Russian Forestry and Wood Supply Operations Analysis
8
#6 (2015) RUSSIAN
FORESTRYU
A COMPLEX VIEW
The Russian Forest Industry:
Cautious Growth for Exporters,
Survival Mode for the Rest
in January 2015: "Russia's economic outlook is much weaker, with growth
forecast downgraded to -3.0 percent for 2015, as a result of the economic
impact of sharply lower oil prices and increased geopolitical tensions". The
current GDP forecast from the IMF for 2015 is -3 per cent, while, looking
at the rather poor historical accuracy of predictions made by the IMF (due
to the fact that it tends to rely too much on predictions made by national
statistic committees as well as a current "snowballing" of negative effects),
it is easy to assume a further update into the negative later this year: down
to 5 to 6 per cent per cent as a realistic forecast in 2015 and down to 2 to
3 per cent in 2016 (fig. 2).
Fig. 2: Russian GDP development forecast
by IMF, Apr 2013-Jan 2015
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Oct 2013
Apr 2014
Oct 2014
Jan 2015
Apr 2013 4,5 4,3 4,0 3,3 3,6 3,9 3,8 3,8 3,8
4,5 4,3 3,4 1,5 3,0 3,7 3,6 3,6 3,6
4,3 3,4 1,3 1,3 2,3 2,5
4,3 3,4 1,3 0,2 0,5 1,5
100
2,5 2,5 2,5
1,8 2,0 2,0
3,4
1,3 0,6 -3,0 -1,0
update
The key developments within the Russian forest industry during 2014 were almost exclusively unrelated
to the industry itself: the conflict in Ukraine, sharp devaluation of the ruble (losing nearly twice its value
against the US dollar between July 2014 and January 2015), rising cost of capital and overall increasing
uncertainty in the mid-term. As a result, prospects for 2015 are not upbeat: cautious growth in export
oriented sectors, stagnation-to-decline for the bigger non-exporting players, and an overall tenuous
atmosphere fueling an adjustment towards survival mode amongst smaller players.
MACROECONOMIC SCENARIO, GDP FORECAST:
-5 per cent in 2015 and -2 per cent in 2016
In 2014, the macroeconomic situation in Russia developed along the general
line of: "OK, we have a full scale crisis... again". However, the speed of that
development was a surprise even for sceptics. The conflict in Ukraine and
growing unpredictability, together with a sharp decline in oil prices (115.06
USD/bbl for Brent Crude at its highest point in June 2014 as opposed to
46.59 USD/bbl at its lowest point at that time in January 2015), led to:
• a sharp devaluation of the national currency (USD/RUB=34.7 in July
2014 and 63.8 in January 2015);
.
.
growing inflation (11.4 per cent per cent as a preliminary figure in 2014
vs. 6.5 per cent per cent a year earlier);
growing uncertainty and decline in capital investment volume (a decline
of some 3.4 per cent as a preliminary figure for 2014).
Historically, in the period from 2000 to 2014, each 1 per cent change in Gross
Domestic Product (GDP) in Russia corresponded to a change in investment
volume of some 2.4 per cent. If we look at 2013-2014, the cumulative drop
in investment volume during those two years was nearly 5 per cent while
GDP grew by 1.9 per cent. Leaving the political situation aside, the "scissors"
effect of -5 per cent in investment volume with +1.9 per cent GDP growth in
those two years might lead to a decline in GDP of at least some 4 per cent
in 2015-16. As it is, the political situation does not necessarily alter this
prediction optimistically. However, there are clear opportunities in the current
situation due to the fact that the crisis is localized to Russia and several of
its neighbors: it provides opportunities for exporters, and for consolidation
and cost reduction (fig. 1).
The short-term prospects for the domestic market remain quite dim. To quote
the International Monetary Fund's World Economic Outlook report released
Source: IMF
Since the last quarter of 2014, the situation is developing faster down than
during the whole year of 2014, and it is beneficial to compare "January 2015
vs. January 2014" to see the current picture rather than the "whole year
of 2014 vs. the whole year of 2013". In January 2015, retail went down by
4.4 per cent (compared to January 2014) while in 2014 retail volume was
some 2.5 per cent up compared to January 2013. Transportation services
were down by 4.1 per cent, as was construction activity, by 3.5 per cent.
With all this, industrial production development is still above zero: +0.9 per
cent. Two explanations for the last figure are: the devaluation of ruble (and
thus the improved competitiveness of domestic producers both on domestic
and export markets) and an increase of stocks throughout the value chain
(note the "scissors" effect between retail and transportation on one side,
and production volume on the other) (fig. 3).
Fig. 3: Devaluation of Russian ruble in 2014
80
EUR/RUB
70
USD/RUB
660
50
50
EUR/USD (secondary axis)
Ruble (RUB) exchange rates against the euro (EUR) and the US dollar
(USD) affect trade flows from Russia (domestic market vs. export) as
well as trade flows to Russia (domestic supply vs. import). At the same
time, the growth in value of the USD against the EUR leads to relatively
higher supply flows to Russia from Europe, as compared to Asia and
the United States. On the other hand, a low ruble exchange rate puts
pressure on new projects with loans in EURS or USDS and revenue in
RUBS blocking a significant part of potential capital expenditure in
harvesting, sawn timber, panels, and pellet and pulp-and-paper production.
To summarize roughly, we can see that most large projects at the early
stages of development have been put on hold. On the other hand, the
current crisis (as distinct from what was seen during the financial crisis
of 2008/2009) is local and specific to Russia only - thus export-oriented
1,8
1,6
1,4
1,2
Fig. 1: GDP development vs. capital investment, 1999-2014
GDP with deflator, % to the
previous year
Capital investment with
deflator, % to the previous year
GDP in current RUB, billion
Capital investment in current
RUB, billion
GDP deflator, %
Inflation, %
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-3,6 1,4 -5,3 6,4 10,0 5,1 4,7 7,3
11
7,2 6,4
8,2 8,5 5,2 -7,8 4,5
12
4,3 3,4
53
30
30
1,3 0,6
20
20
15,6 -2,0 -46,0 20,6 44,7 8,7
1,8 10,8 14,8 13,6 22,8 26,9
15,4 -16,5 5,5
13,6
7,0 -1,1
-3,4
2007,8 2342,5 2629,6 4823 7306
8944 10831 13208 17027 21610 26917 33248 41277 38807 46309 55967 62147 66194 70976
10
376,0 408,8 407,1 670 1165 1505 1762 2186 2805 3534 4730 6716 8782 7976 9152 11036 12586 13256 14254
145,8 115,1 118,6 172,5 137,6 116,5 115,6 113,8 120,3 119,3 115,2 113,8 118,0 102,0 114,2 115,9 107,4 105,2 106,6
121,9 111,0 184,5 136,6 120,1 118,8 115,1 112,0 111,7 110,9 109,0 111,9 113,3 108,8 108,8 106,1 106,6 106,5 111,4
0
Source: Russian Statistics Committee, IMF
1999
2000-
2001
40
40
2002
- 2007
2004
2005
2006
2007
2008
2009
2010-
2011
2012
2013
2014
2015
Source: FxHistory
RUSSIAN #6 (2015)
FORESTRY
9
0
0,2
0,4
0,6
0,8
1
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