By Bob Flynn, Director, International Timber, RISI
St. Petersberg, Russia,
Oct. 27, 2009 (Viewpoint) -
Yesterday (October 25, 2009) Russian Prime Minister Vladimir Putin told an international forestry meeting in St. Petersburg that the log export duty will remain unchanged in 2010, and this same level may be extended into 2011. In April 2008, the duty on unprocessed log exports was increased to 25% of export value, or a minimum of 15 Euros per cubic meter for softwood and 24 Euros per cubic meter for hardwood logs greater than 15cm diameter. The tax was originally scheduled to increase to 80% of value, or a minimum of 50 Euros per cubic meter, for both softwood and hardwood in January 2009, but in November 2008 the Russian government announced a "one year delay" in implementation of this higher rate. Yesterday's announcement means that the export duty will remain unchanged at least until January 2011, and the hike to 80% may be delayed even further.
This delay until at least 2011 had been expected, but the key part of this announcement was Putin's comment that the tax rate would not be lowered, and that at some point the planned increase in the export tax is still going to happen. According to Reuters, Putin said, " We will still do it (increase the export tax to 80%), but we will not do it stupidly...as the situation will change, you have time to calmly prepare." During 2009, there had been speculation that perhaps the tax would be rolled back or abandoned, but Putin's statements make this increasingly unlikely. Finland has backed down on its initial threat to block Russia's from joining the WTO because of the log export tax, with Finnish Prime Minister Vanhanen now saying that Helsinki backs Russia's bid.
It appears that Finnish companies have largely made adjustments to live without Russian logs in the future, and the importance of Russian roundwood in Europe in general has declined dramatically in recent years. Based on actual exports through the month of August, it appears that Russian hardwood log exports to Europe in 2009 will be 85% lower than in 2005, and exports of softwood logs will be 88% lower (Figure 1). Finnish import data indicate a 79% decline in imports of Russian logs in the first seven months of 2009, compared with the same period in 2008. Of course, demand for logs in general has declined in Europe in 2009, but the fact that all three of the big Finnish pulp companies (Stora Enso, UPM, and Metsäliitto) have reportedly either closed their logging offices or sharply reduced staffing in Russia sends a strong signal. As we've said numerous times, a "delay" in the very high log export tax Russia has threatened is just that.... Finnish companies had hoped for some reprieve, but have also been developing plans to live without Russian wood, and we do not expect to see a strong rebound in imports of Russian logs in the future.
(Figure 1 Source: Global Trade Atlas)
The average price of Russian softwood logs imported into Finland fell from US$95/m3 in June 2008 to $69/m3 in January 2009. Prices have fluctuated only slightly during the year, and in August softwood Russian logs imported into Finland averaged US$71/m3, according to Customs data. If the Russian log export tax had increased to a minimum of 50 Euros per cubic meter, and underlying log values had remained unchanged, the average August price would have increased from $71/m3 to $121/m3, a 70% increase. With Europeans largely turning up their noses at Russian logs, China becomes increasingly important for log exporters in Russia. Through the end of August, 40% of Russia's hardwood log exports and 84% of Russian softwood log exports went to China.
To date, any measurable impact of Russia's log export duty has been difficult to detect, in part because of the weak global wood markets over the past year. Through the end of August, Russia's exports of softwood lumber are up slightly (+2.2%), but this does not begin to offset the much larger decline in Russian softwood log exports. In total, Russian exports of softwood logs + lumber (on a roundwood equivalent basis) in 2009 will be more than 30% lower than in 2007 (Figure 2). Even with substantial new investment in log processing in Russia, it will likely be the middle of the next decade, or later, before Russia's importance in the global softwood markets even returns to the levels of 2007.
(Figure 2 Source: Global Trade Atlas, RISI)
