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Business to pieces
Participants of the forestry and processing market spoke about new bans, new policies and investment problems
The timber merchants of Primorye are ready to develop woodworking, but for this they need a planning horizon. EastRussia discussed the current situation in the industry and the problems that prevent an increase in the volume of processed products with market leaders.
Colossal trend and industry problems
According to the Primorye government, about 250 enterprises are engaged in logging and woodworking in the region. In 2018-2019, the woodworking segment showed an increase of 7%. The production of technological chips has grown by 18%, and the production of sawn timber has grown by 15%. The decline in 2020-2021 is associated with the limitations of the pandemic and amounted to 18%.
According to Pavel Korchagin, General Director of PALEKS (Primorsky Association of Timber Industrialists and Exporters), the trend towards increasing the volume of wood processing is “colossal”.
“Today, processed products make up over 50% of all production volumes of the timber industry complex in Primorye. Another two or three years, and we will reach 100%. Unless, of course, the initiatives that are being discussed in the government today are not implemented, ”the source said.
We are talking about a ban on the export of round timber, primarily of low-grade and low-value species, for which deep processing capacities have not yet been created in Primorye, as well as restrictions on the export of raw sawn timber from January 1, 2022. Raw lumber accounts for about 40% of all processed export timber products in Primorye.
In addition, they are discussing the creation of a State Forestry Company in the Far East, which will have the exclusive right to export unprocessed timber.
At the same time, the market is already affected by the restrictions that came into force in 2019-2020. Since January 1, 2020, the export duty on round timber has doubled - up to 80%.
Photo: RFP Group
Changes in forest management are affecting. Land plots with a felling period of several months to a year are being put up for auction in Primorye, and producers want to focus on long-term leases with investments in infrastructure.
There are other restrictions at the edge level as well. In 2019, quiescent zones for the harvesting of linden were established in the region. By order of the Governor of Primorye Oleg Kozhemyako, in January 2021, they were expanded from 1,2 to 1,7 million hectares. Amendments to the Forest Plan introduced "dormant zones" for oak with a total area of 251,8 thousand hectares on the territory of Vladivostok and Sergeevsky forestry, established the minimum diameters of oak and ash allowed for harvesting.
The situation is aggravated by the problems of exporting manufactured products - both sawn timber and round timber. Due to the pandemic, border crossings with China are either closed or operate with significant restrictions. “Shipments by rail have decreased many times due to the fact that transportation of coal and ore is more profitable for Russian Railways,” market participants believe. Some timber exporters were not provided with a single rolling stock in March. Standing idle, the seaside forest loses its marketable qualities.
Pavel Korchagin is sure that under the current conditions it is not the time to stimulate woodworking with tough protective measures. This area involves serious investments and reaching profitability in 8-10 years. Whereas the norms of state regulation do not provide for a sufficient transition period, according to the interlocutor.
Affected by restrictions
The agency turned to market leaders for comments.
The head of the Terneyles company, Vladimir Shcherbakov, said that his enterprise was doing well. Currency rates are favorable for export, shipments to China are made by sea. Due to problems on the railway, goods are transferred from the railway tracks to seaports.
Today, about 70% of the company's production volume falls on primary processing products - veneer, glued laminated timber, lumber and others.
“But from January 1, 2022, the situation may change for the worse, given that we produce a lot of raw sawn timber. Now we are being forced to invest in wood drying. These are additional costs and no additional profit. The question arises: if the buyer uses raw sawn timber, why dry them? ”- Shcherbakov comments.
Photo - Igor Novikov (Government of the Primorsky Territory, primorsky.ru)
It is noteworthy that according to the results of the social and economic development of the Primorsky Territory in January-December 2020, one of the most sagging segments of woodworking is the production of panel parquet assembled (minus 52,9%). For comments, the agency turned to Denis Kondratyuk, a member of the board of directors of CJSC "Les Export". In the local market, CJSC "Les Export" is a leader in the production of parquet boards with a 25-year history, its products are presented in such large retail chains as "Leroy Merlin", "Maxidom" and others.
“Two years ago, we processed almost 100% of our products and produced a wide range of three-layer parquet boards. However, due to changes in forest management, the enterprise lost about 40% of the logging fund. There were problems with servicing loans, and falling demand and closing borders amid COVID-19 exacerbate the situation, ”said Denis Kondratyuk.
The restrictions on oak and ash - tree species that are traditionally used in the production of parquet - also affected. The top layer of the parquet board must be made of hardwood, so it is difficult to find a replacement here.
The company has laid off about 800 people in two years and today it works in one shift instead of two or three. The production employs 200 people.
These problems affected many market participants. Difficulties with lending, curtailment of capacities, downsizing of staff are ubiquitous in the forestry industry in 2020-2021.
If the state "gives the forest"
It is characteristic that one of the few players who can afford to develop deep processing amid the pandemic came to the market relatively recently. The retail giant CSN, the largest taxpayer in Primorye, which has been on the Forbes lists for several years, has invested 1,3 billion rubles in the CSN LES OSB board plant. Production was launched in the midst of the pandemic and is gaining momentum.
Photo: "CSN LES"
The director of the enterprise Nikita Timokhodtsev says that CSN LES was commissioned in 2020 and today produces 20 thousand cubic meters of products per year, and next year plans to increase its capacity to 60 thousand cubic meters annually.
“So far this is a single assortment - OSB particle boards of different thicknesses. Today the sales market is limited to the Far East - from Vladivostok to Ulan-Ude. Shipments go to Vladivostok and Khabarovsk. Next year we plan to enter the Chita market, ”comments Nikita Timokhodtsev.
According to him, in the regional market, CSN LES is the most high-tech enterprise in its segment, given that the production is mainly focused on primary processing - veneer, sawn timber, etc.
So far, the investor does not have his own raw material base, since he is not interested in auctions and wants to “invest serious money” in infrastructure, but is ready to participate in forest tenders for the right to conclude a lease agreement for a forest plot. If the state "gives timber", we plan to achieve profitability of the CSN within 6 years. The first contests are expected to take place this summer.
“Woodworking has serious prospects in Primorye. The problem is that while there is an opportunity to sell low-value products to China, the timber industry is not interested in “long-term” investments. Sales markets are not a problem. We have closed the niche for OSB slabs, but there are many other areas that can be developed, ”says Nikita Timokhodtsev.
Another relatively new enterprise that is attracting attention today is the production of wooden toys under the Kubi Dubi brand. The Eco Toys company launched it in 2018 in the Chuguevsky district of Primorye. Children in America and Canada play with eco-friendly Kubi Dubi toys. Of course, this is a narrow niche, but the experience is indicative. A manufacturer from the seaside hinterland was able to conquer the heart of a western consumer with natural wood products.
Photo: "Eco Toys"
“In terms of annual turnover, Eco Toys reaches about 400 thousand toys of various types per year. We are expanding sales markets, supplying products to Australia, entering European countries. The pandemic has made its own adjustments - it has become more difficult to send samples by air delivery, but in general, no serious problems have arisen ”, - comments the deputy director of the enterprise Alexander Simakin.
Forest market policy
It is symbolic that it was at the production site of Eco Toys that the timber merchants met with the Governor of Primorsky Krai Oleg Kozhemyako in early March.
The head of the region called the problems of the industry the insufficient degree of wood processing, a significant volume of illegal logging and an insufficient volume of reforestation, and also promised to assist in solving industry problems. In particular, he supported the proposal to conduct competitive procedures for the right to long-term lease of forest areas instead of auctions.
Photo - Igor Novikov (Government of the Primorsky Territory, primorsky.ru)
“The industry community spoke in favor of holding not“ short ”auctions for the use of forest plots for a period of one year, but competitive procedures for long periods, for 49 years. We believe that this is correct. This is the sustainable development of companies that will treat your forest area both in terms of fire safety and from the point of view of the prospects of enterprises. We will certainly support this, "the press service of the region quotes Oleg Kozhemyako.
The governor also expressed his readiness to enter the federal level with issues of state regulation. He agreed that the imposition of severe restrictions on exports, and the industry needs a sufficient transition period.
Marina Shemilina, the business ombudsman of the Primorsky Territory, who was present at the meeting, notes that federal legislation is often quite chaotic. New requirements are being implemented too quickly, the business does not have time to reorient itself, and the system is not ready for full-fledged work, as it was, for example, with forest marking. The latest example is the RF government decree "On Approval of Requirements for the Location and Characteristics of Wood Storage Areas (Wood Stores)", which was assessed for regulatory impact from March 1 to March 19. It is assumed that the changes in legislation will come into force as early as July 1, 2021 and will be valid until July 1, 2027. According to the draft law, timber warehouses must have a type of permitted use, providing for the implementation of such activities. The industry believes that the innovations will entail storage problems.
And the business community is absolutely critical of the prospects of creating a state forestry company in the Far East.
Photo: JSC "Russian Railways"
“The return on investment in the forestry industry is at least 10 years. It is assumed that while you will develop woodworking, the export of unprocessed timber will be closed on "that uncle". He will have a profit center and start dictating prices. In essence, it is a reversal of market decisions. In addition, it is simply not advisable to cut off such promising markets as, for example, the sale of logs to Japan by the piece. The forestry industry is treated as an unloved stepdaughter, this tendency has existed for more than one year, ”one of the agency's interlocutors commented.
The industry is ready to grow, but it needs a planning horizon, entrepreneurs say. According to timber merchants, the Primorye government demonstrates understanding in this regard. The Ministry of Forestry of the Territory is pursuing a new policy in the forest market headed by a new head (in January of this year, it was headed by the former federal inspector for the Primorsky Territory of the office of the plenipotentiary of the President of the Russian Federation in the Far Eastern Federal District, Konstantin Stepanov) But there is still no understanding at the federal level.