The 20th anniversary international exhibition of machinery, equipment and technologies for the logging, woodworking and furniture industries Lesdrevmash was successfully held at Expocentre Fairgrounds (Moscow). The Forum WoodWorld 2024 was held within the framework of the exhibition.
The Forum traditionally began with an overview of the general state and trends in the Russian timber industry. Vitaly Lipsky, Director General of the National Forestry Agency for Development and Investment (NLARI), presented his vision of the situation in the industry.
In the roundwood markets, the situation is far from stabilizing, despite some official reports. In fact, the situation looks different, logging volumes are falling and perhaps the market situation has not even reached its bottom. The decline in logging volumes is no longer seen as rapid as in previous periods, but statistics show that the last winter logging season fell by 3.4% compared to the logging season in the previous period. Despite the leveling of the fall over the summer season, in general, it can be predicted that logging will be lower than in previous years. According to NLARI estimates, it will amount to less than 170 million cubic meters. To understand the degree of decline in production volumes, it is worth mentioning that at its peak in 2018, logging amounted to 236 million cubic meters, in recent years logging amounted to 185 million cubic meters. This year we have rolled back to the boundaries of 2008-2009.
Loggers do not seek to enter the forest, as the demand for plywood raw materials has fallen, and the demand for sawn timber has fallen. The North-Western region of Russia is in a particularly difficult situation. Regions that are traditionally forested, such as the Arkhangelsk Region, are in fact now isolated, that is, they are located far from export markets, and transportation is extremely expensive. There has never been such a situation in these markets, so no one has any interest in investing in the development of logging.
If you look at the situation more closely, you can notice another nuance that logging equipment, which wears out quite quickly, is likely to break down in the near future. According to Vitaly Lipsky, this is the prospect of 3-5 years, when harvesters and forwarders will start to break down actively. An attempt to solve the problem of spare parts imported from Japan and China does not change the situation in general. The transition to manual logging using skidding tractors is impossible, due to the lack of labor to form logging crews in sufficient numbers in the regions.
The situation with the production of lumber is also quite sad. The decline in production slowed down, but did not stop. Big-size lumber producers began to sell more products on the domestic market, which led to the bancrupcy of a large number of small business manufacturers. This is a rather sad situation, because at some point, if the situation turns around and big business starts focusing on exports again, a severe shortage may occur in the domestic market.
The problem of such a related product as pellets remains acute. This problem is practically not solved. 95% of exports are to South Korea. For Russia, in fact, this is the only sales market, which is characterized by low prices and high cost of delivery, which primarily negatively affects companies in the North-Western region of Russia. Since there is no solution to the problem, it is likely that the situation will gradually deteriorate.
Now those large companies that have some margin are trying to survive somehow, but over time, we may also see the collapse of some large timber companies.
Foreign policy risks must also be taken into account. For example, the markets of the UAE and Saudi Arabia demonstrate active demand and active consumption of lumber. But for Russian manufacturers, they turned out to be, at the moment, actually closed. Russia does not supply any timber products there. This is probably the fear of secondary sanctions and the fact is that Russian business is not involved in this construction revival in any way.
If we consider the wood-board segment, the production of fiberboard is relatively good, the production of chipboard is growing, the production of OSB is experiencing difficulties.
The OSB market is stagnating due to the problems of the two largest manufacturers of this type of wood-boards. The supply of OSB has decreased, but the domestic market does not feel this much, since plywood manufacturers have become active in the same segment. Since foreign markets, in fact, are closed to plywood manufacturers, they found a way out in supplies to the domestic market as a construction panels, although at very low prices. On the one hand, the situation helps plywood manufacturers not to stop production, but it also cannot please them, since they have to work on a minimum margin.
The chipboard market is growing. The reason for the growth is clear – the growth in the construction of residential buildings in previous years as part of preferential mortgage programs. Currently, all these apartments are furnished, which is the driver of consumption of chipboard in the domestic market. At some point, the situation will change. According to a number of forecasts, the furniture boom will take place in 2-3 years. Although it is quite difficult to make forecasts, since some other drivers of consumption may be revealed, for example, the recovery demand after special military operation. If we compare the Russian chipboard market with the markets of developed countries, then the saturation of the Russian market is very poor, therefore, fundamentally, the market has growth prospects.
The situation on the fiberboard market is less rosy, as the market has experienced a 24% dip. At the same time, the market remains the most promising. This market has always been characterized by a lack of stability, significant falls and growth are quite typical for this market. It is likely that such a decline is associated with adaptation to demand. On the one hand, new suppliers have appeared – the former Kronospan has launched production in Kaluga, while perhaps the market is not ready to consume this volume yet. On the other hand, there is a withdrawal of MDF manufacturers from the Far East. This is, first of all, the Rimbunan Hijau MDF company, which is looking for buyers for its factory.
The dynamics of furniture production is growing and pleases all furniture manufacturers. It is difficult to say how long the growth will last. Everyone sees the growth of furniture production in rubles, it is difficult to say how much this reflects the growth of production in volumes. There is high inflation in Russia for consumer goods, so it is difficult to say how much there is an increase in production and not just an increase in prices. Therefore, there is a risk of a sagging market after a surge in the furnishing of apartments sold recently under preferential mortgage lending programs.
The most affected market in Russia is the plywood market. Plywood production has fallen very much and the fact that the market has recently regained 6% in volume does not help the situation. An interesting situation has emerged in this market. Independent birch veneer manufacturers have always been present on the market, which either exported their products or sold them on the domestic market to plywood manufacturers. After the closure of the export markets for plywood, plywood manufacturers began to sell veneer in foreign markets, which kills independent birch veneer manufacturers. For plywood makers, the sale of veneer, not plywood, is the only chance to at least partially load production capacities and not stop production. If independent veneer manufacturers were previously suppliers of plywood manufacturers, now they are direct competitors. In terms of exports, as in the previous year, exports to the United States of America remain, despite the high import duty of 50% for Russian plywood. Plywood supplies to Egypt remain, which is now the main market for Russia. If supplies to Turkey have not stopped, then at least they have decreased significantly. Now other states, like Georgia, are trying to act as intermediaries for re-export, but nevertheless, the market has not recovered, rather some adaptation has occurred.
The production of pulp has decreased slightly, but at the same time, the production of paper and cardboard has increased on approximately 4%. It can be assumed that the focus of the pulp and paper industry has shifted towards the final products - cardboard and paper, as products of higher processing, with a decrease in the production of semi-finished products in the form of wood pulp.
But in fact, there are problems with pulp and paper products if you look at each individual segment. There is a drop in the production of coated paper, there are problems in the segment of tissue. On the other hand, the pulp and paper industry is growing, which is confirmed by the launch of the cardboard mill by the Ilim Group of Companies, which is currently one of the largest investment projects. As a result, we can say that the pulp and paper industry is doing well now.
Summarizing the market situation, we can say the following: currently, those industries that work on high-quality raw materials feel bad - these are sawn products and plywood. The industries that work on low-quality raw materials feel relatively well - these are wood-boards and pulp and paper. There has never been such a situation in Russia in the entire history of the timber industry. In the 90-ies, it was high-quality raw materials that pulled the industry. At the moment, it turns out that these industry drivers are not working.
In addition, there is a complicated situation with the technological re-equipment of the industry. Previously, Russia purchased equipment in Europe through the foreign trade financing of the supplier country. Also, Western companies that worked in the Russian market themselves invested their money in the purchase of equipment. Russian companies paid some share of the cost of equipment during the purchase, but mostly Western capital came along with technology and equipment. And now Russia will need to purchase this equipment for its own money, that is, allocate money from turnover, with a low capitalization of companies, try to negotiate with banks on the allocation of loans. At the same time, when deciding on the allocation of a loan, the bank will focus on industries with higher profitability and higher capitalization of companies. This problem is intractable and it is right to expect that the industry will decline technologically.
According to some technologies, Russia will be able to solve the problem of technological subsidence at the expense of Chinese companies, but it is unlikely to achieve full replacement, and the situation will worsen. Perhaps now is the time when it is time to return to discussing the issue of private ownership of forests, which will increase the collateral value of the entire industry. There are no other effective options for financing the industry at the moment.
