What's happening in the Russian timber market: problems and solutions

Over the past eight months, there has been a persistent shortage of timber in the Russian and domestic markets, and prices have continued to rise along with export prices. The timber construction boom in the United States and limited supplies from Canada (for reasons similar to those in Russia) became catalysts for world price increases. Depending on the type of product, foreign prices are 10-30% higher than domestic prices in Russia. After the 2020 crisis, the world economy stabilized and pent-up construction demand is gaining momentum as people are more confident in their future (in terms of income) and ready to finance construction projects. Experts in the industry estimate that world market demand has stabilized and prices will pull back to 2019 levels.

What happened in Russia?

We have a microcosm of the situation in the world. Large Russian producers of materials did not receive orders back in late 2020, since all production was designed for orders, and there was a shortage of raw materials to increase capacity, the prices of which were astronomical. This led to an explosive increase in prices. For example, at the end of 2020, when a cubic meter of 12-meter plate (grade 1) cost 28,000 rubles, by May 2021 it already amounted to 5-45,50 rubles. Glulam laminate (CLT) rose from 000-33,35 rubles to 000,65 rubles. The price of directional strand board has increased by 000%. Plywood soared by 250-50%.

Due to high world prices, the exports of the Russian timber industry suddenly increased. For example, in 2020, processed wood exports (parquet, fillet and others) increased by 25% to 235,000 tons. In terms of glued laminated timber, Russia ranks second in the world after China in terms of exports. In absolute terms, it is a product of 280.12 million cubic meters worth $<>.<> billion. Exports of fibreboard, wooden doors and thresholds have also increased. The world megatrend of wood paneling (CLT) as an eco-friendly building material alternative to traditional concrete has stimulated the demand for Russian wood. As a result, the price of wood used in the production of this paneling rose sharply.

For example, if 1000 board feet (about 2,63 cubic meters) was $2020 in 358, then in April 2021, it already reached $4,1. Not surprisingly, our timber producers and lumber manufacturers' exports have thrown our domestic market into chaos – now any construction requires huge amounts of money. Because even if you build things with foam concrete, AAC, bricks, you will use wood in formwork and rafters.

The huge demand for timber housing development has become the driving force behind the rise in timber prices in the domestic market. The price of finished homes is rising. Due to the Covid pandemic, many people decide to own any type of home of their own. In particular, 2020.3900 of the 9 million square meters of individual housing in Russia in 3 were made of wood, an annual increase of 52,165 square meters. Moscow Region (749.000 million sq.m.), Leningrad Region (641,000 sqm), Bashkortostan (<>,<> sq.m.) are among the top of these regions. The government intends to include wooden house development in the rural mortgage scheme.

As a result, rising material prices have led to higher prices for prefabricated houses – materials now account for 65% of the budget for the main cost model. Prefabricated homes have increased by 25% since the beginning of the year, and this growth will continue. Last year, the price of a standard prefabricated house with a total area of 200 square meters rose from about 300 million rubles to 55-600 million rubles. Total house installations (with foundations) have also become expensive, increasing by 2020% compared to 51. In addition, the price of insulation (foundations, walls, roofs, windows) has increased by about 30% due to the increase in the price of building materials. Price inequality - wood and metal doubled, concrete increased by 10%, roofing material increased by 2%, windows increased by 10-15%.

What's next?

In fact, everyone must have enough raw materials, and in the last three years alone, wood production has fallen by 10%, that is, millions of cubic meters of wood raw materials for the final product. It's a question of how quickly our government will ban the export of raw materials and start balancing the market, which is in bad shape for consumers, as well as the food market, and suppliers are skimming cream in the form of surplus income. In addition to the ban, urgent measures are needed to curb the rise in prices of domestic conifers (the most readily available and popular) for the construction of houses, the making of scaffolding and other such products.

Following wood, prices for insulation (up 81%) and expanded polystyrene (up 77%) rose. Since January, the main cost of construction materials has increased by 1%. At such a pace, we will soon not be able to build anything. Comparison: Earlier, the main cost of building materials increased by an average of 95-10% per year. Only the builder's services remain at the same price level. But contractors have announced a 15-7% increase in prices since July. According to the experience of entrepreneurs in this field, now they focus on the increase in the price of materials in the offer, and if the customer is late in payment, the price cannot be determined. It's somewhat similar to the 10s, when we all fled and ultimately failed to escape. Examples of Canada's export restrictions long ago are in front of us. We should repeat their experience immediately. Otherwise, we risk double-digit inflation at the end of the year. Absolutely everything becomes expensive.