Russia’s war against Ukraine impacts world timber market

Russia’s war against Ukraine has caused serious disruption to the global timber trade with export reduction from Russia, Belarus, and Ukraine and increased concerns over loosening some environmental protections to make up the current shortfall.

International sanctions (5th package) imposed by the EU and UK have curbed supplies from Russia, the world’s largest exporter of softwood timber, and Belarus, while the war has severely hampered production in Ukraine. According to Financial Times, the three countries accounted for nearly 25% of worldwide lumber trade with $17 billion value in 2021. Collectively they cover nearly 10% of European softwood demand. Ukraine alone exported wood and wood products at more than $2 billion value in 2021. According to Ukrainian Customs Service the positive balance from timber trade reached $1.6 billion, which is 43% more than in 2020.

The Federation of Wooden Pallet & Packaging Manufacturers (FEFPEB) reports that Ukraine exports almost 3 million cubic metres of sawn softwood annually while the EU alone imported nearly 8 million cubic metres of softwood from Russia and Belarus in 2021.

As of June 2022, European architects and designers are struggling to source wood for their projects as russia’s invasion of Ukraine has brought imports from the region to a standstill, threatening stocks and driving up prices across Europe. Studios are reporting that costs for solid oak and birch plywood have doubled in the last few months, while others have seen the price of structural timber go up by around 20% and are going up daily. Still, trade with non-sanctioning countries is also likely to change as Russian and Belarusian companies struggle to make financial transactions and secure credit, as far as their forest products are designated “conflict timber.”

In addition, Russian sawmills, which in the past have shipped lumber to customers in Europe, cannot quickly shift to other markets in the short term. For example, sending lumber by ship or rail from sawmills in northwestern Russia to China meets logistical challenges, and the MENA region, which is a lower-grade wood market, is currently not in a robust expansion mode.

World lumber market overview

The global wood products market was expected to grow from $631 billion in 2021 to $684 billion in 2022 at a compound annual growth rate (CAGR) of 8.4%. The main types of wood products are finished wood products, wood processing and manufactured wood materials. Wood processing includes the manufacture of forest goods including pulp and paper, building components, and tall oil. The market is expected to grow to $903 billion in 2026 at a compound annual growth rate (CAGR) of 7.2%. However, the war in Ukraine may reverse the trend. Other factors have added to the disruption in the timber market. An outbreak of spruce bark beetle has damaged central European and Alaskan forests, prompting a surge in emergency harvesting to remove infected trees. The turmoil caused by the war and beetle infestation — and before that by the supply chain disruptions during the Covid-19 pandemic — has been a boon for European sawmills. Over the longer term, some lumber-producing companies may consider investing in new production capacity, although log supply in many regions of Europe is becoming tighter. Industry experts report recent significant wood prices hikes in UK, Japan and Sweden. Poland’s wood industry expects a shortage of wood raw materials. In addition, European market faces pallet supply shortages. The European Pallet Association (EPAL) and the FEFPEB have both warned that wooden pallets – indispensable handling and storage products used to transport goods and dispatch them across warehouses or supermarkets – may soon become harder to find in Europe.

Ecolabels suspend timber trade

Within the last decade, nearly 12 % of the World’s Forest cover has been certified with sustainable standards such as the Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification (PEFC). Both standards have now suspended all trade of certified wood from Belarus and Russia.

In addition, the World’s leading sustainable biomass standard, The Sustainable Biomass Programme (SBP), has also stopped all trade with Russia and Belarus, which holds around one third of all SBP certificates. Whereas EU dependence on certified timber and certified timber products such as pulp, paper and biomass has grown deep roots over the last ten years. Ukraine, Russia and Belarus account for around 35 % of the World’s FSC certified forest and their exports of sustainable timber and biomass play a crucial role on the global markets for sustainable timber products.

Logging volumes increased

Ukraine’s environmental protection ministry said earlier this year that the sanctions offered the country the chance to increase its share of the European timber market in Russia’s place and boost financing of postwar reconstruction efforts. Soon after February’s invasion, Kyiv lifted a regulation that prohibits logging in protected forests during spring and early summer, as part of a bill to increase the country’s defence capabilities during martial law, partly by boosting export earnings. However, environmental groups fear the decision could lead to large-scale losses in areas where illegal logging and forest mismanagement are already rife. According to ITC data, the markets with greatest potential for Ukraine’s exports of Wood are China, India and Egypt. India shows the largest absolute difference between potential and actual exports in value terms, leaving room to realize additional exports worth $78 mn. Other timber producing and exporting nations including Estonia, Finland and the US are also seeking to increase logging volumes.

Rising biofuel demands Rising demand for renewable energy, specifically, biofuel (wood pellets) was also heavily influencing forestry management. In May EU’s environment committee voted to revise the renewable energy directive and scale back assistance for biomass projects, which have been popular among investors in the carbon offset market. The timber industry, meanwhile, is keen to encourage the use of wood as a building material. Industry bodies say reducing the use of concrete and steel could help lower the 10 % of global carbon dioxide emissions generated by the construction sector.

Conclusion

Russia’s war in Ukraine is shaking up the world, especially, European timber market. Under current conditions, industry experts expect further price increases for the valuable raw material. In addition, there are several export opportunities for Ukrainian wood exporters. As far as the main importing countries of Russian and Belarusian timber, such as – Finland, Lithuania, Latvia, Poland, Germany, Belgium, the Netherlands, the UK and the US – will face the need to find new suppliers and Ukraine can seize the moment to take new export niches. By the way the dependency on wood supplies is higher as compared to furniture supplies.