RF hopes to cut Asian imports with $139m Khabarovsk wood products complex | Volga, Industry, manufacturing MarchmontNews.com

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RF hopes to cut Asian imports with $139m Khabarovsk wood products complex

24 Nov '10
Oleg Kouzbit, Online News Managing Editor

One of Russia’s largest timber firms in the Far East, Dallesprom, is starting a $139m wood products complex in the Khabarovsk region, with 70% of the financing coming from RF-owned VEB Bank. The complex is a series of projects aimed at creating advanced wood processing in the area. Japan is expected to become the primary market. This and other sector-specific projects may also help the RF balance the regional influence of Asian manufacturers setting up shops in Russia’s Far East.

One of the Far East’s largest timber companies, Dallesprom, has secured support from government-owned VEB Bank in a $139m effort to launch cutting-edge wood processing in the Khabarovsk region’s town of Amursk.

VEB Bank has reportedly pledged a $97.3m long-term loan, or 70% of the total. Dallesprom shareholders are expected to fund the remainder.

Through one of its subsidiaries, Russian Forest Products, the timber firm has plans to build a rotary-cut veneer complex with a capacity of 300,000 cu. m of products a year.

The investors haven’t specified any timeframes but a source with knowledge of the project preparation said the facility could come on-line by 2013.

Eyes on Japan

Dallesprom is said to have inked memos with a number of Japanese manufacturers and traders of construction plywood and the latter have shown interest according to sector portal Wood.ru, in buying veneer production from the Amursk plant.

The veneer complex will mark the first milestone in Dallesprom’s nine-year strategy aimed at setting up a Far East center for wood processing in Amursk. The RF government approved the program a year ago and plans were aired in October 2009 to start construction by the end of that year.

The $400m first stage of the ambitious project includes a dry-end production facility with a capacity of 230,000 cu. m a year, a 300,000 cu. m medium-density fiberboard (MDF) site, and production of pulp chips with an annual capacity of 500,000 cu. m. To support the production plans a reported 1.2 – 1.5 million cubic-meters of local wood will be felled each year.

As the program expands the project planners want to boost output of rotary-cut veneer and dry-end products to both meet pent-up demand from Japan as well as neighboring China and sell domestically. Construction of a cellulose factory with a capacity of 500,000 tons a year is also purportedly envisaged. An investment amount for phase 2 has yet to be specified.

Russia weighs in

It isn’t the first time VEB Bank has shown strong support for the Khabarovsk region’s vast timber potential. Between mid-2009 and this past summer the government corporation helped finance the first two stages of a particle board and dry-end production facility in the port of Vanino and then pledged a $370m loan to support its expansion.

Analysts tend to consider the RF’s increased activity in the Far East’s timber helpful, but late in the game since the Asian tigers have held a dominant position in the sector buying wood all over the world and then selling finished production to wood-starved China as well as elsewhere for less than countries with rich timber resources.

China’s welcome—to a certain extent

With Russia’s forested area accounting for 1/5 of global resources (exceeding China’s seven times over), its most abundant forest wealth located in Siberia and the Far East just miles north, the Middle Kingdom has had its eyes fixed on its neighbor for decades.

The Khabarovsk region alone produces more than 50% of the Far East’s all timber.

In 1994, China imposed an official ban on domestic clear-cutting in response to the devastation of the country’s forests in the 1970-80s. China’s dynamically growing economy needs more timber than it can produce. The country’s permitted logging output is now a reported 65 million cubic-meters—just a third of its economy’s annual lumber consumption. This 100 million cubic-meters deficit has caused China to become the world’s largest timber importer.

In 2008, Russia increased export duties five times the amount companies had paid for lumber exports before—making such exports unprofitable. Facing an imminent shortfall the Chinese government scrambled to win a foothold in Russia’s woodworking sector and start importing its own processed wood instead.

In 2008-2009, the Chinese announced several large logging and advanced timber processing projects in South-East Siberia and Russia’s Far East. Over $1.8bn was pledged then and now that China has weathered the financial crisis, the country is planning even more.

With the Koreans and the Japanese also eyeing Russian-based production opportunities projects like Amursk and Vanino is a way for the RF to once again try to manage its forest riches and at the same time, reduce its Asian neighbors’ insatiable appetite for Russian wood.