According to NLARI estimates, overall production and export volumes of sawn timber in Russia have declined recently. In 2024, a total of 33 million cubic meters of sawn timber was produced. Export volumes have fallen significantly, by almost 10 million cubic meters. Currently, total exports amount to 19.9 million cubic meters. The question is whether Russia has reached the bottom in terms of exports or whether the decline will continue. This question remains open. It is clear that the rate of decline is slowing down, and perhaps 2025 will be a year of stabilization. There is no definite answer at the moment, as the Russian forestry industry is affected by too many factors.
There is a possibility of further decline in exports due to the difficult situation on foreign markets and the strengthening of the national currency that we are currently seeing.
Structure of sawn timber exports by country in 2024
China remains the main consumer of Russian products, although it is currently experiencing economic slowdown. In 2024, there was an increase in supplies to Turkey, including for re-export, as well as an increase in supplies to Iran and Kazakhstan for processing and re-export. In recent years, Kazakhstan has been a transport and trade hub for wood-based panels and sawn timber to countries outside the EAEU. Thanks to open markets with Russia, Kazakhstan can use its unique geographical position in the region to sell products to Uzbekistan, Turkmenistan, and Tajikistan. There is some stagnation in the market in the MENA countries.
If we group the export data, about 64% of sawn timber is supplied to East and Southeast Asia, 14% to Central Asia, and 11% to the MENA countries.
The macro-region of East and Southeast Asia has a number of advantages and disadvantages that are not always correctly assessed by businesses. It is indeed the largest market in the world at the moment. It is becoming increasingly solvent and friendly towards Russian products. Growing economies constantly require additional volumes of raw materials and supplies. Russia's geographical proximity allows it to supply products there. The Arctic Route is proposed as a corridor for deliveries, but there are concerns that it will not be cost-effective for deliveries to Southeast Asia.
One limitation is that the countries in the region have a highly developed and very progressive timber industry. They are pursuing a policy of intensive forest use and intensive processing of round timber, based on the development of plantations, and this model is extremely effective and will compete with other suppliers in foreign markets, as is currently the case in the plywood and MDF market. Thanks to their efficiency, they have fairly low costs, and in the long term, this market may prove to be competitive for Russia.
The key points of sale in China for Russian timber products have not changed. However, it should be added that last year new shipping routes to China were launched from Novorossiysk via the Suez Canal. The main problem with deliveries to China remains the logistical weakness of Russian infrastructure, starting with the railway, which cannot ensure the timely delivery of the entire range of goods in the required volumes, and ending with the rather weak port infrastructure. The third problem is the lack of effective operators to transport goods.
The lumber market in the People's Republic of China is showing a decline in imports. In 2024, total timber imports to China amounted to almost 63 million cubic meters, which is 3.6% less than in 2023. At the same time, imports of softwood lumber fell by 8%. Imports of softwood lumber amounted to 16.6 million cubic meters, mainly from Russia. In 2024, supplies from Finland and Sweden fell significantly, meaning that all European supplies of softwood lumber declined dramatically, but supplies of hardwood increased. There was a decline in supplies of New Zealand sawlogs and Russian softwood lumber, while Belarus showed a slight increase.
The cost of sawn timber in China remained unchanged throughout the year. One of the negative factors affecting the Chinese market is the strengthening of the RMB, which reduces the cost of timber imports. In the long term, timber exports to China may become less attractive for Russian exporters. For Russian exporters, the cost of transporting sawn timber from the Baltic region to China was minimal at the end of the year.
The media is full of rumors about a revival of the Chinese economy. But the reality is that overall real estate sales in China have fallen by 30%, and it is probably premature to talk about any positive developments in the market. Short-term fluctuations also do not indicate any potential for growth or economic recovery. Nevertheless, in the fourth quarter of 2024, there was a revival with some growth. But it is not yet clear how long this growth will last. China's furniture market also showed a decline in domestic sales, indicating depressed domestic demand.
In 2024, there was a decline in imports of sawn timber products to the Chinese market, which is attributed to various reasons, including problems in the European market, where there are issues with the sanitary condition of European forests. In 2024, the volume of timber logging in China reached 137 million cubic meters. This volume was obtained from domestic plantations, and softwood sawlogs accounted for the bulk of the timber. In other words, the softwood plantations that had been planted earlier were already in production and began to replace imported roundwood and sawn timber. This is a trend that will continue to develop in the 2040s and 2050s as the softwood plantations that were planted earlier mature. This is one of the first signs that China has started to cut its softwood trees and is increasing their processing.
The Japanese market is in a rather depressed state, but there are some expectations for growth. Other countries in the macro-region are not importers of Russian products, and the potential there is quite low.
The MENA region is characterised by its complete dependence on imports of timber products. Russian businesses have a strong presence in Egypt, which, unfortunately, is constantly shrinking under pressure from Swedish and Finnish manufacturers. There is fairly open access to the United Arab Emirates, and there is some potential for supplies to Iraq and Iran.
The effectiveness of the North-South transport corridor remains unclear. Currently, deliveries are being made along this corridor, with lumber being shipped to India, the United Arab Emirates, and other countries in the region. However, the prospects for increasing deliveries along this corridor remain unclear. Expanding this transport corridor would significantly improve logistics and the economics of deliveries to the region.
In recent decades, there has been fierce competition with Swedish and Finnish manufacturers. It should be noted that the stagnation of the European construction market and European economies will lead to Swedish and Finnish manufacturers becoming increasingly active in markets where Russian manufacturers operate. Logistics and certain political issues are limiting factors for Russian manufacturers. Russia does not have a strong presence in Saudi Arabia, although new cities are being built in this country and the prospects for cooperation could be significant.
If we look at the region as a whole, excluding Turkey, there are three to five countries that are of interest: Saudi Arabia, the United Arab Emirates, and Egypt. However, while Saudi Arabia and the United Arab Emirates are roughly equal in terms of purchasing power, Egypt is a rather complex country because it has a very large population that is quite poor and has low effective demand. There are some fairly strong middle-of-the-road countries, such as Morocco and Algeria, but these countries are lost to Russia in terms of sales logistics, and they are completely under European influence.
It should be noted that, from an economic point of view, the regional GDP of all Arab countries, both those with oil and those without, depends on oil prices. The higher the oil price, the higher the GPD. At the same time, small countries that do not even have oil revenues are still following this trend.
Thus, at present, the Arab market consists of a small number of countries that are quite wealthy, have a high nominal GDP, and are oil-producing countries, while about 87% of the Arab world's population lives in relative poverty and has a low GDP. There is no point in talking about the possibility of developing sales of products there, given that the GDP of Arab countries depends entirely on the price of oil. The forecast for 2025 suggests that oil prices will fall, and the GDP of these countries will decline accordingly. Consequently, there will be a decrease in the purchase of timber products for urban development projects being implemented in Saudi Arabia. There are signs that construction activity in the United Arab Emirates is slowing down. The Emirates are looking for new investors and new operators for the facilities under construction, and given the current trends, it is highly likely that some of these investment projects will be closed.
There has been a slight surge in the price of sawn timber on the Egyptian market, primarily in Egyptian pounds. This is due to the fact that the Egyptian pound has been devalued and decoupled from fixed values, which has led to an increase in the cost of sawn timber. At the same time, these prices have remained virtually unchanged in EUR. The main problem for Russian exporters in the Egyptian market is the issue of payments. Getting money for sawn timber products from Egyptian contractors is quite a difficult task due to Egypt's balance of payments deficit. In this regard, the situation with price reductions may have a positive effect on international trade, the sawn timber market, and the ability of Egyptian contractors to pay in the near future.
Wholesale prices for wood furniture panel in Egypt have risen quite sharply, which is the result of a combination of factors. There is a certain positive trend in the consumption of sawn timber, which is related to the fact that in September, the Egyptian government announced the simplification of building regulations that were introduced in 2021 and significantly reduced the volume of construction in Egypt. They have decided to return to the old, fairly low construction standards and expect this to cause significant market growth. Unfortunately, the Egyptian construction industry cannot withstand the strict standards.
Egypt has a fairly large furniture industry cluster, where furniture is manufactured and even exported to other countries. Egypt's revenue from furniture manufacturing grew to nearly half a billion dollars in 2024. The cluster is located in the Damietta area and continues to expand. The Egyptian authorities plan to strengthen this sector, and the key point here is that Egypt is considering building furniture production facilities directly in Egypt. One might ask, where will the wood raw materials come from? However, there are plans to build factories for the production of fiberboard, MDF, and HDF from raw materials such as palm wood or palm leaf waste, biomass that is available in Egypt. In the future, this could result in a competitive product that could squeeze imported sawn timber out of the market, at least in the furniture segment. There are several production sites where investment projects are planned to be implemented. European companies are the main interested parties.
The Egyptian economy is growing rapidly. Growth is expected to reach 3.2-4%. This is very high growth, significantly higher than in European countries. Saudi-Egyptian projects involve construction and investment in Egypt in the Ras el-Hekma megaproject, a new resort city on the Mediterranean coast, which will lead to an increase in the consumption of sawn timber products. At present, Egypt looks moderately positive in terms of sawn timber supplies. Finnish and Swedish companies will continue to compete with Russian companies.
Central Asia is well known to Russian companies. The region is mentally and culturally understandable to Russian businesses. At present, the region is somewhat isolated in terms of transport, although in recent years Chinese companies have been strengthening their presence, especially in countries that are not members of the Eurasian Economic Union (EAEU) – Uzbekistan, Tajikistan, and Turkmenistan. For some types of wood products, these countries are steadily drifting towards China, buying Chinese plywood and MDF. A positive feature of this region is its relatively high GDP growth, which exceeds that of Russia. This market should be viewed as an extension of the Russian market. In many ways, this market acts as a damper for Russia, i.e., when there are problems with overproduction in the Russian market, part of the production goes to these markets, and when there is a shortage of certain products, they are not supplied to these markets. This market allows the Russian market to be balanced.
In terms of logistics, the region is accessible by transport within the EAEU, in particular Kazakhstan and Kyrgyzstan. Therefore, the opportunities for business development there are quite strong. The key limitation is low effective demand and low incomes of the population. The price of sawn timber there is often lower than the price of sawn timber in Russia.
Another negative factor is the presence of representatives of the region on the Russian market. That is, small companies operating under Russian jurisdiction are often representatives of Uzbekistan or Turkmenistan, who saw products and send them to their home countries, so access there for Russian companies is limited.
The worsening conditions in Russia's timber industry, which are generally occurring now, may squeeze out some small businesses, including these companies. But this business model, as practice shows, is quite resilient. There is a certain degree of protectionism, especially in Uzbekistan, with regard to value-added products, such as glued products, furniture, doors, and windows and which are subject to fairly high import duties. The reasons for such protectionism lie in Uzbekistan's desire to increase domestic production.
An important factor determining export dynamics is the exchange rate. In 2023-2024, Russia experienced fairly positive dynamics, i.e., the RUB exchange rate was very low. The exchange rate of the RMB, the currency of Russia's main partner, China, was above average in recent years, but at the end of 2024, the RMB began to fall, and this trend is likely to continue. This is due to the fact that the US is imposing additional restrictions on Chinese products, and the only way for China to sell more is to devalue the RMB. Therefore, the Chinese government will continue to devalue the RMB, which in turn will limit our exports to China. One of the negative trends in 2025 may be the unfavorable exchange rate between the RUB and the RMB. The RUB has strengthened significantly recently, so we can say that either we should expect the RUB to devalue in the near future, or it will be quite difficult for our exporters to export timber products.
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