production growth is expected only in certain segments

The timber industry is recovering unevenly after the introduction of sanctions and the loss of its main sales markets. More than half of the market participants, according to B1, are confident that they have successfully completed the reorientation of supplies of their products. However, wood processing was one of the few industries where output fell this year. Market participants expect production growth only in some segments, such as cardboard and packaging paper, while the output of most types of products will decline or stagnate.

The majority of participants in the Russian forestry sector were able to cope with the consequences of the sanctions, according to a study by the B1 group of companies and the Association of Paper Industry Specialists (ASBO). More than 20 industry participants took part in it in October-November. As follows from the survey, geographic sales markets lost 76% of participants in 2023, for 60% of the surveyed companies the problem of rising transport tariffs was relevant, 76% of survey participants noted difficulties in purchasing production equipment. At the same time, 57% of respondents were able to redirect their supplies (mainly to Asia and the Middle East), 43% noted a successful solution to logistics difficulties, and 62% of study participants ensured business continuity despite supplier failures.

However, production in wood processing decreased by 3% in January-September, which sharply contrasts with the growth of other manufacturing industries (for example, mechanical engineering grew by 22%).

Industry participants expect output growth in the next 3–5 years for only five of the 15 main types of forest products.

The production of cardboard (including corrugated cardboard and cardboard for packaging) will grow most rapidly, by approximately 3.9% annually, B1 explained to Kommersant. Study participants also see good prospects for tissue and household (2.1%) and wrapping paper (1.8%). But most segments of the timber industry, according to the industry, will experience negative dynamics.

Among the risks that will continue in 2024, 70% of survey participants indicate a possible change in foreign market conditions (including a decrease in export prices). Another 60% noted the risk associated with a lack of qualified personnel. Another 55% of respondents considered the main risks to be of a geopolitical nature.

At the end of the year, study participants expect a decrease in EBITDA margin by an average of 1.4 percentage points, they indicate in B1. As foreign supplies stabilize and cost reduction programs continue, the dynamics of this indicator will improve – in 2024, companies expect a decrease in margins by 0.6 percentage points. Companies see reserves for increasing profitability in reducing energy costs and costs for contractors transporting and repairing fixed assets.

As noted by Vitaly Lipsky, general director of the National Forestry Development and Investment Agency, the production of wood-based panels of all types decreased by only 6.6% over three quarters, despite a deep drop at the beginning of the year. He also sees positive trends in the market for particle boards and oriented strand boards (OSB), the production of which in January-September increased by 0.6% compared to the same period in 2021. “These slabs do not depend on Western markets and are sold mainly on the domestic market, the markets of the EAEU countries and the former USSR,” he says.

The biggest disappointment, he notes, is the plywood industry, where the decline reached 27.3%. This is a natural consequence of the industry’s export orientation, and in the short term, output in the sector will stagnate. Vitaly Lipsky states that the dynamics of export prices will be decisive for the market recovery: although the weakening of the ruble this year helped exporters, there was overstocking in some foreign markets, which led to a fall in prices.

Olga Mordyushenko