Paula Horne: Impact of the Russian war on forest sector.pdf

1. IMPACT OFTHE RUSSIAN WAR IN UKRAINE
ON FINNISH FOREST SECTOR
Paula Horne
Pellervo Economic Research PTT
30.5.2022
31.5.2022

2. FORESTRY
31.5.2022
Termination of the import of
Russian wood
- Some companies made their
own decisions
- Certification systems: conflict
wood
- Later, Russian decision to ban
exports

3. USE OF WOOD IN FINNISH FOREST INDUSTRY
(2021)
0
10
20
30
40
50
60
70
80
90
Milj.
m3
Forest industry
Domestic Imported
31.5.2022
0
10
20
30
40
50
60
Milj.
m3
Pulp industry
Domestic Imported
12%
88%
81%
19%
0
10
Milj.
m3
Imported wood
Logs Pulp wood Chips
0
10
20
30
40
50
Milj.
m3
Domestic wood
Forest industries' side products
64%
17%
5%
14%
Source: PTT, Luke

4. WOOD IMPORTS FROM RUSSIA
Russia has been the most important source
of imported wood (average 2019-2021)
1% 1% 2%
10%
11%
75%
others Lithuania Sweden
Latvia Estonia Russia
Importance of birch pulpwood and
chips(2021)
Share of Russian imports:
- Of birch pulpwood 85%
- Of chips 79%
- Of pine or spruce pulpwood 28-
38%
Birch pulpwood and chips cover 91
% of Russian roundwood imports
31.5.2022
48
43
9
0
20
40
60
80
100
120
%
others
chips
birch pulpwood

5. REPLACEMENT OFTHE RUSSIANWOOD
Year 2021 imports from Russia 8,8 milj. m3 (down by
3% from year 2020)
January-February 2022 imports down by 22% from
last year
- Russian politics & UPM strike
31.5.2022
6000
7000
8000
9000
10000
2013 2014 2015 2016 2017 2018 2019 2020 2021
1000
m3
Roundwood imports from Russia
Comparison to year 2021 2022 2023
Russian imports to be replaced 8,0 8,0
Imported Jan-Feb 2021 -1,0 0,0
Change in the domestic roundwood use - 3,9 +5,2
Replacement by industry’s side products -0,5 -1,0
Increase in imports from other countries -0,5 -3,0
Use of storage wood -0,2 0,0
Increased use of domestic wood +1,9 +9,2
Let us assume ”normal” imports of
8 milj. m3
Increased use of domestic wood
would lead to logging over the
maximum sustained yield
temporarily from 2023 onwards

6. IMPACT OFTHE WAR ON PULP WOOD PRICES
31.5.2022
15,00
16,00
17,00
18,00
19,00
20,00
2 5 8 11 14 17 20 23 26 29 32 35 38 41 44 47 50
Pine pulpwood, nominal average price
2021 2022
16,00
17,00
18,00
19,00
2 5 8 1114172023262932353841444750
€/m3
Birch pulpwood, nominal average price
2021 2022
The weekly (adjusted) pulp wood prices show no impact of
the war
No significant amount of pine pulp wood has been imported
from Russia
Pine pulp wood will be in demand next year with the new
Kemi bioproduct mill – but nominal prices are lower than last
year
Birch pulp wood has been one of the most important export
items in wood exports from Russia
Development of the weekly prices shown no significant
difference from last year
Source: PTT, the Finnish Forest Industries Federation

7. FOREST INDUSTRY
Sanctions on the trade with Russia since
February
31.5.2022 Kuva: Kinnaskoski Oy

8. FINNISH FOREST INDUSTRY’S EXPORTSTO
RUSSIA
Share of exports to Russia, ave. 2016-2021
0
2
4
6
8
10
12
14
16
%
Other sulphate paperboard
Other paperboard
Converted paper and paperboard products
31.5.2022
Forest industry’s exports to Russia have been
worth of 420 – 500 milj. € / year (2016-2021),
which is about 4 % of the total forest industry
exports
Especially in some paper board products the share
is larger, counting for even over 10 % of exports
However, there is high demand for forest industry’s
products and new buyers will be found
Note: 45% of newpaper used in Finland is
imported from Russia

9. DEMAND FOR SAWN GOODS STILL STRONG
0
50
100
150
200
250
300
€/m3
Nominal price of exported softwood
sawngoods in Finland
31.5.2022
Russia (and Belarus) have been strong
export countries of sawn goods –
now their share of European markets
have crashed
Demand for sawn goods remains high
in Europe and elsewhere
- High price of oil and natural gas
boosts demand in North-African
and Middle-East countries
However, rising input costs in building
might lead to slackening of the
market

10. USE OF NATURAL GAS IN FOREST INDUSTRY
Natural gas deliveries to Finland from Russia were cut on the 21st May 2022
- The Balticconnector gas pipeline enables the import of replacement gas from the Baltic states.
- Liquefied natural gas (LNG) imported via terminals in Tornio and Pori, and later in Hamina
- an LNG terminal ship from the US later in the fall
31.5.2022
In the forest industry, natural gas is used e.g. drying paper,
paperboard and pulp.
During the first half of the year, forest industry companies have
prepared for the end of natural gas imports by changing their
natural gas supply channels and switching to alternative energy
sources. However, for some production facilities, this requires
investment.
Demand for natural gas from outside Russia has increased and
will continue to increase. Price developments are difficult to
predict. It is affected by, for example, the availability of natural
gas through Balticconnector, the supply of liquefied natural gas
and the demand for natural gas in Europe.
0%
10%
20%
30%
40%
50%
60%
70%
Lähde: Eurostat
Share of natural gas of the energy
consumption in chemical forest
industry, 2020

11. IMPACTSTHAT AFFECT MARKETS AND
SOCIETIES
Impact of the war on food and thus
societies
- Rising living costs in North-Africa –
restlessness, refugees
Oil price
- stays high this year
EU-politics
- Uncertainty about the future terms of
using wood as a raw material (impact on
the investment environment, income,
competition, regional economies)
31.5.2022

12. OTHER IMPACTSTHAT ACCENTUATETHE
SITUATION
Food supply
- Heat waves in Asia – crops lost
Omicron / COVID-19 and leadership in China
- extended lockdown in Shanghai & mobility restrictions across China
- China’s 2022 GDP growth to 4.3%, from the previous forecast of 4.8%, retail sales fell by 3.5% in
March
- shortage of labour, difficulties in logistics
- expectation of infections to decline towards summer and of infrastructure investment to accelerate
over coming quarters
- political uncertainties in the fall - China’s 20th Party Congress in late 2022, will Mr. Xi head for the
third term?
Inflation in the USA
- Interest rate up, potential difficulties in loan markets,
31.5.2022

13. SUBSTITUTION OF FOSSIL RAW MATERIALS

14. SUBSTITUTIONOF FOSSIL RAW MATERIALS BY
WOOD
Increasing the rate of substitution:
• Market interventions – policies to ban or disincentive the use of fossil raw
materials or products made of FRM
• Policies: bans, economic incentives (tax, charge), information, nudging
• e.g. EU Directive on single-use plastics; Ban/charge on plastic bags
• Russian war in Ukraine – supply of cheap oil cut
• Markets – 1) the availabily/price of fossil raw materials makes them
uncompetitive or 2) the technology of producing subtitutive materials and the
availability of substitutive raw materials makes them more accessible/cheaper
• Impact of the Russian war on the price of Brent oil
31.5.2022

15. Biofuels – biodiesel/bioethanol of wood and wood residues
• Threaths: Biodiesel is not a cost-effective measure for attaining climate or renewables targets
(VTT)
• Possibilities: security of supply – lessening dependency on imports
Textiles – textile fibres of cellulose (e.g. viscose, rayon, Lyocell)
• Threaths: availability and price of raw material, consumer preferences
• Possibilities: less plastic (micro/nanoparticles) in seas, security of supply – lessening
dependency on imports
Cutlery, plates, cups, bottles -
• Threaths: availability and price of raw material
• Possibilities: firm political stance - Directive on single-use plastics, less plastic
(micro/nanoparticles) in seas, consumer preferences, security of supply – lessening
dependency on imports
31.5.2022
SUBSTITUTIONOF FOSSIL RAW MATERIALS BY
WOOD

16. CONCLUSIONS
The wood markets and harvesting will bear
the greatest effect in 2023
If the ban on wood imports continues (rise
of demand) and EU imposes further
restrictions on forest management and use
(decline of supply), the price of wood will
rise
With rising production costs, some
production units will become unprofitable –
possibility of close-downs in the coming
years
Substitution of fossil raw materials with
wood increases demand
31.5.2022