Russian Log Prices Down as Domestic and Export Demand Falls

Nov. 20, 2008 - The Russian timber market has gone through a roller coaster ride the past 12 months, with log costs reaching record highs in the 4Q of 2007 and then falling to two-year lows in the 3Q 2008, according to Wood Resources International (WRI).

Topping off the dramatic events as of late was the announcement by Russia's Prime Minister Vladimir Putin in early November that the long-awaited log export tax, which would have practically ceased log exports as of January 2009, will be postponed for up to one year.

Russia had planned to raise the duties from 25 to 80 percent as of Jan. 1.

“Considering the fact that reduction of exports from Russia could lead to production cuts at Finnish factories but could also have negative social consequences, the Russian government deems it possible to postpone an increase in customs duties by 9-12 months,” Putin told Finnish Prime Minister Matti Vanhanen.

Slowing Russian Economy
The Russian economy started to slow in the 3Q with a decrease in housing construction and reduced demand for lumber both domestically and in the export market. So far this year, lumber production is down about 7% and logging has declined by about 9% compared to last year, WRI reported.

Spruce sawlog prices fell by about 7 percent in the 3Q, while pine log prices increased slightly because the pine lumber export market remained reasonably active early in the quarter. A continued slowing in the production rate in the sawmilling sector in the coming months is likely to result in further declines in sawlog prices this winter, even with the delay in implementation of the log export tax increase (previously scheduled to increase to Euro 50/m3).

Softwood pulp-log prices in northwest Russia fell by 13 percent in the 3Q to their lowest level since early 2007. With slowing demand for domestic wood fiber and reduced consumption of wood fiber in Finland-the largest export market for Russian logs-it is probable that pulp-log costs will continue to decrease slightly next year, WRI said.

WRI noted that it does not expect forest products companies, which have relied on softwood logs from Russia, will abruptly change their long-term procurement strategy of reducing their dependence on Russian wood based on the recently announced short-term delay in the hike of the Russian log tax. Softwood log shipments from Western Russia to Finland will probably continue to decline as Finnish companies are expected to consume less in 2009-domestic wood and imports from other countries around the Baltic Sea will be substituted for Russian logs. The major benefit for companies using Russian logs is that the transition period for becoming independent of this source has been prolonged by a few months.

SOURCE: Wood Resources International

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