The Ministry of Industry and Energy of the Russian Federation has published the industrial production statistics for 2006. According to the data, industrial production growth rate in January-December 2006 was at 103.9% of the 2005 level. Outstripping growth was achieved in processing (104.4%). The highest growth rates in the processing sectors (in relation to indexes of 2005) were attained, in particular, in pulp and paper production and publishing/printing activities (106.4%).

The report points to the fact that development of the Russian forestry sector is based on the forest resources largest in the world. The total timber reserves amount to 82bln cubic meters, including 44bln cubic meters of mature and old-growth stand. Valuable coniferous species account for over 70% of the overall reserves. The total Russian Federation yield limit was established in 2006 for exploited forests at 576mln cubic meters.

The utilization rate of the yield limit was, according to estimates, 23.4% in 2006 against 22.9% in 2005 (with a yield limit of 570.7mln cubic meters). The relatively low utilization of the felling quotas evidences a potential for increasing the forest use efficiency.

In 2006, production growth in the forestry sector in general, according to the ministry, was 102.0% against 104.2% in 2005. Recent data suggest that 93.5mln cubic meters, or 95.2% of the 2005 level, of commercial timber and 21.3mln cubic meters, or 96.7%, of sawn timber was produced.

The output of advanced processing products amounted in 2006 to:

Increase in the timber/paper output was achieved mainly due to commissioning and operation of new production facilities in 2005-2006.

The share of foreign investments in the total volume of investment in the forestry sector was 30% in 2005 and, according to estimates, remained at the same level in 2006. In general, investments in the development of the forestry sector reached 41.7 bln rubles against 39.6 bln rubles in 2005.

A number of projects with Russian and foreign capital were put into operation in the sector in 2006.

The largest of them are:

Plant in Shuya (Ivanovo region) producing 250 000 cubic meters of chipboard per year, built by the Austrian company Egger.

The Finnish company Metsa Botnia commissioned a saw mill with a capacity of 200 000 cubic meters of sawn timber per year in Podporozhsk county of the Leningrad region.

In 2006, the Finnish group Stora Enso completed the construction of the second line for the production of 75mln cubic meters of corrugated board per year in Arzamas, Nizhny Novgorod region.

In October 2006, the North-Western Forestry Company commissioned the Neman Paper Mill No. 3 (Kaliningrad region) with a capacity of 60 000 ton of paper per year. This is the largest project in the domestic pulp and paper industry in the recent years.

Up to 98% of internal demand for coated board is currently covered by import. 350 000 ton are estimated to be needed annually, and the figure is constantly rising.

In this connection, the assessment of fixed capital expenditures using all sources of financing shows their outstripping growth for the production of pulp, groundwood, paper, cardboard and associated products as compared with investments in wood processing and manufacturing of wood products.

The share of furniture production in the total forestry sector output in 2006 was, according to estimates, 11.7%.

Small business has been accelerating its development in the furniture industry during the recent years. Furniture production growth at small companies considerably outstrips the general industrial indicators. Small companies currently account for about 20% of the total furniture production.

A faster development of the furniture production can be achieved due to the relatively low endowment of population and various facilities with furniture, given a high pent-up demand for furniture products, sufficient own supplies of main raw materials, demand for parts, half-finished products and furniture on the foreign markets, primarily in the CIS countries.

The overall production value in the forestry sector in 2006 in general was, according to estimates, 495 bln rubles. 

Balance profit for the 9 months of 2006 for individual economic activities was as follows: wood processing and manufacturing of wood products – 2.2 bln rubles (107.7% of the previous year level), production of pulp, groundwood, paper, cardboard and associated products – 14.7 bln rubles (127.4%). Logging operations became unprofitable in 2006 (-0.2 bln rubles). Only the export-oriented regions of the Far East and the Irkutsk region remain profit-making.

Profitability of sold products was 5.2% for wood processing and manufacturing and 15.6% for the production of pulp, groundwood, paper, cardboard and associated items.

Exports of timber and paper products (including furniture) are estimated to be worth 10bln USD in 2006, or 116.3% of the 2005 level. At the same time, the growth rate of export volumes slowed down. Log exports grew 106.9% in 2006 against 115.7% in 2005, sawn timber exports went up 107.8% (117%), plywood – 102.9% (107%). Export volumes of these products to the CIS countries meanwhile show a faster growth (122.7%, 132.9%, 136.4%).

Import of furniture grew by 28.6% in 2006 exceeding 1bln USD.

The panel session held on April 6, 2006 in Syktyvkar under the chairmanship of the Russian president pointed to the necessity to work out measures aimed at boosting investments in the development of advanced wood processing and providing favourable conditions for investments on the basis of investment agreements (for major investors).

Import of Russian timber to the three global leaders in paper production (China, Japan, Finland) according to estimates amounted in 2006 to 43mln cubic meters. At the same time, no investment proposals for construction of pulp and paper mills in Russia were received from these importers, indicating the intent to continue using Russian timber as raw material. The relevance of the said measures arises from an increase in the volumes of Russian timber imported by these countries.

The mentioned panel in Syktyvkar also discussed the issue of a stepwise schedule for raising the export customs duty rates for logs till 2010. Higher duties on logs should encourage foreign investors to build advanced wood processing facilities in Russia.

In 2006, the industry completed the state-level research project “Development and pilot operation of the technology for the production of new high-quality cardboard types using secondary fiber”.

The main objective of the project is to provide domestic manufacturers of cardboard containers and packing with modern high-quality, competitive cardboard types produced using secondary fiber and resource saving technologies. The issues of import substitution are thereby resolved by reducing or completely ceasing to purchase coated board and containerboard as well as by using home-produced chemical agents and materials (e.g. acrylic latex, white pigments) in the production process.

The project makes provision for the development and pilot operation of the secondary fiber-based production technologies for the following basic types of high-quality cardboard: improved-surface containerboard, improved-surface boxboard, coated containerboard, coated boxboard with two and three-layer clay coating.

According to the project, the sales of domestically manufactured box- and containerboard are expected to hit 1150.0mln rubles in 2006.

2006 saw the drafting of federal legislation on the special technical regulations “safety of pulp/paper industry products and production processes” and “wood processing products safety”.

The main challenges hampering forestry sector development remain to be the low competitive ability of many types of products resulting from a lack of advanced production technologies and high-tech equipment at most forestry enterprises, relatively low appeal of forestry companies as an investment (up to 50-55 bln rubles is required in order to accelerate the development of the forest industry annually), spare capacities lacking in a number of production sectors (some pulp/paper and plywood mills have capacity loaded over 90%).

The preparation and execution of the federal target programme “Development of advanced wood processing capacities and new forest areas through to 2010” can help meet these challenges.

Business Support Bureau 'Runa' www.runa.info
based on the materials of bumprom.ru