Timber industry research & analytics Russian Forest Industry Review 2019-2020: downward price trends, lower financial indicators, a slowdown in the Russian timber industry, and new ‘black swans’
During the entire year of 2019, prices for forest products were remaining on a downtrend appeared at the end of Q3 2018. ‘Super profits’ received by timber enterprises at peak prices of Q1-Q3 2018 allowed companies to form some reserves to stay afloat relatively calmly during the period of low prices in 2019.
Major world and Russian companies used that time to modernize their production facilities, to effect M&A deals, and some even afforded to suspend their production during this period of low prices. The definitive financial results by companies will be summed up later. However, many timber enterprises have already reported that they had reduced their revenues or EBITDA margins. According to the results of 2019, the revenue of Mondi Group reduced by 3% to €7.268 billion, that of International Paper – by 3.99% to $23.376 billion, UPM – minus 2% to €10.238 billion, Stora Enso: -4.1% to €10.055 billion. After the ‘super profits of 2018’, it is obvious that Russian timber enterprises didn’t manage to retain their positions as well and got lower financial indicators for 2019. For example, according to preliminary estimates, Ilim Group lost up to 30% of EBITDA due to falling prices for wood pulp.
The Russian timber industry slowed down in 2019, but not as much as it could have decelerated in such circumstances. However, export earnings of the Russian timber industry in 2019 decreased by 8.36% totaling $12.27 billion. The output of the forest sector in ruble equivalent declined by only 0.73%, while the key products lost in value by 25-40%. The drop in prices was mitigated by the growth in shipments. Exports of sawn timber from Russia grew by 4.52%, of OSB – by 4.08%, plywood – plus 2.65%, wood pellets: +28%, etc.
The current situation as of the beginning of 2020 is characterized by an extreme uncertainty in terms of the demand for forest products, their consumption, and prices, which was conditioned by the ‘black swans’ in the form of COVID19 and slumping oil prices. At the moment, Russian timber enterprises are already benefiting from the strong ruble devaluation. The Russian currency collapsed in mid-March by 25% to the exchange rate of 80 rubles per US dollar. But the determinative impact on the global economy by the end of 2020 may result that of the coronavirus. The US economy may already find itself to be in recession. The main concern for Russian timber enterprises is, of course, the situation in China since it ensures 35% of foreign currency earnings from exports of Russian forest products. Operational macroeconomic data are causing concern: in Q1 2020, the production sector has collapsed by 13.5% YoY (while the growth of 1.5% was expected), retail sales have fallen by 20.5% (when they were forecast to rise by 0.8%), investments have fallen by 24.5% (the predicted growth: +2.8%).
The volume of harvested wood in Russia in 2018 reached record figures for the first time in modern Russia and amounted to 238.5 million m3 (+12% YoY). In 2019, due to the surplus of raw materials in the market and the failed winter harvesting season, a rollback happened accompanied by a decrease of 20 million m3. The output of sawn timber set another record: 44.2 million m3, which is +4.5% (YoY). ULK Group and Titan Group managed to ensure significant growth. The pace of the production of wood-based panels in Russia in 2019 slackened by 3.22% with the output totaling 17.5 million m3. The positive growth dynamics were recorded in terms of all products: plywood (+1.71% YoY), particleboard (+0.73% YoY), OSB (+6.67% YoY), MDF/HDF (+9,12% YoY).
The output of wood pulp in Russia in 2019 was decreasing for the second year in a row. The decline in 2019 was by 328,000 tons totaling 8.25 million tons; paper and cardboard production showed a positive pace and increased by almost 72,000 tons reaching 9.13 million tons (+0.8%). The growth was secured by the commissioning of new production facilities, as well as by the rapid growth in the consumption of containerboard.
Russian Forest Industry Review 2019-2020
The review presents a detailed analysis of the timber industry sectors and its major trends; key indicators of industry performance (dynamics of output, consumption, imports, exports, prices in terms of regions and enterprises), as well as comments of market players.
- The state of the Russian economy and its influence on forestry and forest industry of Russia, the positioning on the global market;
- Changes in the forest legislation of the Russian Federation;
- Analysis of the annual dynamics of the main forest product indicators (output, imports, exports, prices);
- Capacity changes in the processing industry;
- Approved and launched priority investment projects in the forest industry;
- The main industry development trends;
- Production in terms of the following products: roundwood, sawn timber, wood-based panels (particleboard, OSB, fibreboard, MDF, plywood), pulp, paper, cardboard, packaging, biofuels; dynamics in terms of regions;
- Overview of the largest producers of forest products;
- Key events in the Russian forest sector.
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