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Metla Bulletin

June 30, 2014
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Shortage of Coniferous Pulpwood in Karelia, and Oversupply of Sawlogs

The objective of the Russian Federation is to reduce the export of timber and secure the availability of timber for the domestic wood processing industry. Karelia does not have enough coniferous pulpwood for its own industry; the situation is the reverse for coniferous sawlogs and birch. Last year, 0.8 million cubic metres of coniferous sawlogs were harvested in excess of demand. The Karelian wood processing industry does not use any of the one million cubic metres of birch fibre harvested

Plenty of demand for coniferous pulpwood

The annual harvesting potential of the Karelian forests is around 11 million cubic metres, nine million cubic metres of which is conifer and two million of hardwood. The actual harvesting has levelled out at six million cubic metres. Around 40 per cent of the harvested wood is coniferous sawlogs, which matches the situation in Finland. Compared to Finland, the share of pulpwood, 24 per cent, is lower due to, among other things, the small amount of thinning. In Karelia, the share of firewood is tenfold compared to Finland.

The Kontupohja pulp and paper plant is the only refiner of spruce pulpwood in Karelia. Photos: Sergei Vasiljev.

The Karelian wood processing industry refines 5.5 million cubic metres of wood annually. Although harvesting exceeds the need for raw materials, significant amounts of wood must be transported from other regions of Russia. The pulp and paper industry is the largest refiner of wood, using 3.4 million cubic metres of coniferous pulpwood annually. Established in 2013, the DOK Kalevala plant, which manufactures OSB board, also uses coniferous pulp. If production capacity were fully in use, the Karelian wood processing industry would require 1.7 million cubic metres of spruce pulpwood and 2.3 million of pine pulpwood annually. The region’s own harvesting would cover less than half of the required amount. The actual demand for wood is lower, however, due to the poor financial situation and shutdowns of pulp and paper plants.

Tenacious pulp and paper plants

One of the largest manufacturers of newsprint, the Kontupohja pulp and paper plant has been in receivership since the spring of 2013. The largest shareholders have attempted to sell their shares, but no buyers for this company teetering on the edge of bankruptcy have come forward. Officials in Karelia are doing their utmost to find new financiers for the company and secure its operations. The company is a major source of income for the republic’s budget, and the city of Kontupohja with its 30,000 residents is entirely dependent on it.

Last year, the plant produced 460,000 tons of newsprint, the majority of which was exported. This year, the goal is to achieve 650,000 tons of production. Today, all six paper machines are in operation, and there is faith in the future. However, the global demand for newsprint is decreasing, which means that the plant’s survival requires investments in the manufacturing of new products.

The Pitkäranta pulp plant is the smallest chemical wood processing industry plant in Karelia; its annual production is around 80,000 tons of pulp. The plant also manufactures special paperboard for export, used as an electrical insulant. In 2013, the company was declared bankrupt, after which the Siberian CTS Invest announced that it would rescue the plant and invest EUR 50 million in its production. Plans were made for the modernisation of production and development of sales by Finnish experts. Although the intended investment was cancelled after only six months, the plant still continues operating after the bankruptcy, and the company is bravely keeping its head above water.

Part of the Investlesprom Group, the Segeža pulp and paper plant is one of the most successful wood processing companies in Karelia and one of the largest paper sack manufacturers in Europe. Despite the financing difficulties of the parent company and the share trades that have led to legal action, the plant is operating and even increasing its production. In April, the Russian investment company AFK Sistema signed an agreement on the purchase of the shares of the Segeža plant. The plant’s modernisation is listed as an objective among the short-term development plans. The ambitious Icebear project has also been included in the long-term plans. Planning of the Icebear investment project was begun in 2008, its goal being to double Segeža’s current pulp production capacity of 400,000 tons. In addition to coniferous pulpwood, birch would also be used as a raw material.

In 2013, 1.2 million cubic metres of birch for which the industry has no use was harvested in Karelia.
Photo: Aleksander Seliverstov.

Birch used only for heating ovens

There is only one plant refining birch in Karelia, the Bumex plywood plant in Lahdenpohja. The plant has been in receivership since 2012, and its operations have been completely halted. The birch is exported to Finland or sold to the locals to be used as firewood.

The chipboard plant Kareliya DSP uses aspen and low-quality softwood as its raw material.
There will be enough birch for export in the future, as birch refining capacity is not expected to be built in Karelia and its neighbouring regions in the near future. Considering the poor solvency of the Karelian industry and the decreasing exchange rate of the rouble, a Finnish buyer is very tempting for a harvesting company.

Oversupply of coniferous timber

Around 0.7 million cubic metres of sawn timber is produced annually in Karelia, with the sawmills using 1.5 million cubic metres of coniferous sawlogs. There is an oversupply of coniferous sawlogs as, for example, in 2013, when 2.3 million cubic metres of coniferous timber was harvested. A majority of the old sawmills have closed down, and production is concentrated in a few new or modernised sawmills. Good examples are Stora Enso’s Impilahti sawmill and the Finnish-owned Karlis-Prom in Värtsilä, which is planning on expanding its production. Of the old companies, the Solomenskiy sawmill in Petrozavodsk has fared best. The intention is to increase its production capacity to 250,000 cubic metres, which would make it the largest sawmill in Karelia. The demand for coniferous sawlogs in northern Karelia will decrease, as Swedwood has closed down its sawmill in Kostomuksha, although FinTek, among others, is planning to begin new production in the area with the intention of refining 175,000 cubic metres of coniferous sawlogs annually.

Despite the production expansion plans, it is unlikely that a sufficient amount of new capacity for refining all of the coniferous sawlogs will be established in Karelia. On the other hand, the downturn in the pulp and paper industry continues, and harvesting is reduced along with the decreased demand for pulpwood, which will also lead to a reduction in sawlog supply.

Solution to the wood shortage – more forest for lease

With the realisation of the investments planned in the wood processing industry, Karelian officials expect the use of wood to increase to eight million cubic metres. There is a problem with the imbalance in the regional positioning of production. Every company wants to operate in the southern and central part of the republic, where the road network is in better condition and has more coverage. This causes the companies to compete with each other for the same forest areas, thus creating an artificial wood shortage.

Every company wants to operate in the southern and central part of the republic, where the road network is in better condition and has more coverage.

The plan for resolving the wood shortage is to expand leased forest areas and increase standing sale agreements. There is leeway – at least in theory – as around 40 per cent of Karelian forests remain unleased. The unleased areas are located in the northern parts of the republic, where the infrastructure is poor or missing entirely. Swedwood’s decision to cease its operations in Kostomuksha is probably a good indicator of how attractive the region is. However, terminating the lease agreements from companies that do not use the forests they have leased provides real possibilities. The latest example of this is Zapkarelles, one of the largest wood harvesting companies in Karelia; its 600,000-hectare lease agreement in the Suojärvi district was terminated.

The amount of wood harvesting is also estimated to increase, when Karelia adopts the intensive forestry model and increases thinning. However, this currently remains wishful thinking, as the necessary changes have not been made to the legislation governing forest use.

 

Further information
  • Researcher Sari Karvinen, tel. +358 29 532 3256, sari.karvinen(a)metla.fi
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Header image: Metla/Essi Puranen, Photos: Metla/Erkki Oksanen, unless otherwise stated