Mikhail Shamolin, President at Segezha Group: “The price levels we have now reached reflect the current global situation”

At present, Segezha Group is the only Russian timber enterprise publicly traded in the stock market. On August 29, the Group submitted the Q2 2023 report and held a conference call with the management team to discuss its financial and operational performance over the reporting period. After an introductory presentation, Mikhail Shamolin, President at Segezha Group, answered questions from mass media representatives.

What financial performance do you forecast for the entire year 2023? Could you share your vision of the current situation in the industry as a whole? Not only in H1 2023, but for the entire year. What trends do you expect? Are there enough state support measures for industry performance to surpass last year’s results?

We are now more affected by global circumstances than by specific measures of supporting the Russian industry or lack thereof. Such measures are certainly of great importance, but not absolutely determinant at the moment.

The reason for the current price level is the rapid increase in the cost of mortgages due to rate hikes in the USA and primarily in the European Union, which caused the sales of new homes to plummet. This, in its turn, led to a decline in construction markets in the two largest global markets. It is the decline of these construction markets that caused the demand for construction materials and all related proxies to drop. These include, specifically, woodworking products, such as sawn timber, plywood, and paper. As far as we are concerned, it means our packaging paper, which is used to produce bags for cement, dry mortars, etc. That is why the price levels we have now reached reflect the current global situation.

Nevertheless, we were able to adjust to the changing circumstances quite quickly. We virtually haven’t reduced our output volumes, have reoriented from certain markets to others, found new buyers, rebuilt our logistics chains, and continued to operate efficiently in the area of timber harvesting, processing, supply, etc. That is why the Segezha Group model per se is still operable. By the way, the logistics costs are reducing by the minute. A considerable shift occurred over the past 3–4 months, specifically, in the Northwestern region. The rates of maritime freight via the Port of Saint Petersburg are now dropping. We are also seeing the emerging rate reduction trend in the Eastern part of the country because small quantities of empty containers are now being shipped.

Besides, we are monitoring the state of the industry all over the world and we see extremely poor performance in global players’ reports: a negative EBITDA and dropping output volumes of mostly European companies. This is primarily because prices of sawn timber and other products in the Chinese market are lower than the cost of most European players, even without logistics expenses. And by the way, a lot of Russian actors, especially small ones, are either reducing their output or shutting down their production completely. They do not have the working capital to harvest the raw material. All this causes quite a rapid decline of supply.

Read more in Russian Timber Journal 07-2023.