Russian sanctions mount as lumber traders seek more clarity

US lumber importers scramble to develop contingency plans, European softwood lumber supply shift could have a worldwide domino effect

Originally published by Fastmarkets Random Lengths, April 12, 2022

Worldwide economic sanctions against Russia have continued to mount in response to the country’s invasion of Ukraine last month. Recent projections have provided a measure of clarity regarding how extensively the global softwood lumber industry might be impacted for the balance of 2022.

However, the constantly shifting situation in Ukraine makes longer term projections uncertain. U.S. importers are still scrambling to develop contingency plans for Russia’s sudden absence from the market.

U.S. imports from Russia increased for nine consecutive years from almost nil in 2012. The 105,325 cubic meters (44.6 million board feet) imported last year was second only to 2005.

Shipments through February were up 10% compared to the 2021 volume and on pace to challenge the 2005 record of 51.2 mmbf. March data will be available in early May, and a sharp decline in Russian exports to the U.S. is widely anticipated because sanctions took hold early last month.

European Union exports to the U.S. also posted sharp increases through February. The war’s impact on U.S. imports from Europe for the balance of 2022 and beyond is less clear.

European mills may turn to sell more lumber domestically

The U.S. market has continued to provide historically strong returns for European lumber. However, many traders anticipate that European mills will sell a larger percentage of production domestically to compensate for the absence of coverage from Russia and Belarus.

In early April, the European Union announced a fifth package of economic sanctions against Russia that included wood products specifically.

The newly announced sanctions banned wood products imported from Russia and Belarus. Further, four more Russian banks with an estimated 23% share of the Russian banking market were added to the list of institutions cut off from the EU.

An estimate released earlier this month indicates the sanctions will cut off about 10 million cubic meters from the European market this year.

The estimate is based on projections that the European Union will block exports from Russia and Belarus throughout 2022, and Ukraine will be largely unable to ship wood products into the region during the war. Europe imported roughly 8.5 million cubic meters from those three countries in 2021.

Less European export could create a supply domino effect

A potential reduction in European softwood lumber offerings to foreign markets could have a domino effect on worldwide trade, observers note. Sixteen European producers have shipped J-grade to Japan in the last year, and about a half dozen of the largest companies export to that market consistently.

If European supplies become less available, Japanese buyers are likely to lean more heavily on Canadian S-P-F and Japanese domestic species in the months ahead, traders note.

Anti-Russian sentiment has surged since the invasion, and some traders note that it could linger well after the fighting in Ukraine has ceased.

Some importers in North America, Europe, and parts of Southeast Asia have noted that resuming trade with Russia could alienate other trading partners if bitterness lingers.

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