Top 3 Factors that Influence Investment in Russian Sawmills in 2022

The Russian sawmill sector can be divided into two distinct fragments – one, the large export-oriented companies and two, smaller companies that rely on the domestic market. The industry, however, is going through a serious pressure period, all thanks to inflation and several other factors, that has ultimately amounted to the high prices of the delivered logs along with the requirement to invest in new equipment and infrastructure to maintain competitiveness.

What Does the Russian Sawmilling Sector Look Like at a Glance?

If we look at the past, the production of Russian sawn wood has almost doubled since the early 2000s. The industry development and overall level of production of the same are typically driven by the exports. However, the domestic demand and production for sawn softwood is expected to be higher than what the official stats are now able to estimate.

Now, the Russian sawmilling industry is still extremely fragmented as it is characterized by smaller mills that have an annual capacity of hardly 100,000 cubic meters. Most of these mills (small and medium-sized ones) focus on serving the domestic market and local clients. This means that a large share of these mills will be missing from the production statistics, officially resulting in a misleading supply and demand scale in the country. However, there is still a chunk of sawmills (the larger ones) that focus only on the export markets.

The 1H 2021 railway timber transportation had experienced an unexpected growth due to the increase in the demand for pulp, timber, and paper products for both domestic and external markets. The total volume of sawn timber and timber loading, including the transportation container, has increased by around 3%, in the specified period of around 22.6m tons every year.

The driver for the growth in the domestic traffic, at around 6% to 10.6m tons, accounted for the unprocessed wood transportation for the Russian processing company requirements. Around 10.2m tons were transported, with 7% year-on-year and that included +4% to 2.9m tons sawlogs, +24% to 2m tons veneer, +42% to 1.4m tons timber for production of wood-based panels.

China, in the meanwhile, has become the primary export destination for Russian sawn wood. So much so that its share of all exports has risen from just 3% to 60% in the past few years. The exports from Russian sawmills to Central Asia have also increased, however, at a modest pace. If we consider the Middle East, the share of these core export markets totals at around 80% of the total volume of export. The low-quality requirements of these markets have enabled the sawmills to meet the demand without changing anything. With the help of a supply chain automation platform, you can check out the price range of such logs and choose a timber supplier that suits you best.

Factors that Influence Cost in the Russian Sawmilling Business

Similar to any other industry, costs and productivity form the base of the sawmilling business as well. Some of the major factors that influence the cost in the Russian sawmill industry include:

• Raw Material: Taking up the majority of the sawmilling cost structure irrespective of the geographic location, raw materials is one of the most important aspects of the business. In Russia, you get a distinct benefit in the same because the cost of the delivered logs here is amongst the lowest when compared to other competing suppliers. There is a natural regional difference in the domestic log price volatility within the country. But when it comes to other regions, the prices are relatively stable.
• Labour: When we speak about the Russian sawmills, in particular, we have to mention that the cost of labour is significantly lower than any other competing business. The level of cost has further decreased in Euro terms, but the same has increased annually in the local currency. The exchange rates being on the favourable side have enabled this development. Irrespective of the cost advantage, however, the industry is extremely labour intensive.
• Capital: In the Russian sawmilling industry, at present, there are over ten planned and near-term investment projects in the pipeline. The total new capacity, as per statistics, totals to over 2.5 million cubic meters every year, which ultimately amounts to over a 5% increase when compared to the current production level. Now, the final gate price for the logs mostly depends on every mill’s ability to use their AAC (annual allowable cut) properly. The high utilization rate of the AAC should be pursued specifically in areas that require major investments in infrastructure. The future mills would require more automated systems, attractive salaries for skilled people, employee independence, and high-skilled labour. However, since the infrastructure is limited and the long transport costs are considerable, the ideal size of the mill is considered very carefully.

The demand for construction wood in high rises is increasing globally, and so is the popularity of Russian sawmills. The investment in market and product research along with expanded marketing and sales efforts is sure to drive the Russian sawmilling industry to its maximum value potential by increasing profitability and production. With the help of a B2B supply chain automation digital toolkit like Timber Exchange, you can keep a track of the various suppliers including Swedish sawmills and the best price offered by them. Should you be interested in the subject, feel free to get in touch with https://www.timber.exchange.