The Wood and Fiber Supply Chain Experts
Update: January's Russian Timber Tax Hike Delayed
From the December 2008 Forest2Mill newsletter.
In
October’s issue,
we provided an overview of the effects that Russia’s proposed timber tariff increase might have on
worldwide markets if it went into effect. The Russians planned to boost the tariff over 300 percent
in January 2009, to 80 percent of log value, a move that may have had serious repercussions in the
primary markets for Russian timber: Europe and Asia. In early November, Russia’s Prime Minister
Vladimir Putin announced that they would postpone the tax increase for 9-12 months.
The primary reason for this move is the state of the global economy. According to the
Interfax News Agency in Russia, Putin provided this explanation, “Aware that cuts in our (timber)
exports to Finnish companies amid the world financial and economic crisis could lead to cuts in
production and entail social consequences after jobs are cut, the government deems it possible to
put off a rise in customs duties.”
It is likely that the Russians are more worried about their own
economy than they are Finland’s , however. According to Wood Resources International, after
reaching record highs in the fourth quarter of 2007, log costs for Russian timber hit a two-year
low in the third quarter of 2008, as the Russian economy began to slow. A slowing housing market
reduced domestic demand. Demand in the export market also decreased, partially because of the
slowing global economy and partially as countries like Finland, China, and Korea searched for
substitutes as the tariff increase loomed. Whether the delay in the tariff increase will stop this
drain on demand for Russian logs is unclear.
If you read our earlier story, you’ll remember that Russia planned this prohibitive tax
increase as a way to encourage creation of, and investment in, a local timber processing industry.
Putin addressed this issue in the announcement: “[A]long with retaining the current level of
customs duties, we will offer potential investors, including Finnish ones, a full package of
additional fiscal stimuli for investment in the Russian timber industry in the near future.”