While the UK market has remained reasonably steady, demand from buyers in North Africa and the Middle East has been strong enough to give Russian shippers an air of confidence when negotiating new contracts. Redwood prices have been forecast to increase at a rate of around 5% on a month-by-month basis, which would translate to an increment of approximately £10-12/m3 for each new shipment.

However, as more volume of dry-graded carcassing has been shipped to the UK and Europe, so the falling utility grades in need of a market have reached North African countries such as Egypt where stocks have started rising.

The stock accumulations are not widespread in all areas, but reports indicate that a general fall-off in demand could be imminent. This could change the balance of supply and demand to some degree, and encourage Russian mills currently exporting truly sawfalling cargoes, to offer more of the traditional separated grades to the UK.

Northern Russian mills have seen improvements in log supplies as the dry weather has improved forest access. Some sawmills could be in a position to offer additional volumes from July onwards, which would be welcomed by those importers who have experienced numerous gaps in their specifications, and a shortfall of around 20% in volume shipped.

Further south, mills have struggled to obtain enough roundwood because buyers from other countries are shipping out as much volume possible to beat the increased export tax on sawlogs. Log prices in Karelia are reported to be rising on an almost daily basis, which is forcing the mills to attempt to increase prices accordingly.

The tax being imposed by the Russian government is scheduled to rise in stages over the next 12 months from €4/m3 to €50/m3. In theory, it is designed to curb the high volume of log exports, and to re-direct the fibre through Russian processing plants to add value and improve the profitability in the forest products sector. If the tax eventually reduces outside competition for sawlogs, the mills should have access to more consistent levels of raw material, leading to improvements in production flow.

Financial support

As the value of processed timber has been sharply rising in the sawmill industry, so the financial infrastructure has been changing. Russian banks are becoming far more supportive towards the mills, and the level of investment in new equipment has been rising. But there is a backlog of orders among sawmilling equipment manufacturers caused by high demand from the Swedes who have enjoyed a buoyant year, and are upgrading their machinery.

While the market for joinery grades has yet to fully reflect forward shipment price rises, sawn carcassing has reached a peak. The volume of competitively priced Canadian lumber arriving in Europe has taken the sting out of the market to the point where prices are at last settling down, albeit at a very firm level.

The constant rises in Russian unseasoned and dry-graded whitewood prices have slowed, but the supply of unseasoned whitewood is still falling short of demand. If price levels were to continue rising, they could reach the equivalent of kiln-dried Canadian stock, and from UK buyers’ perspective, there would be little point in continuing to chase unseasoned softwood supply.

If Russian log prices were to keep rising, the mills would probably offer more to markets further east, but this is likely to get more difficult due to the increasing stock levels, and influence of Canadian No 3/No 4 utility. However, there is strong demand from the domestic market, which in many cases offers higher returns for less production cost than overseas markets. This growing demand has the capability of offsetting some of the effects of a weakened export market.

New influences

The Russian market has become more complex than ever over the past six months, with many more influences governing the mills’ thinking. Inward investment from the neighbouring Nordic region has meant that instead of importing sawlogs, companies have switched their production to locations inside Russia. There are also companies outside Russia that own logging concessions, meaning that, although they may be forced to pay higher log taxes to bring the roundwood out, they will still retain control over the base cost at forest level and will continue importing.

There is a great deal of argument between the Russian government and log importing countries like Finland regarding the fairness of the new taxation, and whether it contravenes WTO guidelines. This issue is particularly relevant to the Finnish pulp and paper industry that uses the lion’s share of log imports. They argue that if the logs are not exported, then some volumes will never be used at all, and the fibre will eventually go to waste.

In order to expand log extraction, and improve forest management, the Russian government has declared that building access roads into forest stands is a priority. This should lengthen the harvesting periods that are now under constant threat from mild wet winters with long periods of poor logging conditions.

Whether more access to the forest will have any bearing on the volume of logs available for export remains unknown, but the impression gained from the government’s current standpoint is one of a steep and permanent reduction.