Russian timber has lost more than one-third of its export markets, with war sanctions and interest rates crippling one of Vladimir Putin’s most important sources of funding. That is according to Kyrylo Shevchenko, former head of Ukraine’s Central Bank, who said the decline in lumber (which makes up 1% of Russia’s GDP) was having a major impact on Russia’s economy: “The Kremlin scrambles tax cuts, state purchases, anything to keep it breathing.”
“The cost of Russia’s war in Ukraine stretches far beyond the battlefield. Profitability hovers near zero, interest rates climb, and shutdowns loom, threatening even stable sectors (like forestry).”
Mr Shevchenko, former head of the Ukriaian Central Bank, who today spoke to the UK-based Daily Express on the impact of war sanctions and interesr rates on the Russian economy,
Mr Shevchenko’s comments come after Russia’s Central Bank was forced to hike interest rates to 21% last year – pushing some of the world’s largest pulp, paper and lumber producers to the brink of bankruptcy.
Before the war, Russia ranked second in the world for lumber, with 82 billion cubic meters of available forest resources; however, thanks to sanctions, Russia increasingly relies on China, India, Japan, and even South Korea to make up the £5 billion shortfall in export revenues.
In September, Wood Central revealed that the Segezha Group, responsible for 30% of all Russian forest products, wanted to ramp up exports of timber-based prefab construction, biofuel, pellets and plywood in India – growing from 3% to more than 25% of all Russian lumber. “This is the start of a long-term strategy,” according to Nikolai Ivanov, Segezha Group’s Vice President for External Relations, who acknowledges that these are still small volumes compared to the market’s full potential.
Speaking to the Eastern Economic Forum – a geopolitical forum aimed at boosting Far East Russian trade, Mr Ivanovic said Russia and India – long-time allies from the Cold War, must work to reduce import tariffs (30% on all Russian plywood) and duties (10% on paper): “High logistics are a hurdle,” Mr Ivanov said, “for Segezha Group, keeping transportation below 15-20% is crucial for profitability…a US $1,800 per 40-foot container is an acceptable rate.”
According to Mr Ivanov, reduced tariffs, duties, and crunched logistic costs could open up an enormous market for Russia – potentially exporting up to 50 million cubic metres of timber into India every year: “This represents 25% of Russia’s entire timber harvest while helping India meet its surging demand for plywood, lumber and logs.”
- To learn more about the impact of sanctions on Russia’s timber and paper supply chains, click here for Wood Central’s coverage from August 2024.
