45 ideas of St. Petersburg International Forest Forum 2014

A traditional WhatWood agency’s rendition of most interesting quotes from another major event for the Russian timber industry, the St. Petersburg International Forest Forum held on September 30 – October 01, 2014.

Photos courtesy of Restec exhibition company.

Evgeny Kesarev, Board Member of Kraslesinvest, Head of the timber industry section, Department of natural resources, Vnesheconombank (VEB):

VEB is implementing ten projects in the forest sector, including the recently launched Kraslesinvest lumber mill. We have already invested 45 billion roubles in the sector, and soon this figure will exceed 70 billion. We credit projects with value not less than 2 billion roubles, with a payback period of not less than five years, and the project should also get into the priority investment project list.

We haven’t received applications from pulpmills by far. OSB projects are now very popular, some are already being implemented, and there are numerous plans for construction. In this area, we finance the project of STOD company.

Wood haul distance now reaches 200-250 km, it is on the verge of mortality for the timber business. Total production costs have risen to $90/m3. Rail transportation is the big problem of loggers and lumber producers. I think companies need to unite and solve the problem together.

Evgeny Schwarz, Environmental Policy Director, WWF Russia:

Terneyles is a nice Far East example of how the company abandoned cutting on the area of about 450,000 hectares of valuable forests. The company realized that it is better to focus on the rich southern China, Japan and Korea, while northern China consumers are focused on cheap products. This coincided with environmental requirements.

Everyone says that the forest is not a priority of state policy, and it is bad. But think, if the forest was a priority, would it really be good to have RosLes [Russian Forest] company, by analogy with Rosneft [Russian Oil]?

With regard to the establishment of forest policy, it was not so much about getting the text but rather changes in the minds. By the moment, the idea of intensification of forestry in long-explored regions is persistently excluded. Despite the declaration of intensive model in the Forest Policy Principles, de facto the state program is focused on the preservation of the Soviet extensive model which led to the crisis in the forest sector.

Reforestation in the state program is still going the traditional route: increase of artificial planting area while maintaining poor treatments in young stands. We need a turnaround: artificial recovery only if natural is impossible, but mandatory specific care for the young stands.

Vyacheslav Krylov, CEO, Novoyenisseysky mill:

I think it would be useful to introduce the system where officials are responsible for the achievement of target indicators in forestry – just as for tax workers the salary by 60% depends on tax collection.

Arzum Arzumanyan, CEO, D-Craft LLC, President, Russian National Association of Door Industry (NADI):

The volume of the door market in Russia is about 25 million units per year or 50 billion roubles. There is market disintegration: economy and premium segments grow, while the middle one falls. There is also a crisis of overproduction and therefore dumping, this year zero growth is expected, by 2016 – a 10% growth. In the industry there is also import substitution, in 90% of cases the doors are home-made, pseudo-Italian.

Brand power is totally absent, when choosing interior doors most buyers are guided by the advice of friends or just go directly to the sales outlets, among which the specialized door shops are leading the market.

According to NADI research study, 71% of buyers of new housing change the doors because the building codes allow to install the products of any quality. This leads to the twofold use of resources and transfer of the costs to the consumer. The GOST standard does not meet modern requirements, it is necessary to develop a new door standard.

Alexey Beschastnov, Senior Consultant, Poyry Management Consulting:

The share of global production of sawn timber versus panels over the last 50 years has fallen twofold, the panels replace lumber products, and this affects what raw materials are required for the industry.

Sergey Zimin, Assistant to the presidential representative in the North-West Russia:

The high potential of the forests is conserved, of course, not only in the North-West. Each region has its own growth point, be it Angara pine and cheap electricity, or valuable species, or recreational potential.

Yuri Lakhtikov, Director of the Department of statistics and analysis, RAO Bumprom association:

In the woodworking, 20% of investment projects financing comes from foreign banks, 33% from Russian banks, while in the pulp and paper industry 73% are just equity funds, and foreign bank financing is almost zero. This industry has large planning horizons, so the banks just do not run these risks.

Timo Karjalainen, Professor, Finnish forest research institute (METLA):

Ash from biofuel CHPs in Finland goes back into the forest as a fertilizer, while in Russia this is legally prohibited. From the ashes one can also make granulated fertilizer.

Jukka Halonen, Head of Department of Russian relations, Finnish Forest Industries Federation (FFIF):

Large-scale investments in the pulp, cardboard and bio-products will increase raw wood demand in Finland by 6 million m3. However, new investments in the board packaging are associated with increasing consumption of coniferous pulpwood, so the need for birch pulpwood (which, along with softwood chips, is the basis of export from Russia) will decrease. Finland will be able to meet the growth of demand with domestic procurement. Now Russia’s share in the imports accounts for 73% of the total volume of 11 million m3.

The share of the timber industry in the gross industrial output in Finland reaches 66% for South Karelia, for the country as a whole it is 17%. The forest growth in the country in 2012 amounted to 3.5 m3/ha (in Russia – 1.5 m3/ha).

Pavel Trushevsky, General Director, Forest certification LLC:

Biofuel projects are repaid only in remote regions, which are heavy-forested, have harsh climate, and consume expensive fossil fuels. For the successful implementation of such project one should have sources of raw materials, e.g. local plants. It is desirable to have several alternative suppliers so that the monopolists do not raise rates in high season. There must be also political will, because for local authorities such projects are always risks. A key condition of success from their point of view is that the region would save money with such a project.

Alexey Fomin, Partner, PwC:

Total market value of 245 listed timber and pulp & paper companies is approximately $501 billion.

Global companies in the forest industry are concerned about the commercial and economic risks. However, compared with the previous year, respondents look at the economic future with greater optimism. Many of the causes of concern remain the same: 85% of CEOs are concerned about exchange rate volatility, 77% – about high energy costs, 71% – about prices of raw materials. Among the growth markets for the coming years, according to the world forest industry leaders, would be China, USA, Germany, and Brazil.

Yuri Mandre, Professor, St. Petersburg University of Plant Polymers:

Finnish philosophy is as follows: electricity is a by-product of the CHP, and heat does not go to the cooling tower, but rather heats the municipality.

Oil and gas companies can push the export duty on pellets in the part of production cost which involves oil and gas usage. Their position in this matter is that the pellets are like canned gas and at the same time are relieved from gas export duty.

Eduard Akim, Professor, St. Petersburg University of Plant Polymers, Honorary member, ACSFI FAO:

Possible total harvest of Siberian and Dahurian larch in Russia may reach 105 million m3. One of the most efficient uses can be complex processing with the brand new products which are in demand on the Russian and world market.

Taking only 5% of the forested area of the world today, plantations already account for over 50% of the world wood consumption. In Brazil, plantations on the 1% area helped preserve the natural forests on 61% of its territory. The productivity of eucalyptus rapid-growth plantations in Brazil over the past 20 years has increased from 40 to 60 m3/ha per year (in New Zealand – 30 m3/ha).

Andrei Ptichnikov, Executive Director of the Russian office, FSC:

There is a possibility of creating a joint interface between the state electronic system of wood trade control (EGAIS) and the online FSC claims platform.

Timo Leinonen, Senior Researcher, Finnish Forest Research Institute (МЕTLA):

A survey of Finnish companies doing business in Russia showed that investments into infrastructure for companies are a more important form of state aid than the direct benefits to investment projects.

Kirill Baranov, Chief Editor, WhatWood analytic agency:

Listing of oak and ash in the international convention on protected species has already changed the market this summer: supply of hardwood timber from Russia to China fell, prices rose by RMB 50-100 ($8-16), and merchants in the Shanghai region switch to African species, dealing with ash only via custom orders.

Although there are problems with supply, the demand is high. China is interested in importing from Russia and is actively developing cross-border infrastructure: over the past year, for instance, International timber exchange in Manzhouli and logistics base in Harbin have appeared.

The average profitability of Chinese timber companies is about 6% (for comparison: Russia’s Top-100 profitability according to WhatWood study was 1.4% for the year 2012).

In total, the Chinese forest business implements 291 project in Russia worth $2.98 billion, which is 76.2% of all timber investment of China abroad.

Presently, the share of imported raw materials in China is 49%, and most probably the ban on commercial logging in Heilongjiang province will lead to further growth in the share of imports.

Yuri Yudkevich, Chief Specialist of Bioenergy department, Lonas Technologies CJSC:

Torrefaction reduces the cost of transporting energy in the form of biomass by 32%.

Anton Ovsyanko, Director, Portal-Engineering:

The market for torrefactioned pellets is absent by far. There is a demand, but there is no steady supply. Torrefaction makes sense at a considerable distance from the port or from the consumers, at a relatively low price on the European market and at the high cost of electricity.

The use of biomass is generally beneficial, but it requires investments, which involve risks due to the volatility of green energy market and legislation in this area.

One possible scenario is that the pellets would be sold in the domestic Russian market. With the price at the boiler within a 50-100 km radius amounting to 5000 roubles/t, the supply of torrefactioned pellets or briquettes shows the profitability of 20-30%, and the estimated payback period is 5-6 years.

Maxim Trishkin, Researcher, University of Eastern Finland:

The total stock of standing timber in Finland is 2.2 billion m3, the annual growth amounts to 100 million m3, while annual cutting is 55-60 million m3.

Jarno Seppala, Chief Specialist, Indufor:

Recycled paper is the dominant type of raw material in China and Germany. Both countries also import a large amount of pulp. In Russia, Canada and Finland the main raw material is pulpwood and chips.

The wood harvesting in the winter period only, which is traditional for Russia, in the long term requires more investments than the year-round harvesting: costs accumulate over the years and become higher.

The wood cost at a certain point begins to grow with increasing scale of production, therefore, properly selected volume of production is crucial to the profitability of the plant.

Tatiana Yanitskaya, Deputy Director of the Russian office, FSC:

Selective cutting can be repaid through a sharp reduction in the cost of reforestation. For small businesses, about 50% of the income in this model can be generated from the use of low-grade timber for pallet production.

The application of intensive forest management with decreasing the cutting age is possible only when three conditions are present: the transition from natural regeneration to artificial, the real implementation of the thinning system and the existence of demand for timber from thinning.

Galina Varankina, Professor, St. Petersburg Forest University:

Adding shungite reduces the content of free formaldehyde in the adhesive and thus can be used to reduce the toxicity of panel production.

Dmitry Krasovsky, Deputy Head of the Department of forestry of Belarus:

The total stock of forest in Belarus is 1.67 billion m3, the forested area amounts to 39.3%, and the annual growth of wood is 31.7 million m3. The share of commercial forests reaches 48.2%, and the timber harvesting volume in 2012 amounted to 18.1 million m3.

Sergey Perederiy, Director, EKO Holz-und Pellethandel GmbH:

In the UK, the pellets are mainly used for electricity generation, while in Germany and Italy – for heat generation.

In Poland, there was a collapse of the market for industrial pellets (consumption decreased by half in the second quarter of 2013), as the government decided to reduce subsidies for power plants.