A large vertically integrated timber holding firm in Russia, Segezha Group, has reported an 18% drop in plywood sales, which is indicative of larger issues facing the country’s timber sector. The corporation cites a number of reasons for this decline, including sluggish demand in important regions, high local interest rates, and foreign sanctions.
Which factors contribute to the major decline?
- Sanctions and Export Restrictions
Western sanctions have significantly curtailed Segezha Group’s access to European markets, traditionally a major destination for Russian plywood exports. These sanctions have disrupted established trade routes and reduced the company’s ability to compete internationally.
- High domestic interest rates
In Russia, the central bank’s high interest rates have led to mortgage rates soaring to 28%. This has dampened domestic construction activity, a primary consumer of plywood products, thereby reducing internal demand.
- Increased Production Costs
Rising costs of raw materials, labour shortages, and increased logistics expenses have squeezed profit margins. These factors have made it more challenging for Segezha Group to maintain competitive pricing in both domestic and international markets.
Financial impact and responses
In its recent financial disclosures, Segezha Group reported a net loss of 22.28 billion rubles for 2024, compared to a loss of 15.98 billion rubles in the previous year. This increase in losses underscores the compounded effects of declining sales and rising operational costs.
In response to these challenges, Segezha Group is exploring new markets and adjusting its product offerings to align with current demand. The company is also focusing on enhancing operational efficiencies and reducing costs to mitigate the impact of external pressures. However, the ongoing geopolitical and economic uncertainties pose significant hurdles to a swift recovery.
The difficulties faced by Segezha Group are indicative of broader trends within Russia’s timber industry. With reduced access to traditional export markets and declining domestic demand, many companies in the sector are experiencing financial strain. Industry experts suggest that without substantial policy support and market diversification, the sector may continue to face challenges in the coming years.
About the Segezha Pulp and Paper Mill
Initially serving as a sawmill for the Segezha Pulp and Paper Mill in Segezha, the Republic of Karelia, the industrial facility was put into service in 1940. Since 2014, Segezha Sawmills has been a part of Sistema’s Segezha Group. The majority of Segezha Sawmills’ customers are in Europe, including the UK, the Netherlands, Belgium, Denmark, France, and Italy. The mill produces sawn timber from softwoods and industry-grade chips. It can cut 297,000 cubic meters of round timber annually. Finnish machinery from Valmet and Plan-Sell is used to dry, treat, and package sawn timber. Deliveries of sawn timber are made by water and road in containers that are covered in five layers of film.
With a full cycle of its own logging and expertise in producing a variety of high-margin goods, Segezha Group is a distinctive Russian wood holding firm. Environmentally friendly technologies for processing wood with added value and making full use of raw materials are the main focus of development.
The group is among the world’s biggest forestry firms. With PIP and priority investment projects included, the yearly estimated logging site is 22.7 million cubic meters, and the total leased forest area is 15.7 million hectares. The high level of raw material self-sufficiency, which accounts for 84% of the company’s timber demands, ensures business stability. Not counting Inter Forest Rus, 88% of the business’s forest plots are certified in accordance with the worldwide voluntary forest certification criteria, supporting its reputation as an environmentally and socially conscious forestry company on a global scale.
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