Editor’s pickRussian manufacturers told to value add products or face 80% export duties

Russia,export duties,Sylva Wood

Logs exiting Russia’s Far East have been slapped with a 6.5 per cent export duty since last December.

The progressive tax rate will climb to 40 per cent in 2019, 60 per cent in 2020 and up to 80 per cent by 2021.

The tax rate varies across species and regions. However, logs unsuitable for processing are exempted from this duty but the region’s total export allowance is capped at four million cubic metres per year, according to an ITTO bulletin.

The new customs law is meant to encourage the Far East regions to manufacture value-added goods.

Logging in Russia. Image: JSC Kraslesinvest

“It is not to restrict the volume of logs from going out,” Pavel Bilibin, senior vice president of the state-owned Bank for Development, stressed.

“If you have your long-term lease and you have processing facilities, you can export logs at lower duties but if you do not invest at all, the tax rates come to almost 80 per cent in three years, which means that basically you have no choice.”

As a result of the new duties, many companies have begun to invest in processing facilities such as sawmills, factories and panel plants, “since exporting logs has become less profitable,” Alexey Bogatyrev, CEO and founder of the Lesprom Network, said.

Foreign companies, he added, have also started to invest in wood processing facilities in the Russian Far East. For instance, Korean company POSCO DAEWOO recently unveiled plans to build a 100,000-tonne capacity pellet plant in Vladivostok. The number of new investments is expected to increase further.

Unlike most commercial banks, the Bank for Development provides long-term project finance for periods up to 15 years. The loans, of course, must be paid back at the agreed interest rates but borrowers have a longer grace period.

Pavel Bilibin, senior vice president (Wood Processing), Bank for Development

Bilibin said, “We were recently involved in project financing for nine projects, most of them are processing facilities, others are manufacturers of MDF, OSB and LVL. Some sawmills are 100 per cent subsidised by us too.”

In 2017, Russia’s total log exports fell 3.2 per cent to 19.44 million cbm. The volume of logs to China totalled 12.87 million cbm (-0.8%). China absorbs about 66.2 per cent of Russia’s total log exports. This could now change as Bilibin observes that more sawn timber is going over the border now.

“I expect Chinese buyers will either have to invest in wood processing in the Russian Far East or switch to buying sawn timber from Russia,” Bogatyrev said.

In order to qualify for log export, at least 20 per cent of a Russian company’s total exports must be valued-added wood products. By Jan 1, 2019, this must be no less than 25 per cent, and by Jan 1, 2021, at least 35 per cent.

However, James Xu from the National Hardwood Council, Shanghai Timber Trade Association, warns that Russia could lose market share to competing suppliers such as North America and New Zealand.

Yet, Canadian exporters have seen losses in 2017; their market share in China’s sawn softwood market fell to 20 per cent in 2017 from 46 per cent in 2011. Russia’s market share on the other hand, jumped to 57 per cent in 2017 from 36 per cent in 2016.

Data from China Customs also revealed that softwood sawn timber from Russia dominated the China market and volumes have been increasing over the years. Exports totalled 14.282 million cubic metres in 2017, a year-on-year increase of 23 per cent.

The average price in 2017 was US$83 per cubic metre, up six per cent YoY.


This article is part of a longer series in the Sylva Wood 2018 show preview. It was first published in Panels & Furniture Asia (May/Jun Issue). Sylva Wood 2018 runs from 25 – 27 June in Shanghai.

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