Russia To Ban Raw Timber Exports : Processing Businesses Operating In Centres Such As China’s Manzhouli Need A Rethink

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Op/Ed by Chris Devonshire-Ellis

  • Russia wants the added value timber processing trade to be conducted in Russia, not overseas. 
  • Opportunities and incentives for Timber processing in Siberia and the Russian Far East
  • Could make life difficult for cities such as China’s Manzhouli which has grown up on the trade

Russia’s export lumber log trade is set for some huge changes with a ban on Russian exports on the cards with a new law coming into effect next year.

Russia exported 15m cu m of logs in 2020, accounting for almost 12% of globally traded roundwood, according to a new report from Wood Resources International.

Much of that trade could come to a halt next year when a new law proposed by Vladimir Putin will ban the exportation of softwood logs and high-value hardwood logs as of January 1, 2022. The Russian government is also considering new regulations aimed at reducing the exportation of green softwood lumber. This regulation is loosely planned to also commence in 2022.

The ban is expected to be enacted into law in the second quarter of this year. The biggest impact from the ban will be felt in China, which is a huge buyer of logs from Russia’s Far East region. The city of Manzhouli, in China’s northern Inner Mongolia Province could be especially hit as it is on the Trans-Mongolian rail route and brings in massive amounts of timber for processing on a daily basis. Numerous wood processing facilities are based there with the city even operating a Lumber Exchange to regulate timber prices. Cities on the China-Russia railway routes such as Manzhouli will have to research the Russian markets and evolve away from a dependence on timber and themselves look at how to add value to China-Russia trade, and especially within the services sector. Beijing is aware of this; Manzhouli was included in a grouping of cross-border e-commerce pilot zones in 2020 which offer the city new facilities in preferential tax policies, such as exemption of VAT and consumption tax on retail exports and reduction of Corporate Income Tax. Clearly, the business model run by companies in Manzhouli needs a rethink although the incentives to do that are there.

China will probably look to source more sawlogs from other regions of the world, such as Oceania, Europe, and the United States. Longer term it is expected that China will evolve from importation of roundwood to importation of lumber.

The Russian President ordered the government to strictly control the exportation of roundwood and low-value forest products, clamping down on the illegal trade of logs, and requested a “complete ban on shipments of unprocessed or roughly processed conifer and valuable hardwood out of Russia by January 1, 2022.” This statement would indicate that lower-value hardwood logs, such as birch pulp logs exported to Finland, may be excluded from the future export ban. The ban is to encourage the domestic processing of Russian timber, and have Russian businesses adding value rather than those across the border. It is also intended to implement a government program of subsidized loans for investing in wood processing facilities, mainly in Siberia and Russia’s Far East, targeting the growing wood markets in Asia. These industry loans would be available for facilities producing lumber and panels, and pellet manufacturers which predominantly use small-diameter logs for their wood furnish.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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