“Speculative” timber purchases: debunking the myths!

This week a joint meeting of the State Forest Resources Agency of Ukraine and SFE “Forests of Ukraine” was held with representatives of the wood‐processing industry.

At the conclusion of the event, a representative of one of the industry associations proposed introducing “blacklists” for unscrupulous market participants.

According to him, there are categories of buyers who inflate prices at auctions, secure volumes under contract, and then fail to collect the resource. As a result, other honest purchasers allegedly end up overpaying for the timber.

“Is the factor of “speculative purchases” truly present in the market? To what extent does it influence the market?

To rely on facts rather than assumptions, we analyzed the performance of auction contracts in the first quarter for each buyer.”

Overall, 2.1 million m³ of timber was sold, with over 2,000 buyers under contract.

1,600 counterparties fulfilled 90 % or more of their contracted volumes, accounting for 80 % of the total resource.

The contract allows for a deviation of up to 10 % from the contracted volume. These counterparties therefore duly fulfilled the terms of their agreements.

229 buyers paid for and removed between 70 % and 90 % of their contracted timber (15 % of the total resource).

Only 35 buyers did not collect any cubic meters at all. That amounts to approximately 6,000 m³—0.3 % of the total volume sold.

The defaulters explained their refusal by citing the lack of foreign trade contracts, insufficient working capital, and the mobilization of individual entrepreneurs or their employees. The unsold volumes were re-offered in supplementary auctions and sold at market prices according to the price list derived from the auction results.

Penalties were imposed on the defaulters. The majority did not return to participate in any further auctions. Only 12 of the 35 companies took part in the second-quarter auctions. To date, no complaints have been recorded regarding contract non-performance by these companies.

The numbers show that there is no systemic phenomenon of “speculative purchases” today.

Therefore, the prices set at auction are entirely market-based. All talk of “overpayment” is no more than unfounded speculation, unsupported by the facts.