Summary
• Russia’s redwood volumes have fallen.
• Russian production is expected to reach 31 million m³ this year.
• Birch plywood exports have risen.
• Russian softwood sales to traditional European markets are lower than to other destinations.
• Russia is now Europe’s second largest sheet material producer.

Supplies of softwood from the Russian Federation have been dominated by whitewood since late October last year.

As redwood cargoes have become increasingly scarce, several importers have watched customers adapt by replacing pine with spruce to fulfil their specifications where possible. Buyers unable to use whitewood have relied on Finnish and Swedish redwood for their joinery sizes.

Sales of sawn Russian softwood to traditional European markets have fallen below those destined for Asia, north Africa and the Middle East. Volumes to the UK are only a shadow of what they used to be, and stocks held on the ground in British importers’ yards and terminals have continued to fall over the past decade.

Russia’s softwood exports have recovered each year after declining by almost 2 million m³ in 2008 to 14.8 million m³, after a peak of 16.7 million m³ in 2007. Exports were estimated to be 16 million m³ last year, and are predicted to rise to 16.5 million m³ this year.

Domestic softwood production

Domestic softwood consumption has risen sharply over the last two years from just under 10.5 million m³ in 2010 to around 12.5 million m³ last year. This year, Russian domestic consumption is expected to reach over 14 million m³, while production is predicted at almost 31 million m³. At this level, Russian production will be higher than the combined volume of Sweden and Finland, which should be in the region of 26.9 million m³, made up of 17.3 and 9.6 million m³ respectively.

Demand for Russian birch plywood has remained strong, and exports have been rising steadily year-on-year with figures for 2012 predicted at 1.75 million m³, a rise of around 13.5% over 2010.

Investment in sheet material manufacturing has led to growth in the production of chipboard, making Russia the second largest producer in Europe next to Germany. The rise in production has been largely driven by a rise in domestic consumption from 5.41 million m³ in 2010 to 6.75 million m³ in 2011. Chipboard consumption is predicted to reach over 7.25 million m³ this year, and from an estimated production of over 7.3 million m³, a total of only 550,000m³ is likely to be exported.

The growth in value-added forest products has been the intended policy of the Russian government since the introduction of the initial €10/m³ log export tariff in 2007. This was originally designed to discourage exports of unprocessed fibre and to encourage foreign investment in log processing within Russia. But subsequent increases to the tariff system came into conflict with Russia’s application to the WTO and drove importing countries such as Finland and China to seek other sources.

Revised tariffs

Since then, Russia has rescinded the introduction of its top tax of €50/m³ and is due to announce a new structure based on agreed tariffs and volumes. Specifics have yet to be released, but wood and paper tariffs are expected to average 8%, a reduction from current levels of 13.4%.

As export tariffs reduced the log export trade from Russia, investment in processing began to rise as companies from Germany, Finland and Sweden set up mills and factories to export finished goods. The Chinese were also active in Siberia using the Trans-Siberian logistics network to move goods to the east.

A similar situation exists in the temperate hardwood market, where Russia is the largest producer outside the US. In 2012, sawn hardwood production from native species is predicted to rise above 3.25 million m³, and China has become a major customer.

When the log tariffs are reduced, it is feared that investment is likely to slow and companies will revert to importing logs instead of sawn and processed goods. This will reduce the pace of modernisation the Russian timber industry so badly needs, and many of the older mills will have to continue to cope using outdated machinery and technology.

One particular segment of the market remains untapped by Russian producers, and that is OSB. Due to the current global economic downturn and financial crisis affecting Europe and the US, investments in some OSB plants have been shelved for the time being, but there is speculation that this position may be reviewed in the next three years.

In the meantime, the European Bank for Reconstruction and Development announced long-term funding of €120m, including a €50m loan, to Kronospan to produce OSB at the Egorievsk plant in the Moscow Region. This is designed to meet the growing domestic demand for timber frame housing.

And one of Russia’s largest MDF producers, LPK Partner-Tomsk, is expected to begin construction of a €150m OSB plant this year, with full production being reached by the end of 2014.