KOHTI KEHITTYVÄÄ LUOTEIS-VENÄJÄN METSÄTALOUTTA SEMINAARI 25.6.2008 PIETARI. KALEVI KYYRÖNEN Lähetystöneuvos Suomen suurlähetystö Moskova

KOHTI KEHITTYVÄÄ LUOTEIS-VENÄJÄN METSÄTALOUTTA SEMINAARI 25.6.2008 PIETARI KALEVI KYYRÖNEN Lähetystöneuvos Suomen suurlähetystö Moskova

KOHTI KEHITTYVÄÄ LUOTEIS-VENÄJÄN METSÄTALOUTTA FOREST INDUSTRY IN CHANGE Forest industry new challenges Four dimensions Flows of fiber, capasity, consumption Wood sourcing, Brasil and Uruguay, China Growth of forest Cost of wood Cost of pulp Recycling of paper New products Bioenergy Conclutions Key issue will be sourcing of competitive fiber.

Scope of forest industry 1. Background Political issues Market 2. Resources Water Energy Forest 3. Regions China South America Russia 4. Forest industry Opportunities Threats

PERFORMANCE OF 100 TOP FOREST INDUSTRY COMPANIES RETURN ON CAPITAL EMPLOYED,% 6 5 4 3 2 1 0 2002 2003 2004 2005 2006

Profitability of Forest Industry in Scandinavia 2000-2005 ROCE % 16 14 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005

COSTS OF PERSONNEL ARE HIGH IN FINLAND Costs of personnel per a worker of forest industry in different countries, 2005, /year 7000 6000 5000 4000 3000 2000 1000 0 China Russia Brazilo Chile Japan Finland USA Germany Canada

KOHTI KEHITTYVÄÄ LUOTEIS-VENÄJÄN METSÄTALOUTTA Key isssue will be sourcing of competitive fiber 1. Growth of forest on a hectare/m3 is 40-50 m3 a year. 2. Yield of wood on a hectare/m3 is about 400 m3. 3. Cost of harvesting is about 10 /m3. 4. Cost of transportation is about 5 /m3. 5. Support of government in different countries

Before KOHTI KEHITTYVÄÄ LUOTEIS-VENÄJÄN METSÄTALOUTTA BRASIL

KOHTI KEHITTYVÄÄ LUOTEIS-VENÄJÄN METSÄTALOUTTA After seven years, BRASIL

Profitability Development 1998-2005-2 %0 %2 %4 %6 %8 %10 %12 %14 %16 %19981999200020012002200320042005ROCENorth Unfavourable profitability development has overshadowed the pulpand paper industry s operations in the mature markets.

RAAKAPUUN TUONTI VENÄJÄLTÄ SUOMEEN PUULAJEITTAIN, 1000 m3; Import of Russian wood by species 8000 7000 6000 5000 4000 3000 2000 1000 0 1980 1985 1990 1995 2000 2005 2006 Mätu Kotu Kuku Kutu Mäku Koku

Brazialin pulp exports in 2006, 6,2 M tons 56 % Exports Internal consumption 44 % 0 % 10 % 20 % 30 % 40 % 50 % 60 %

Rapid development of Industry in China 1000 cars is taken into use every day in Peking China constructs every year 4000 km of high way China consumes 54% of cement and 36% of steel in the world 75% of toys are made 70% of textile is made 60% of computer displays are made 50% of telephones are made 30% of Tv sets are made In China

Global pulp and board consumption to 2020 140 120 Consumption in China will grow by around 50 M tons to 2020 100 80 60 40 20 0 North America 2005 North America 2020 Europe 2005 Europe 2020 China 2005 China 2020

Fast growth in China Growth of paper and board production in China 2005 +400% 2000 Newsprint Printing paper Packaging materials 1995 0 20 000 40 000 60 000 1000 tonnes

China`s paper industry depends on imported fiber 35 % 30 % 25 % 20 % 15 % Imported pulp Import of Recycled paper Straw pulp Domestic pulp Domestic recycled paper 10 % 5 % 0 %

New paper machines in China Number new machines Growth of capacity/year 6000 Growth of capacity has been about 5 millions t a year 5000 4000 3000 2000 1000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Development of Pulp and Board production in Asia Local production has increased rapidly in the last 15 years 60 50 40 China Japan Rest of Asia 30 20 10 0 1980 1985 1990 1995 2000 2005

KOHTI KEHITTYVÄÄ LUOTEIS-VENÄJÄN METSÄTALOUTTA Veracel Tree Plantations Total area 165 000 hectares Tree plantations 71 000 hectares Protected areas total 44 % Estação Veracruz -protected area 6 026 hectares Infrastructure 4 % Tree farms 11 000 hectares Plant production: max. 20 million plants/year Tree plantations guarantee pulp production as follows: 900 000 tons in the middle of 2005 1 000 000 tons year 2007 and after

Ensure wood procurement to Segezha P&P Mill in volume of 3 mill. m3 annually from territory within 250 km of transport access

KOHTI KEHITTYVÄÄ LUOTEIS-VENÄJÄN METSÄTALOUTTA Forest area required for a one million ton pulp mill Brasil 100 000 hectares Scandinavia 720 000 hectares Portugal 300 000 hectares

KOHTI KEHITTYVÄÄ LUOTEIS-VENÄJÄN METSÄTALOUTTA

COST STRUCTURE OF PULP PRODUCTION Mechanical Pulp 0,3 0,25 0,2 0,15 0,1 0,05 0 24 % 20 % 12 % 7 % 27 % Wood Electricity Personnel Amortization Other variable costs 10 % Chemicals

COST STRUCTURE OF PULP PRODUCTION Chemical Pulp 0,45 0,4 0,35 0,3 0,25 0,2 0,15 0,1 0,05 0 41 % 2 % 12 % 8 % 39 % Wood Electricity Personnel Amortization Other variable costs 7 % Chemicals

KOHTI KEHITTYVÄÄ LUOTEIS-VENÄJÄN METSÄTALOUTTA Short fiber pulp Local production costs, USD/t 350 300 250 North-America Western Europe 200 Asia 150 Latin America 100 50 0

Forest growth in Scandinavia compared to South America Short fiber 700 species Pine Pinus radiata Area Growth, m3/ha Chemical pulp yield/ton/ha Growth, m3/ha Chemical pulp yield/ton/ha Brazil Uruguay S-Finland 45,0 12,0 40,0 8,0 40,0 10,0 35,0 7,0 5,4 1,2 5,4 1,0 S-Sweden 5,9 1,3 5,9 1,1

BIOENRGY

SWOT analysis RUSSIAN FOREST SECTOR Own activity today STRENGTHS Strong growth of economy Vast forest resources Competitive advantages and costs Trained personnel Support of government Environment and future WEAKNESSES Undeveloped infrastructure Goal:Political and social Old and worn-out mills Difficult standards Lack of entrepreneurship Political game, authorities, management & corruption OPPORTUNITIES Growing domestic demand of paper products Possibility to increase productivity of forests Space for growth of forest industry Bioenergy More utilation of wood at local level THREATS Uncertainty with Forest Code Pressure from NGOs Unclear investment policy, export duties Uncertainty in wood sourcing Climate change

KOHTI KEHITTYVÄÄ LUOTEIS-VENÄJÄN METSÄTALOUTTA MAIN TREND OF PULP AND PAPER INDUSTRY There is a global growth of pulp and paper products in the world Utilisation of Recycled fiber is on a high level in many countries Utilisation of bioenergy will be increased; Europe Wood fiber is a global commodity New technologies need less and less long fiber New products and innovations Environmental issues are becoming more and more important in forestry