Summary
• This year log extraction is expected to be up 6.5% on 2009.
• Sawn softwood exports are forecast to rise 3.32% this year.
• UK demand is likely to remain weak.
• Plywood mills have good order books and prices are rising.

Since 2007 the Russian economy has experienced a reduction in growth, with 2009 showing the lowest performance of GDP, industrial output and investment.

Forecasters predict that the downward trend will slow this year, and modest growth will return, albeit lower than in 2007 and 2008.

In the forestry sector, it is estimated that overall log extraction will increase in 2010 to 171.6 million m³, up almost 6.5% from a three-year low in 2009 of 161.2 million m³. As a measure of recent decline, log harvests in 2009 were 22.13% less than in 2007.

Total roundwood exports in 2009 dropped to 45% below 2007 levels – this was partly attributed to the export tax imposed by the Russian government. The heaviest increase of €50 was postponed for a second time last October for at least the whole of 2010, to assist trade figures and improve relations with Finland. Finland is a large industrial investor inside Russia and some analysts predict that the tax increase may be abandoned for good.

The log tax and its threatened incremental increases also drove a number of Chinese buyers to other sources, notably British Columbia, in a bid to spread their risk. China has become the largest market for exports of Russian roundwood, and its spiralling demand will have an increasing impact on all global fibre prices in the future.

Sawn softwood exports

Russian exports of sawn softwood are expected to increase by around 3.32% this year to 15.11 million m³ (2009: 14.63 million m³), but volumes to the UK aren’t expected to rise, due to weak demand. Any increases in export volumes are likely to go to stronger markets such as North Africa and the Middle East where prices are better and specifications are less demanding. Further increases in output will be absorbed by improved domestic consumption.

In spite of resistance from UK buyers, general shortages of softwood and rising global market prices have led to marked improvements in selling levels. These are commensurate with the peak price levels seen in 2007 when the market became supply driven.

In 2007 importers were carrying low inventories, and to meet normal demand there was a surge in restocking. For a time this demand exceeded supply, but mills cranked up production and created a glut, particularly in whitewood. As a result, prices dropped like a stone during the following year.

The background to today’s market is very different. During the past 18 months, there has been a substantial drop in softwood production, and even at today’s modest level of demand, supply is inadequate. If demand was to rise, then not only would prices increase, but many orders would be left unfulfilled.

Redwood shortages

Shortages of redwood aren’t just caused by the mills’ managed production cuts, but by log supply problems caused by reductions in harvesting and, in Russia, there are difficulties in financing log purchases. As a result, both raw material costs and running costs are still rising, and this has become a universal problem.

The result is that shippers are ensuring that available production is sold into the best-priced markets, favouring those that don’t pose tight restrictions on specification and bracking. This puts the UK at a disadvantage.

In the plywood market, Russian birch output, exports and prices are steady, with landed stocks in the UK lower than last year. All mills are well sold and prices are increasing on a month-by-month basis. Veneer mills are experiencing higher production costs and log prices are increasing regularly. Domestic demand has improved, and activity in other markets such as South Korea has been strengthening.

Panel production

Russian plywood production is expected to increase by 150,000m³ to 2.25 million m³ this year, with exports reaching 1.4 million m³ (2008: 1.3 million m³).

Chipboard and fibreboard production has remained fairly stable with exports continuing to rise every year. Estimates for this year are 600,000m³ (2008: 500,000m³) and 550,000m³ (2008: 516,000m³) respectively.

As a result of the global downturn, many sea containers have been left out of position, remaining at destination ports after outward voyages. Some Russian terminals don’t have enough containers and it’s likely to be several months before sufficient numbers are moved around to cope with current volumes.

To add to the shortages, weather conditions across Russia and northern Europe are restricting transportation as ice and snow have caused damage to shipping and roads. In late February, many mills were buried under more than a metre of snow, and it may take some companies several months to return to full production after the first thaw.