Russian Forest Sector Overview
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Russian Forest Sector Overview 2018-19 With assistance from Contents Introduction 1 Key drivers of the forest sector in Russia and globally 2 Growth of forest industries in Russia and globally 6 Outlook for exports 10 Fast-growing forest industries 12 Investment attractiveness of the forest sector 24 Government support 34 Taxation 36 Forest resources 41 Conclusion 43 Contacts 44 Introduction Russia is home to one of the world’s largest wood reserves, making the growth of its forest sector an important priority. 2018 was a landmark year for the domestic forest sector, as the Russian Government approved in September the Forest Sector Strategy to 2030 to improve the sector’s global competitiveness, while exports of forest products reached their all-time high of US$13.4 billion. Positive trends continued in 2019, with Russia’s forest sector progressing toward targets set under the Strategy. Despite marked improvements, considerable potential remains to be tapped to increase the supply of forest resources and the share of value added in manufacturing. Government support of the forest sector is big1. However, investment inflows mostly come from private companies, while it is crucial to improve the investment appeal of the forest sector to enable exponential growth. Igor Prutov Partner, CIS Forest To prepare this report, EY, with assistance from the Association of Specialists of the Sector Leader Pulp and Paper Industry (ASPPI), conducted its annual survey among forest sector companies to capture perceived trends and identify sector industries that have the +7 (916) 825 2309 [email protected] greatest growth potential. We studied historical and forecast performance data across industries such as financial and operational metrics, investment inflows, promising investment projects and the scope of government support. Sales managers of more than 20 leading Russian companies in the forest sector participated in the survey. Our report consists of the following sections: • Key drivers of the forest sector in Russia and globally • Outlook for exports • Fast-growing forest industries in Russia and globally • Investment attractiveness of the forest sector • Risks • Government support and taxes • Forest resources Sergei Malkov Our report is intended for industry players, investors, government bodies, financial Management Board Member institutions and other stakeholders. We would like to thank all survey participants for of the Association of Specialists of the Pulp and Paper Industry their contribution, and hope that you will find our report insightful. +7 (925) 000 1011 [email protected] 1 Priority Investment Projects, Special Investment Contracts, tariffs designed to protect domestic manufacturers, incentives for some forest industries and other support Russian Forest Sector Overview 2018-19 | 1 Key drivers of the forest sector in Russia and globally Global economy International and population trade Consistent growth in individual earnings and, hence, Steady growth in international trade is a key driver for the consumption are driving demand for goods and services. manufacturing sector. Economic growth in Russia and globally, CAGR International trade growth, CAGR Indicator 2008-18 2019-28 Indicator 2008-18 2019-28 Per capita GDP World 1.5% 1.8% World 1.8% 5.7% growth* Exports growth Russia 0.8% 1.6% Russia (0.2%) 4.3% World 1.2% 0.9% World 1.4% 4.2% Population growth Growth in forest 0.1% (0.2%) product exports* 3.3% 4.7% * In real terms * Wood and cork products, pulp, waste paper, paper and paperboard. Source: Oxford Economics Source: Oxford Economics The forest sector makes an important contribution to the global economy and is subject to increased regulatory scrutiny: • The imposition by the US of import duty on sawnwood from Canada • The imposition by Russia of export duty on roundwood to boost the output of forest products • China’s ban on imports of recyclable materials and untreated waste paper • The provisional* entry into force of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU that is aimed to lift trade * The agreement has not yet been fully implemented 2 | Russian Forest Sector Overview 2018-19 Building construction Renewable and furniture energy manufacturing Renewable energy is a fast-growing energy source globally. Biofuel, made from plants, is an important alternative fuel source, accounting for 50% of all renewable energy Building construction and furniture manufacturing, produced in 2017. CAGR Indicator* 2008-18 2019-28 Share of renewables in total energy consumption Growth of the building World 2.7% 3.2% CAGR = construction industry Russia (1.3%) 1.0% 3.0% CAGR = Growth of the furniture World 2.8% 3.6% 4.3% 16% manufacturing 13% industry (3.4%) 1.3% 10% * Real growth rates in US dollars (value-added output) Source: Oxford Economics 2008 2018 2028 Renewable energy Sources: US Energy Information Administration’s International Energy Outlook 2018, International Energy Agency’s Renewables 2018 While projects in Russia are still confined to low-rise buildings, the use of timber in high-rise structures is gaining ground globally. World: Russia: • Mjøstårnet, Norway, • Wood–city, Moscow 85 meters, 2017–19 • Sokol Town, • Brock Commons, Canada, Moscow Region 53 meters, 2015–17 • Good Wood Plaza, • HOHO VIENNA, Austria, Zelenograd 84 meters, 2016–19 Under Russia’s Forest Sector Strategy, domestic construction of wooden housing is projected to reach 13.6 million square meters in 2030. To stimulate demand, the Russian Ministry of Industry and Trade has launched a program to provide subsidized loans for purchases of wooden homes. Russian Forest Sector Overview 2018-19 | 3 Internet Rise of growth e-commerce Global Internet growth has significantly changed Increased Internet penetration has driven the e-commerce the structure of consumption of goods and services, market. The share of e-commerce parcels in all packages transforming the entire economy. Rapid technology in Russia jumped by 32% in 2018 compared with 2017. advances have also had an impact on the forest sector. For The e-commerce market is expected to grow by up to 20% instance, the consumption of print publications is declining on average annually in 2018 through 2021. Data Insight globally amid the digital explosion. forecasts its annual growth in Russia at 18%. Share of Internet users in the total population Share of e-commerce in total retail sales 89% 13.1% 85% 11.4% 9.8% 75% 79% 8.4% 76% 7.4% 5.9% 6.4% 56% 5.0% 5.5% 5.8% 3.7% 4.2% 49% 2016 2017 2018 2019 2020 2021 23% 27% World Russia Sources: Oxford Economics, Statista, Data Insight World Germany Russia 2008 2018 2028 Source: Oxford Economics 4 | Russian Forest Sector Overview 2018-19 Global production of Environment and fabrics and clothes sustainability The production of cotton and linen is strongly conditional The production of recycled products is on the rise as on the weather, the size of available arable land and other public environmental awareness has increased worldwide. natural factors. The ongoing growth in the consumption Restrictions on plastic use are driving the production of of clothes and footwear is projected to push demand for wood-based packaging. The share of packaging paper artificial fabrics, including viscose that is derived from jumped from 50% in 2008 to 58% in the total production dissoluble cellulose, as the market changes to remain of paper products in 2018. balanced in terms of supply and demand and, hence, prices. Growth in plastic production, CAGR Growth in fabric production, CAGR Indicator 2008-18 2019-28 Indicator 2008-18 2019-28 Growth in plastic World 2.9% 2.9% Growth in fabric and production* World 3.1% 2.4% Russia 4.1% 2.6% clothes production* Growth in recyclable Growth in viscose fiber World 4.7% 5.4% World 3.4% 4.3% packaging paper** production** * Real growth rates in monetary terms (value-added output) * Real growth rates in US dollars (value-added output) ** CAGR in 2017-19 and 2019-23, USD ** CAGR in 2016–18 and 2019–24, million tons Sources: Oxford Economics, Mordor Intelligence Sources: Oxford Economics, Mordor Intelligence As many as 53 countries banned single-use plastic in 2018, and five countries more are projected to follow suit by 2020. In addition, 127 countries have limited by law the production and consumption of single-use plastic. Single- use plastic products such as tableware will be banned in the EU in 2021. Russian Forest Sector Overview 2018-19 | 5 Growth of forest industries in Russia and globally Commercial Global production roundwood Packaging Fast-growing in 2018, USD million materials 262.6 11.2% industries 208.6 2.5% Sawnwood Wood fuel 134.8 8.7% 134.2 0.9% Chemical wood pulp 4.3% Plywood 94.4 87.7 Recovered 2.5% fiber pulp Russia’s share Household and of the global Recovered paper sanitary paper market 53.6 0.1% MDF/HDF 48.7 1.5% 1.6% 44.0 Particleboard 38.1 3.1% Wrapping paper 35.0 3.6% Charcoal 25.0 8.7% Newsprint 3.2% 24.4 Mechanical 0.1% Wood chips wood pulp 20.0 Veneer sheets 7.5% 11.6 OSB 9.1% 11.4 Wood 11.1 9.9% pellets Fiberboard Semi-chemical 4.3% wood pulp 7.8 6.9 5.9% 4.7% 7.1% 4.8 4.5 -8.8% -6.7% -1.5% -1.3% -0.8% 0.3% 0.5% 0.9% 1.5% 1.6% 1.9% 2.1% 2.4% 2.8% 3.0% 3.1% 3.8% 5.8% 9.2% CAGR in 2013–18 (nonlinear scale) Source: EY !"#$% & 6 | Russian Forest Sector Overview 2018-19 Commercial roundwood Packaging materials Fast-growing 262.6 11.2% industries 208.6 2.5% Sawnwood Wood fuel 134.8 8.7% 134.2 0.9% Chemical wood pulp 4.3% Plywood 94.4 87.7 Recovered 2.5% fiber pulp Russia’s share Household and of