Russia risks damaging alliances in China as wood sanctions cripple international trade

23 Mar 2022 --- Russia’s invasion of Ukraine is likely to heavily impact the global wood trade in the coming months, especially for countries like China and India, according to a recent report by US analyst group Wood Resources International. 

Increased sanctions against trading with Russia and difficulty with financial transactions will probably interrupt and redirect shipments of forest products throughout the world. As a result, trade with Russia will likely decline, impacting long-established international trade flows of forest products. 

Countries like China and India, who have either supported or claimed to be remaining neutral in Russia’s conflict, may also be affected by limited trade sanctions. “This development would mainly affect China, which relies on the importation of forest products, including logs, wood chips, lumber, pulp, and paper from North America, Europe, Oceania, and Latin America for domestic use,” says the group. 

“These world regions are considering expanded sanctions for Russia and countries that directly or indirectly support Russia’s attack on Ukraine.” 

The SWIFT threat 
Governments in North America and Europe are also considering locking Russia out of the international SWIFT (Society for Worldwide Interbank Financial Telecommunication) money transaction system entirely, having already imposed partial sanctions through the system. Russian companies will find it challenging to trade with the world if this occurs.

Wood-based packaging is under heavy pressure as sanctions on Russian forestry continue to tighten.Russia exported forest products were valued at over US$12 billion in 2021, and imports of paper products (mainly) are valued at about US$2 billion, according to Wood Resource Quarterly. Much of this trade is now in jeopardy.

Russia is the largest lumber exporter globally and ranks as the seventh biggest exporter of forest products worldwide. Forest products exports from Russia have increased rapidly in the past five years, led by softwood lumber and paper products.

Export value in 2021, change 2017-2021 (%): Softwood lumber US$5.8 billion, 24%; Paper products US$2.0 billion, 11%; Wood panels US$1.9 billion, 15%; Wood pulp US$1.3 billion, 19%; Hardwood logs US$0.5 billion, 15%; Softwood logs US$0.5 billion, -52%; Wood pellets US$0.3 billion, 102%; Total US$12.2 billion, 24%.

The threat against China 
Despite the Chinese government declaring neutrality on the Ukraine war and Western nations fearing financial and possible weaponry aid is being sent to aid the Kremlin, an estimated 40% of wood exports were destined for China in 2021, while the remainder was predominantly shipped to European markets.

Russia has vastly under-utilized forest resources and has the potential to increase timber harvests to supply its domestic industry. To meet increased global demand for forest products, the Russian government recently initiated programs to encourage investments in the sector to both expand/modernize existing manufacturing plants and build greenfield facilities.

However, it is likely that many investment projects in Russia’s forest products manufacturing sector will grind to a halt as the growing list of sanctions and financial transaction restrictions take effect, says the report. 

Recently, Western forestry standards groups, paper producers and manufacturers decided to halt operations with Russia in protest of the war. Only Mondi, one of the largest paper packaging players on the market, has kept its facilities running, saying its business only serves local Russian people and is vital for producing heating and energy. 

By Louis Gore-Langton

To contact our editorial team please email us at editorial@cnsmedia.com