“Forestry News”: wood pricing pecularities in Russia and Finland

According to expert forecasts, reduction of customs duties within the framework of the WTO accession could lead to a more than threefold increase in the export of logs from Russia, as said in Russian Forestry News.

This will lead to the stagnation of the Russian timber industry and threatens the reduction of further processing in the country, as said at the meeting by Mikhail Rafailov, deputy head of the Department of Economics and Strategic Planning of Federal Forestry Service.

New rules of the market will change pricing markedly. In order to predict possible changes in the pricing pattern, the Service presented analysis of wood pricing in Russia compared to the two major countries consuming Russian wood.

Two main consumers of Russian wood, China and Finland, purchase 68% and 19% of all Russian exported wood. Korea buys 5%, Sweden and Japan 2% each, the share of other countries is 3%. Meanwhile, from 2008 to 2011 the share of Russian wood in Chinese timber trade fell nearly twice, from 63% to 36.4%. The reason behind this was the increase in customs duties on roundwood. The vacant volume in the Chinese market was taken by the U.S., Canada and New Zealand.

“The main reasons of still leading positions of Russian wood in China are relatively low price of our timber and the similarity of Russian and Chinese tree species, which allows China to use the same technology and does not require restructuring of their production”, said Rafailov.

In wood export to Finland, Russian roundwood has more than 50% of the market, mostly hardwood pulplogs. With the reduction of Russian export of softwood and hardwood logs in 2011-2012, Finland began to buy more chips and sawdust. Roundwood deliveries are now mostly made from the Baltic States and Sweden.

“Russian prices for standing timber are lower than the corresponding prices in other countries manifold. Meanwhile, market prices for logs and lumber are quite comparable with the market prices of other countries”, Rafailov noted.

The average value of the standing wood is 2160 Rubles per cubic metre in Finland, while only 47 rub/m3 in Russia. The price at the warehouse is 4000 rub/m3 and 1500 rub/m3 respectively.

Rafailov quoted some statistics on the logging costs of Finnish and Russian timber. The cost of forest conservation and reforestation in Finland is 478 rub/m3 (costs are included in the price of the resource and are paid by the forest owner with 25% subsidy from the state), while in Russia – only 70 rub/m3 (costs are paid by the forestland lease holder without any subsidies). Cutting works (felling, de-branching, and bucking) cost 430 rub/m3 in Finland and 740 rub/m3 in Russia.

Price at the forest plot is 2590 rub/m3 in Finland, 857 rub/m3 in Russia. Timber removal and unloading at the roadside would cost 100 rub/m3 in Finland and 120 rub/m3 in Russia, while delivery to the customer would make up additional 317 rub/m3 and 200 rub/m3 respectively.

Mr. Rafailov also quoted wood import prices in China, comparing Russia with the competing countries. The price of cubic metre of Russian timber on the Chinese market in 2011 was $146.2, of wood from New Zealand – $150.6, from Canada – $177.9. Timber products from the United States and Malaysia are more expensive: $218.4 and $319.8 respectively. The average cost of lumber imported from Russia is $214.9, from Canada – $207.3, from New Zealand – $278.9.

The dynamics of price growth from tree to lumber is even more indicative than from tree to roundwood: unlike in Finland or China, in Russia the wood value increases 15-100 times along the added value chain.

“The main goal for many companies is excessive profit at the expense of low-cost resources. It carries certain risks for domestic enterprises and may cause possible displacement with foreign competitors on the home market”, Rafailov concluded.