All Bets Off with MPB

Canadian Forest Industries, Aug 2007 by Sorensen, Jean

Russell Taylor, president of the International Wood Markets Group in Vancouver, said Russia has set forward a strategy to develop a forest products manufacturing sector rather than just a logging sector that exports its raw logs. The country has now developed a forest practices code which sets timber leases at 49-years, approximately half the old tenure, raised stumpage and placed hefty export taxes on logs. The tax in 2006 started at 6.5 percent, but July 1, 2007 climbed to 20 percent, by April 1, 2008 to 25 percent, and in January 2009, it will be 80 percent on softwood logs. The impact of the tax is expected to hit hard countries such as Finland (approximately 80 percent of its imported logs are derived from Russia) and China, which derives half its raw material from Russia.

Taylor said in simple terms, Russia is the largest world exporter of logs while China is the largest consumer. The interdependency is such that China has established huge processing plants at rail side stations by its border so it can immediately mill logs arriving. During the past few years, the Russians have raised some prices for timber but countries such as China, where labour is cheap, have absorbed those hikes. Taylor said it still remains to be seen how China will deal with a greater internal vigilance on illegal logging and reduced raw material supply from Russia. There is the potential for China (which is a major producer of panel product) to lose production and have to seek more finished good elsewhere.

At the time this is happening, the European market has been "red hot" for Canadian suppliers. There is also a log shortage looming as world supply - greatly accelerated by Russia's move - tightens going into 2009. "We are seeing a supply and demand gap for the first time in many years and we can not see where the balance is coming from," he said.

Analysts predict the next five years will see significant changes to the BC industry, such as the 50 million cubic metre Interior cut falling to 30 million cubic metres. But, what that will mean in real terms to sustained forest practices and local economies still remains the largest unanswered question.