Russian invasion of Ukraine creates uncertainty in the wood products market

Originally published by Fastmarkets Random Lengths, March 4, 2022

Softwood lumber traders are scrambling to ascertain the extent to which Russia’s invasion of Ukraine will impact markets, especially throughout Europe.

Many U.S.-based exporters noted in March that their customers in Europe were astonished at how quickly and severely the situation escalated. “It makes me sick to watch this unfold,” one Southern Pine exporter lamented, echoing widespread sentiments throughout the industry.

Uncertainty regarding how long the conflict will linger and what geopolitical changes may result clouds projections about how the invasion might alter worldwide softwood lumber trading in the weeks and months ahead.

North American lumber traders were already noticing impacts a few days after the invasion began. Surging fuel costs have prompted trucking companies to raise rates that were already historically high.

The war has piled additional uncertainty on an already strained ocean freight system. Disruptions at ports have delayed and altered shipping schedules, often leaving U.S. importers guessing when previous orders might arrive, if at all, amid the chaos.

Many NATO countries have cut economic ties with Russia in response to the invasion. Severe economic sanctions imposed by the U.S. and NATO members, including measures that target Russian banks, are already hitting the Russian economy.

The ruble has plunged 30% since mid-February. Cash has grown scarce in Russia. Multiple media reports indicate long lines at ATM machines in Russian cities.

Funding new transactions between Russia and NATO countries will be difficult, if not impossible. Widespread opposition to the invasion has discouraged companies from trading with Russia and many have already cut ties with Russian trading partners.

A recent Fastmarkets analysis estimates Russia’s share of the global softwood lumber trade at roughly 22%. Statistics from Global Trade Atlas show Russian softwood lumber exports reached 27.8 million cubic meters last year, down 6% from 29.5 million cubic meters in 2020.

Russian exports to Europe increased 16% last year to 5.2 million cubic meters. Many observers anticipate Russian exports to shift away from Europe and other NATO countries toward alternative markets that remain open to trade with Russia such as China, India, and North Africa.

Read lumber economist, Dustin Jalbert’s latest viewpoint to understand the impact of the Russia-Ukraine conflict on the lumber market.