Finland's forestry sector suffers from EU sanctions curse

By Rhod Mackenzie

I have talked alot about in my previous videos about Russia being a major exporter of oil and gas, also about commodities like coal,copper, iron ore and gold. I have also covered the agriculture sector in depth.
Today my video is about Forestry and Trees
According to the United Nations Food and Agriculture Organization (FAO), 49.4% of Russia, or approximately 809 million hectares,of Russia is forested. Of this, 31.7% (256 million) is classified as primary forest, which is the most biodiverse and carbon-dense form of forest. And Russia is one of the world's largest exporter of timber and wood products,obviously this is not a surprised given the amount of forest it has. BTW Russia makes a whopping $8.5 billion per year from exports of wood and associated products.
Now it appears that Russia's neighbour and recently joined NATO member is now suffering from the sanctions curse
Despite the passage of two years, Finland has yet to recuperate from the European embargo on timber purchases from Russia. It has not been feasible to identify a comprehensive substitute for Russian timber, resulting in the closure of numerous factories and a significant surge in prices. Consequntly, Russia has not only identified new markets but has also increased its export activity. Furthermore, it has been able to gain market share in foreign markets by offering competitive pricing.
The refusal to import timber from Russia is causing Finland to experience significant challenges, according to Tino Aalto, the head of the Finnish Sawmill Industry Association. The ratio between log and sawn timber prices has reached its highest level in more than 15 years, which presents a significant challenge to the industry's economic stability.

In 2021, the industry produced approximately 12 million cubic metres of lumber per year. However, this figure has since decreased to 10.5 million.

Jakob Donner-Amnell, a researcher at the University of Eastern Finland, has stated that timber prices will remain high in the country for an extended period and could have significant economic repercussions.
The majority of Finland's imports from Russia were unprocessed and sawn timber, as well as fuelwood. "Finland was reliant on these supplies from Russia. Russia accounted for approximately two-thirds of the total volume in each commodity group. While

Finland was able to identify alternative suppliers of wood fuel (including the Baltic countries, Sweden and Denmark), there were challenges in sourcing timber. The import of unprocessed timber into the country decreased by a third from 2021 to 2023, from $339 million to $220 million, while sawn timber fell by a third over the same period, from $130 million to $39 million. "The reason may be not only the higher price, but also the lack of supply on the world market," states Anastasia Prikladova, Professor of International Business at the Plekhanov Russian University of Economics.
Despite the two-year period since the EU introduced a ban on imports of Russian timber, Finland has yet to identify a suitable replacement. Furthermore, it was previously reported that the Finns were even forced to burn for heating not the usual sawdust, other by-products of the forest industry and small-diameter timber, but also pulpwood and construction timber, which are in short supply due to the aforementioned EU ban.
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In the fifth package of sanctions introduced by the EU in the summer of 2022, an embargo on timber and timber products was implemented. Prior to this, Russia was the second-largest supplier of timber to the EU, after China. Imports in 2021 were estimated at $4.6 million.
BTW it is important to mention that the USA despite its rhetoric about financing Russia still buys over $1.5 billion of Russia n timber products, if you add to that enriched uranium and ferlisers the US imports $ 5 billion worth of Russian commodities. But that is US hypocrisy for you.

Other European countries have also experienced some impact, but to a lesser extent, given their reduced dependence on Russian timber. By way of illustration, Sweden has its own logging industry and was therefore able to replace Russian timber with its own raw materials. However, Finland was unable to fully replace Russian timber with alternative suppliers, according to Artem Deev, head of the analytical department at AMarkets.

In theory, Finland could source timber from China, which has increased its purchases of wood products from Russia. "However, there are two main obstacles to this. Firstly, timber would then become a highly cost commodity due to the expensive logistics involved. Secondly, it is much more profitable for China to produce and sell finished products rather than resell materials," Prikladova believes. Mr Deev adds that China's supplies do not fully satisfy Finland's needs in terms of quality and volume.

Despite the shortage and rising prices, Finland is not requesting that the EU lift the embargo. Instead, it is advocating for a global ban on Russian timber imports, including sawn timber, by all G7 countries. It is notable that Japan and the US have not ceased importing Russian timber, although the volumes have been reduced.
It is a matter of record that the majority of the 10.5 million cubic metres of lumber produced by Finland is exported. Indeed, 8.5 billion cubic metres are exported, leaving only 2 million cubic metres in the country. Russian timber industries have identified new market opportunities, diversifying their export destinations beyond Europe to include North Africa, Japan, and China. The issue is that these countries represent significant markets for Finnish companies.

Consequently, Finland is forced to close its sawmills. In April, the Merikarvia mill, with an annual capacity of approximately 220,000 cubic metres of sawn timber, ceased operations. Currently, there are layoffs at the Joutseno pulp mill, situated 9 km from the Russian border near Lappeenranta. The facility produces high-yield softwood pulp, which is used as a raw material for the production of cardboard, tissue and printing paper.

The substantial dry port in the Finnish city of Kouvola, which cost an estimated value of tens of millions of euros to construct, has remained idle without a connection to Russia. The facility was operational for only a few months following its construction.

However, Russian companies were able to overcome the embargo in less than a year. Russia was able to identify alternative markets for its timber, in contrast to Finland. In the initial period following the introduction of the embargo in the summer of 2022, there were inevitable logistical challenges, given that up to half of the timber exports were destined for Europe.
Consequently, Finland is compelled to cease operations at its sawmills.

However, Russian companies were able to overcome the embargo in less than a year. Russia was able to identify alternative markets for its timber, in contrast to Finland. The first year after the embargo was introduced in the summer of 2022 presented a number of logistical challenges, given that up to half of the timber exports were destined for Europe.

Following the introduction of sanctions in 2022, exports of sawn timber fell by 22% to 23.4 million cubic metres. In the first quarter of 2023, there was a 21% decline (according to Roslesinforg). Russian companies have reported a decline in financial indicators for the first half of 2023. To illustrate, the Segezha Group, a forest industry company, reported a 42% decline in revenue during the first quarter of 2023, accompanied by a significant reduction in profitability, from 37% to 6%.
However, by the summer, alternative logistics chains and sales markets had been identified and established.

In the second half of last year, exports from Russia were restored, albeit in a different direction – eastward. Furthermore, the redirected export volumes not only compensated for the lost exports, but also resulted in increased overall deliveries.

In 2023, Russia increased exports of timber and timber products by a third compared to pre-sanctions 2021, reaching a total of $8.4 billion.

China remains the primary purchaser of Russian sawn timber, with Uzbekistan and Kazakhstan in second place. The most significant increase in exports last year was to Turkey, which saw a 2.3-fold rise, as well as to Kyrgyzstan, South Korea, Egypt, Kazakhstan, Hong Kong and the UAE.As I mentioned the hypocritical USA remains a large buyer and there is no sign of an embargo at the moment although they have imposed tarrifs that have had no effect on their imports of Russian timber
Export deliveries are demonstrating consistent growth, with an increase of one and a half times compared to January in April 2024. We are pleased to report that sales to Lebanon, Iran and Iraq have increased this year, and that deliveries to Syria, Israel and Afghanistan have also begun. Nevertheless, over 65% of the total timber export volume is still destined for China.