Exports of Roundwood and Sawnwood from Russia and Effects on Market Competition Finnish Forest Research Institute: Antti Mutanen, Jari Viitanen & Riitta Hänninen Pellervo Economic Research Institute: Ritva Toivonen & Erno Järvinen European Forest Institute: Anne Toppinen & Alexander Moiseyev 25.6.2008 St. Petersburg Metsäntutkimuslaitos Skogsforskningsinstitutet Finnish Forest Research Institute www.metla.fi
Contents 1. Research Topics 2. Roundwood Exports from Russia 3. Russian Roundwood in Finland 4. Sawnwood Exports from Russia 5. Export Customs Tariffs for Russian Roundwood: Scenarios for Development of Russian Forest Industry 2005 2020 6. Competitive Position of Russian Wood Working Industry 7. Concluding Remarks 7.7.2008 2
Research Topics Development of Russian roundwood exports. Effects of roundwood exports on markets and price formation (primarily on markets in Finland). Exports of Russian sawnwood to Western Europe, and effects on Finnish and Swedish exporter s market shares especially in Germany. Effects of custom tariffs for Russian roundwood on exports, loggings, prices and production in Russia. Marketing strategies and operational environment of wood working industry in Northwest Russia. Prospects of exports of Russian forest sector. 7.7.2008 3
Roundwood Exports from Russia Since the beginning of 1990s, the volume of roundwood exports from Russia has five-folded. Total Russian Roundwood Exports Russian Roundwood Exports to Finland 50 milj. m 3 (u.b.) 40 30 20 10 0 1992 1994 1996 1998 2000 2002 2004 2006 Sources: Faostat, Federal Customs Sercive, Board of Customs. After 1998, the share of Finland from total exports has decreased. In 1998, this share was over 40 percent while in 2005 the share was about 25 percent. 7.7.2008 4
Roundwood Exports from Russia Distribution of roundwood exports by countries (2005): Korea, Rep. 5% Latvia 1% Japan 13% Sw eden 3% Estonia 3% Source: Faostat. Coniferous Roundwood Exports (34.7 mill. m 3 in total) Other countries 10% Finland 19% China 46% Non-coniferous Roundwood Exports Latvia 3% Japan 1% Sw eden 15% Estonia 2% Source: Faostat. (13.3 mill. m 3 in total) Other countries 14% China 14% Finland 51% The shares of Finland from total Russian roundwood exports to Europe are 60 % in coniferous and 75 % in non-coniferous timber assortments. 7.7.2008 5
Russian Roundwood in Finland Imports of Russian roundwood into Finland peaked in 2005. The increase was 350% compared to the early 1990s. Increase in total imports was mainly based on the increase in softwood assortments. In 2007, the share of Russian roundwood from the total roundwood use of Finnish forest industry was 15 % (21 %, 2005). By assortments (2007): Pine logs 5 % Spruce logs 4 % Birch logs 25 % Pine pulpwood 6 % Spruce pulpwood 7 % Birch pulpwood 49 % Import of Russian Roundwood 16000 12000 1000 m 3 8000 4000 0 1992 1994 1996 1998 2000 2002 2004 2006 Sources: Finnish Forest Research Institute, National Board of Customs Distribution of Russian Roundwood Imports by Timber Assortments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1992 1994 1996 1998 2000 2002 2004 2006 Sources: Finnish Forest Research Institute, National Board of Customs Chips Pine saw logs Spruce saw logs Birch saw logs Pine pulpw ood Spruce pulpw ood Birch pulpw ood Other roundw ood (e.g. aspen) Chips Pine saw logs Spruce saw logs Birch saw logs Pine pulpw ood Spruce pulpw ood Birch pulpw ood Other roundw ood (e.g. aspen) 7.7.2008 6
Russian Roundwood in Finland Russian birch pulpwood has complemented for domestic supply. Russian pine pulpwood has substituted for domestic supply. Russian roundwood lost its price competitiveness even before the custom tariffs. In some cases, the prices of Russian roundwood assortments (e.g. spruce sawlogs) have closely followed the development of Finnish prices. In some cases, such as birch pulpwood, the price developments have been differed. Spruce sawlog /m 3 70 60 50 40 30 20 1998 1999 2000 2001 2002 2003 Source: Finnish Forest Research Institute Birch pulpwood /m 3 60 50 40 30 2004 2005 2006 2007 2008 Delivery price Border price Delivery price Border price 20 1998 1999 2000 2001 2002 2003 2004 Source: Finnish Forest Research Institute 2005 2006 2007 2008 7.7.2008 7
Russian Roundwood in Finland Pine sawlogs /m 3 70 Birch sawlogs /m 3 80 60 50 40 Delivery price Border price 70 60 50 40 Delivery price Border price 30 1998 1999 2000 2001 2002 2003 Source: Finnish Forest Research Institute 2004 2005 2006 2007 2008 30 1998 1999 2000 2001 2002 2003 Source: Finnish Forest Research Institute 2004 2005 2006 2007 2008 Spruce pulpwood /m 3 Pine pulpwood /m 3 50 50 40 Delivery price 40 Delivery price 30 Border price 30 Border price 20 20 1998 1999 2000 2001 2002 2003 Source: Finnish Forest Research Institute 2004 2005 2006 2007 2008 1998 1999 2000 2001 2002 2003 Source: Finnish Forest Research Institute 2004 2005 2006 2007 2008 7.7.2008 8
Russian Sawnwood Exports Exports of sawnwood from Russia have tripled since 1998. Recently, Russia is the second largest exporter of sawnwood after Canada. Most important single countries are Japan (12 % of total exports) and China (10 %). Western Europe is the most important export market area for Russian sawnwood. The share of old EU-countries (EU15) of total exports is about 40 %. Export of Softwood Sawnwood from Russia, Finland and Sweden 16 14 12 Russia mill. m³ 10 8 6 4 2 Finland Sweden 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Faostat. 7.7.2008 9
Russian Sawnwood Exports: : Case Germany Russian sawnwood has won market shares in Germany, whereas Finnish and Swedish sawnwood has lost shares. However, according to the several statistical sources, Russian sawnwood has not substituted for Finnish or Swedish sawnwood. Finnish exporters have been price leaders in Germany s sawnwood markets: Russian and Swedish sawnwood prices have followed the Finnish ones. One explanation for the redistribution of market shares could be the reorientation on, for example, markets in Japan. Market Shares in German Sawnwood Export Market 30% % of totla volume 25% 20% 15% 10% 5% Russia Finland Sweden 0% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: Eurostat. 7.7.2008 10
Scenarios for Development of Russian Forest Industry 2005 2020 EFI-GTM -model (Kallio et al. 2004) Based on economic modelling, the model describes the global forest sector by regions. Was used to analyse the effects of custom tariffs for Russian roundwood on loggings, roundwood exports, sawnwood production and roundwood prices in Russia Scenarios: Baseline: Development without any increases in customs tariffs. Scenarios: Customs tariffs are added in the model, and the results are compared to the baseline: Baseline, no changes in custom tariffs I Customs tariffs for softwood 15 /m 3 (in 2008) II Customs tariffs for roundwood 15 /m 3 (2008, hardwood 2011) III Customs tariffs for roundwood 15 /m 3 (2008), and after the beginning of 2009 50 /m 3 IV Scenario III together with better atmosphere for forest sector investments 7.7.2008 11
Scenario Results in 2020 Results of customs tariffs scenarios are compared with the result produced by the Baseline scenario. The effects of export tariffs on Russian forest sector Scenario results compared to the BASELINE Proportion to BASELINE. BASELINE 2020 = 1 1.2 1.1 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 II tariff 15 s-rw III tariff 15 all-rw IV tariff 50 in 2009 V tariff 50+invest Roundwood Export Fellings Sawnwood production Price of coniferous sawlogs Source: EFI-GTM calculations. 7.7.2008 12
Competitive Position of Russian Wood Working Industry 18 managers of wood working industry in Leningrad and Vologda area were interviewed. The most important competitive advantages were general reliability of company, good reputation and professional personnel. Contrary to the presumptions, cheap and voluminous raw material and labour force were not seen as a factors of competitiveness. Domestic markets in Russia were not seen highly attractive. Instead, companies find possibilities to enlarge their business by addressing in European markets -> Increasing competition in final markets 7.7.2008 13
Concluding Remarks Exports of Russian roundwood have increased especially to Asia. In the EU area, over 70 % of exports was allocated to Finland in 2005. Even before the customs tariffs, Russian roundwood was loosing its price competitiveness. During January-December 2007, exports to Finland decreased 24 % with respect to 2006. In December 2007, the share of Russian roundwood was only about 50 percent of total roundwood imports into Finland. Yet, the share has since increased again. Russian sawnwood exporters have succeeded to win market shares in Europe, but so far they are not in the leading market position. In Russia, customs tariffs programme for roundwood exports will reduce loggings and roundwood exports. Instead, the production of sawnwood will increase. However, in general, the development of Russian forest sector may decelerate. Russian wood working companies seek possibilities for growth especially in European markets. This will increase competition also globally. 7.7.2008 14