Russia’s largest timber companies could face widespread shutdowns as the industry reels from war-time sanctions, declining demand (from China), and a surging ruble, prompting the Russian Association of Organisations and Enterprises of the Pulp and Paper Industry to write to Putin’s Industry and Trade Minister, Denis Manturov, urging the government to allow merchants to set up an “operational headquarters” inside the department to “normalise the industry.”
The letter, shared by Russian publication Kommersant, warns that the timber and forest industry “is going through one of the most tense periods in (it’s) modern history,” with total volumes of timber harvesting down 13% in 2024 compared to 2021 (before Ukraine sanctions), with pulping (down 3%), sawn timber (down 11%) and plywood (23%) amongst the hardest hit.
Already, Wood Central has reported that the Segezha Group, once the world’s second-largest producer of multiwall sack paper and industrial paper sacks, was last year forced to restructure loans amid reduced production volumes, low prices, and higher costs, with the situation worsening due to the surging Ruble (up 22% relative to the US dollar) and hiked up company taxes (up from 20% to 25%):
“In addition, companies point to a decrease in demand in the domestic market and the subsequent drop in prices, as well as the difficulties of working in China, where, against the backdrop of the trade war with the United States, activity is declining and stagnation in the construction persists.”
Russian Association of Organisations and Enterprises of the Pulp and Paper Industry letter to Russia’s Industry and Trade Minister, Denis Manturov.
Alexander Dyatlov, Chair of the Committee of the Arkhangelsk Legislative Assembly, warned that the high key rate (set by Russia’s Central Bank) has led to a decrease in demand for all types of products and since supply exceeds demand, prices are continuing to fall: “For the same reason,” he said, “the demand for imports fell, which led to a sharp increase in container freight rates for exports. The low dollar exchange rate, together with expensive freight, makes pulp and paper exports unprofitable, which puts pressure on the domestic market.”
“The situation is difficult,” according to Vladimir Butorin, CEO of the ULK group. “There are no sales for products such as pellets, pulpwood and wood chips,” Butorin said. Meanwhile, the Segezha Group said the industry is negatively impacted by a “difficult economic situation, behind which there are difficulties with exports, problems in the construction industry, a decrease in demand, an increase in logistics tariffs, and a decrease in the operational efficiency of assets.”
“Of course, the high rate of the Central Bank and the exchange rate affect a huge number of factors related to production processes and product sales, they said, adding that “the easing of monetary policy can give an impetus to the recovery of enterprises in the industry.”
Economist Denis Kondratyev said that while the strong ruble may be a sign of macroeconomic resilience, it is crippling Russia’s exporters: “A strong ruble damages export opportunities by making shipments less attractive and raising the cost of products in foreign markets,” he said, noting that rising imports are placing more pressure on domestic producers struggling to say afloat.
- For more information about the impact of Russia’s war in Ukraine on the global timber supply chain, click here for Wood Central’s report.
