose in November and in December the export duty for newsprint was ended.