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Dark forest: new losses declared by timber producers of the Far Eastern Federal District
The industry was hit simultaneously by a collapse in wood prices, the introduction of new phytosanitary requirements and the closure of borders with China
Since the beginning of 2020, the timber industry in the Far East has faced losses. They are caused by several factors: a collapse in wood prices, the introduction of new phytosanitary requirements, and the closure of borders with China's largest consumer of Russian forest. What this led to and what consequences to expect in the future - in EastRussia material.
WHAT NEXT TO FOREST
According to the Russian Ministry of Industry and Trade, in 2019, the Khabarovsk Territory became the leader among the exporting regions of the forest. The top ten forest suppliers abroad also included Primorye and the Amur Region. The amount of exports exceeded 423 million dollars. Most of the rounds were shipped to China: shipments totaled over eight million cubic meters worth $ 781 million.
For the timber industry of the Far Eastern Federal District, 2020 began with losses. The outbreak of coronavirus infection in China triggered a sharp decline in production, which led to a decrease in demand for wood. This markedly affected prices. According to Pavel Korchagin, Director of the PALEX Primorsky Association of Timber Industrialists and Forest Exporters, timber demand in China has fallen by about 20% -50%, and production in the Middle Kingdom has literally stopped since the beginning of the year.
“Demand sagged quite a bit, because in China the pace of industry has seriously decreased. Forest prices also declined, as did demand — about 20% -50%. The market situation is now complicated, because the main export of timber goes to China, and as you know, the Chinese economy suffers very much from the coronavirus, ”said Pavel Korchagin.
According to timber merchant Viktor Doroshenko, forest prices have indeed declined markedly. In addition, supply contracts are broken, because a buyer from China simply cannot visit Russia on a business trip.
“Until recently, the price of wood was $ 200 per cubic meter of wood, now it has fallen to $ 122. Just now, we were expecting the arrival of our business partners from China. They had to inspect the goods on the spot, negotiate a price and conclude a supply contract. Due to the spread of coronavirus to Chinese citizens, entry to us is closed. In addition, demand still fell as did production in China, ”the timber merchant said.
In his opinion, today it is difficult to make any forecasts for the future, most likely the situation will begin to improve closer to mid-spring
The decline in prices and demand is not the only disaster that befell timber producers. The closure of checkpoints on the border with China in late January and the introduction of new phytosanitary standards also negatively affected the industry.
“In January, we did not sell a cubic meter of timber,” said Natalya Vikhrova, Deputy General Director for Corporate Governance at Terneyles. - Phytosanitary services did not issue certificates for timber export. Moreover, all these new requirements are not spelled out in any documents. According to new phytosanitary standards, it is necessary to carry out fumigation - treating the bark of a tree with special gases for the purpose of disarmament. The procedure is carried out at a temperature not lower than 15 degrees Celsius, and now it is winter, the temperature is below zero. However, in speed the Chinese authorities made concessions to us and began issuing certificates again. ”
Victor Doroshenko believes that the hitch with the issuance of phytosanitary certificates is a response of the Chinese authorities, working on the same principle as tightening the requirements for importing vegetables, which this winter led to a shortage and a significant increase in the cost of vegetables and fruits in the Far East.
“In my opinion, the Chinese made a mirror attack in connection with the ban on the import of citrus and stone fruits, which was undertaken last fall and winter by the Russian phytosanitary service,” said Doroshenko.
The timber merchant said that most of the wood today is exported by sea, and not through railway crossings. In case of downtime, losses cannot be avoided.
“A vessel with our forest was not allowed in February due to quarantine. The ship stood for more than ten days. We lost $ 2 a day on fuel alone. But you have to pay for every additional day of downtime, as well as the team’s meals, salary, ”the timber merchant said, noting that the profitability from the sale of wood is only 500%.
Today, the industry is going through hard times - small enterprises are leaving the market, who have to “be content with crumbs”. Over the past few years, export duties on roundwood have grown from 25% to 60%. At the end of last year, the Dalexportles Association even sent an appeal to the presidential administration with a request to cancel the planned increase in duty to 60%. The timber industry even then declared a crisis in the industry in the Far East and asked to reduce the duty to 6,5%.
“We have large volumes of production, we sell veneer to the Japanese market, so the increase in duties on our activities did not affect much. Now the situation in the market is such that it is more profitable to sell processed timber than a round timber. However, small sawmills, which are located somewhere in the wilderness, do not have time to reorient themselves and begin to engage in forest processing. As a result, many companies today are in the stage of pre-bankruptcy. And not only small, but also large enterprises are leaving, ”explained Natalya Vikhrova.
The Ministry of Industry and Trade announced that the government is taking a number of measures to increase the depth of wood processing. They are aimed at reducing the export of unprocessed wood and the development of its deep processing.
“The introduction of a tariff quota for Far Eastern wood (Ayansky spruce, white fir and Daurian larch) in the total amount of four million cubic meters annually with a reduced export customs duty rate of 13%, with a phased increase in the export customs duty rate outside the quota to 805,” - stated in the ministry.
The ministry also noted that as a result of measures taken in 2019, the production of lumber increased by 13,2% in the Far Eastern Federal District, plywood by 31,7%, pellets by 24%, paper and cardboard by 25,4%, and 10,8 , 7,3% - cellulose, 0,7% - furniture. Last year, sawn timber exports from the Far East also increased - by 18,1%, fuel pellets by 2,5%, furniture exports grew XNUMX times, and deliveries of fiberboards abroad began.
FOREST CUT - CHIPS ARE FLYING
The blow to the timber industry will affect the economy of the entire Far East, since this industry is one of the main ones in the macroregion. However, according to the forecasts of economist Nikita Maslennikov, disaster will not happen.
“Of course, a decrease in forest prices will negatively affect the macro-region’s economy, but this will not have critical consequences. In addition to the timber industry, there are other export industries. Although losses are inevitable today, production in China is now operating at 50%. Roughly speaking, half of the capacities are idle, and much connects us to China, ”the expert said.
According to him, forestry is an industry that had certain problems long before the coronavirus. Now its participants are faced with two challenges.
“The industry needs modernization. There has long been a need to increase the volume of woodworking and that is the future. Regulation is also a serious challenge. The lack of control in the forest industry is claimed by many politicians who are trying to force the industry to move onto the rails of modernization. It will be a long time and not all market participants will survive. And the demand for wood will certainly not grow in the foreseeable future, ”the expert concluded.
Recently, Prime Minister Mikhail Mishustin also announced the need for changes. He said that the strategy for the development of the forest industry adopted in 2018 until 2030 does not sufficiently take into account its features: it is necessary to return the forest industry to the legal field, rethink the accounting system, create a fiscal system.