Western companies began talking about selling their Russian assets immediately after objecting to the Russian invasion of Ukraine. Leaving Russia was linked not only to political reasons but also to economic ones. Due to sanctions, Russian factories that supplied goods to Western markets were left without sales outlets. Meanwhile, the rise in freight tariffs, caused by major container companies stopping work with Russian cargo, dramatically increased the cost of deliveries to Asia, which is the main export market for Russian sawmills and pulp companies.
The departure of foreign companies from Russia in 2022 could generally lead to a shortage of certain wood products, which will gradually be covered by timber produced in Russia. However, product quality will be lower as supplies of Western consumables and components are cut off.
Among the timber industry companies leaving Russia, the Swedish company IKEA is the leader in terms of production volume. The company has three factories in Russia in the Leningrad, Kirov and Novgorod regions, with a total annual capacity of 500,000 m³ of sanded particle board, 25 million m² of particle board, 190,000 m³ of sawn timber, 50,000 tonnes of pellets and 25,000 m³ of furniture units. The deal for the sale of the factories could be concluded by the end of the first quarter of 2023, but the company has not yet announced the buyer.
Finland's Metsä Group suspended operations at its Metsä Svir sawmill, which has a capacity of 280,000 m³ of sawn timber and 150,000 m³ of wood chips, as early as the summer. The factory is currently not operating, but the company has not publicly announced a sale of assets. At the same time, according to Lesprom Network information, Metsä Group's logging company Metsä Forest Podporozhye has resumed operations, albeit at a lower volume.
Stora Enso sold its Setnovo and Setles production facilities, with a total capacity of 350,000 m³ of sawn timber and 65,000 tonnes of pellets, to the management of the Russian company. Austrian Mayr-Melnhof Holz sold its MM-Efimovsky factory in the Leningrad region, with a capacity of 380,000 m³ of sawn timber and 58,000 tonnes of pellets, to the Russian company Aspek-Les at the beginning of 2023.
At the same time, the Austrian company Kronospan, which owns five production facilities in the country with a capacity to produce more than 1 million m³ of OSB, 2 million m³ of particle board and 50,000 m³ of laminated particle board, continues to operate in Russia without changes. The Austrian company Egger has not stopped the operations of its two Russian factories, which have a capacity of 873,000 m³ of particle board, 350,000 m³ of MDF, 15 million m² of particle board, 15 million m² of laminate and 55 million m² of impregnated paper. The Turkish factory Kastamonu, located in the Republic of Tatarstan, with a production capacity of 1 million m³ of MDF and 35 million m² of laminate, continues to operate.
Swiss Krono Group also continues to operate in the Russian market with a factory in the Kostroma region, which has a capacity of 500,000 m³ of MDF and 700,000 m³ of particle board. The Iida group still owns 75% of the shares in the Far Eastern RFP Group, which has 2 million m³ of logging capacity, 240,000 m³ of sawn timber, 240,000 m³ of veneer and 10,000 tonnes of wood pellets per year. The factory in Noginsk near Moscow, owned by the German company PERI, which has a capacity of more than 2 million linear metres of formwork beams, is operating normally. The Austrian company Hasslacher Norica Timber, which owns the Hasslacherles factory with a production capacity of 49,200 m³ of sawn timber, more than 8,000 m³ of veneer logs, 89,000 m³ of wood chips and 15,000 tonnes of pellets, continues to operate in Russia.
Last year, large Western packaging manufacturers left the Russian market in the pulp and paper industry. Tetra Pak transferred three of its Russian factories with a total capacity of 7 billion packaging units to local management, citing the impossibility of supplying production components due to sanctions. Stora Enso sold four factories with a capacity of 395 million m² of corrugated packaging to Novopak, which is owned by the managers of these factories. The Norwegian company Elopak also sold a factory in Russia with a capacity of 1.6 billion packaging units per year to local management. Amcor has announced the sale of three of its factories in Russia. Finnish Huhtamaki sold its business in Russia for 151 million euros (buyer: Espetina). Irish Smurfit Kappa Group announced its exit from the Russian market and ceased operations at its three factories, which had a capacity of 220 million m² of corrugated board and 40 million m² of packaging. Sylvamo sold the Svetogorsk pulp and paper mill with a capacity of 700,000 tonnes to the company Pulp Invest. The Austrian company Mondi sold its packaging business in Russia (excluding Mondi SLPK) to Gotek Group for 1.6 billion roubles.
It is more complicated for foreign companies to sell assets in Russia if they are very valuable. Even if a buyer is found, the transaction must be approved by the Russian Federation Government Commission on the Control of Foreign Investments. According to a requirement from the Ministry of Finance dated 22 December 2022, sales must be at a discount of at least 50%. Therefore, the sale of significant assets in the forestry sector can be difficult. According to information provided by the Financial Times, given the need to obtain government approval for a sale, many foreign banks could not sell their Russian assets and were forced to continue operations. This could also hinder deals that were concluded before the government's new requirements – as previously agreed sale prices could be cut in half with the authorities exercising greater influence over the deals. The FT points out that under these conditions, Russian assets of Western banks can be purchased by companies close to the Russian government.
In the forestry sector, the Austrian company Mondi, which is trying to sell its Mondi SLPK factory with a capacity of 1.1 million tonnes, has already encountered a new requirement. The company was preparing to sell it to Viktor Kharitonin's company Augment Investments Limited for 1.5 billion euros. However, the Russian government did not approve this transaction, considering the price to be too high.
Another significant asset whose sale was announced is the 50% stake in Ilim Group owned by International Paper. The company announced its intention to leave Russia last spring. Currently, a new government requirement could make the sale too unprofitable. Ilim Group is the largest forestry company in Russia, whose revenue in 2021 was 180.3 billion roubles (2.5 billion US dollars).
As Pavel Bilibin, a partner at Strategy Partners, points out, due to the departure of foreign companies, there may be a shortage of certain goods in Russia in the short term, as distribution and sales chains will be broken. “In the long term, import substitution will take place, replacing the departing producers and filling the vacated niches with other companies. In the future, these will lead not only to replacing the market share of departing players but also to forcing some currently imported items out of the market,” he notes.
Aleksandr Konyukhov, Deputy General Director for Production at the SevLesPil sawmill, also agrees with this forecast. “It is possible that production volumes will be slightly lower, perhaps the products will be of slightly lower quality,” he adds. The Russian timber industry is facing problems related to the availability of technology and equipment, a lack of logistics routes and difficulties in directing goods to new export markets.