Russian Forestry and Wood Supply Operations Analysis

HEINOLA WOOD SAWING WOOD-SAWING Brief Overview of the Status 3 of of Sawn Softwood Markets 28 The state of sawn timber sales from Russian mills in early 2015 could be called moderately critical. After the devaluation of the ruble from October to December 2014, many Russian mills entered 2015 with planned raw material stock and a balanced portfolio of contracts. Due to the rapid drop of the ruble during stable export demand and currency receipts, many mills saw no prospect for profitable ruble sales on the domestic market, and re-oriented their sales efforts toward export markets to the maximum, while actively stocking up on raw materials. In January 2015, and later during the first quarter of 2015, many unpleasant surprises were visited on Russian sawn timber makers. Among them were: the 10 percent increase in the railway rate from January 2015; dropping consumption of sawn wood and sliced products on the domestic market (to my estimates, the average sales of export-oriented mills to the domestic market may reach 20 per cent of their production output); price falls in the Egyptian sawn timber market, and; a surplus of sawn products on South- East Asian markets resulting in a drop in prices in that important region. RUSSIA In early 2015, Russian sawn timber processors and users on the domestic market had to adapt to a rise in the ruble prices of export-oriented sawmillsas a result of political and economic factors that prevailing in Europe and Russia. Most of Russia's largest sawmills intentionally work for both the export and domestic markets, with the export sales share being about 80 per cent. Although the ruble has declined in value by 30 percent over three months, with prices on the domestic market unchanged, export sales bring an additional ruble gain (the declined in the value of the ruble has continued to become nearly 100 per cent,as of the date of issue - Ed.). With the domestic ruble prices of export-oriented mills calculated using an average-weighted currency-to-ruble exchange rate, most of these mills have not changed their policy of selling sawn timber products on the domestic marketafter the decline in the value of the ruble. Of course there are mills working solely for the needs of the domestic market. Among such mills are facilities belonging to some holdings that satisfy in-house processing needs, for instance in the laminated beam manufacturing or in wooden house construction. Another type of mill is small and medium timber-sawing facilities having no access to exports. Most probably such companies have their own approach to pricing. The quality, stability of deliveries, and outputs of domestic market-oriented facilities cannot be compared to up-to-date export oriented "giants". Sliced product makers traditionally oriented at selling finished products in Russian retail chains had to reduce their outputs in January 2015 or temporarily close down due to the abrupt drop of demand. The reasons for this were lower demand by retail chains and problems with forecasting ruble prices for the raw materials to be processed. (NB: Retail chain contracts suggest unchanged prices for a period of up to six months). To maintain their own processing rates, wooden frame house manufacturers and laminated log house manufacturers, who have to reduce the prices for the off-season period (January to March), had to look for 2014 price offers #6 (2015) RUSSIAN FORESTRY from sawn timber makers, or to reduce their internal rate of return when selling their in-house products due to higher costs attributable to the purchasing price rise. In extreme cases, the sawn timber processor had to choose between losses from closing down its business and losses from the purchasing price growth. THE BALTICS The Scandinavian and Baltic countries making sawn timber and products of further wood processing faced a drop in the exports due to harsh price competition in the European construction industry. The high supply of sawn timber on the European construction market due to the activity of Scandinavian, Russian, and Baltic sawmills against a relative slowdown of the new housing supply rates in Europe has become determinative in the drop of domestic sawn timber prices in the Baltic states. On the average, the decline was €10 to €15 per square meter. The high sawn timber stock levels in the processors' warehouses, which had accumulated by the end of 2014, prevented Baltic enterprises from increasing the consumed product quantities in the period from January to March 2015. The increase in the truck freight rate from the Baltics to Central Europe due to lower supply of transit road transport operating on the traffic between Europe and Russia, along with unchanged European purchasing prices, also contributed to a considerable reduction of domestic prices for sawn timber made in the Baltic States. For Russian sawn timber makers partially oriented at the Baltics in their exports, the price pressure inside the Baltic market affected the purchasing price for sawn timber from Russia. The dry sawn timber prices of mills in the north-west of the Russian Federation oriented at exports to the Baltics also dropped on the average by €10 to €15 per square meter in the first quarter of 2015 compared to the prices of the last quarter of 2014. CENTRAL EUROPE Prices also declined on the European sawn timber supply market. The reason was a stepped-up offering by Scandinavian, Baltic, and Russian sawmills. As a result, in some cases, the price reduction against the last quarter of 2014 was up to €20 per square meter. In their turn, German and Austrian mills had to drop their price levels to sell products to Central Europe's internal market. European processors orienting at the construction segment had to reduce their purchase prices for products consumed, while the furniture and packaging industries were ready for the acceptance of Q4 2014 prices. It should be said that the sawn timber consumption market in Europe remains basically unchanged. SOUTH-EAST ASIA After a certain reduction in the purchase of imported sawn timber, and subsequently in the price, Japan is gradually increasing prices and scope for the Laminu and Mabasiru materials that are traditional for that region. The market is revitalizing from the point of view of consumed materials and higher demand in the construction industry. Exporters oriented at the Chinese market are feeling harsh price pressures due to Chinese sawn timber importers' jam-packed warehouses. Thanksto a more active offering from Scandinavian and Russian sawmills in China, the Q1 2015 prices went down by $20 to $40 compared to the contract prices of Q4 2014, and there is a continuing price-dropping trend against the increasing supply of imported sawn timber into the Chinese market. South Korea remains a stable consumer of high quality sawn softwood. There is a high demand for sawn timber for the packaging industry. The South Korean market also shows a surplus of offers by Scandinavian and European wood processors, which in its turn leads to a temporary drop of prices for imported sawn timber. Other sawn softwood buyers in South-East Asia are supporting stable demand for niche products. These are mainly sawn timber products to be used in the packaging industry. MIDDLE EAST AND NORTH AFRICA The sawn timber market in these regions is sufficiently stable despite the political, confessional and ethnic disagreements in the region, although there has been some reduction in the scope and price of imported sawn timber over recent months. CHEREPOVETSLES Real property prices in the United Arab Emirates show a stable growth due to demand by settlers migrating there from areas of where hostilities are taking place. The development of public infrastructure projects (railroads, subways, airports and so on) has not stopped. The region is being completely redeveloped in advance of such events as Dubai Expo 2020 and Qatar World Cup 2022. According to concrete-using construction technology (tunnels, bridges etc.), sawn timber is a fastening and formwork component. Saudi Arabia has been reducing its sawn timber imports over the last two years. The current market situation may be described as low business liquidity against decreasing prices for imported sawn timber. Still, the 2015 national budget was passed at the level of 2014, and the construction of governmental infrastructure projects was not suspended. The complicated political situation and lack of stabilization in Libya, Yemen, and Sudan does not allow forecasting sawn timber sales scenarios for that region. The banking system of those countries may undergo changes, which may directly affect the stability of local currencies. Sawn timber consumption in Egypt, Morocco, Algeria, and Tunisia is sufficiently stable, while prices of consumed sawn timber products are declining. In fact, sawn timber supply to the region from Scandinavian and European countries, and Russia, has increased. By and large, in many sawn softwood markets a supply surplus from Scandinavian, European, and Russian sawn timber can be found, which reduces sawn timber prices while leaving internal demand unchanged. The second quarter of 2015 will most probably differ little as regards consumption growth in any of the regions, with prices remaining the same as those in the first quarter of 2015. Pyotr SINITSKIKH ఢీ ది Forest Leasing Timber harvesting Sawn timber and biofuel production FSC certificate FSC The company annually harvests in the North-Western part of Russia more than million m³ of round timber from which it produces 70 thousand m³ of dry sawn timber and 10 thousand ton of fuel briquettes at its own production facilities. Oleg Trubachev Head of Sown timber Sales department Stepan Nechaev Sales Manager Aleksei Sukharev In Europe Specialist of Sown timber Sales department [email protected] +420 608 564 368 [email protected] [email protected] Andrei Baldishev Nikolai Kaptsov Head of Round timber Sales department [email protected] Senior Specialist of Round timber Sales department [email protected] 80, Lenina str., Cherepovets, 162602, Vologda region, Russia, Tel: +007 8202 51-77-00, Fax: +007 8202 51-84-53 [email protected] | www.cherles.ru RUSSIAN #6 (2015) 29 FORESTRY