Russian Log Export Tax Should Benefit Sino-Forest

Russia’s fast-growing log export taxes may be creating misery among Chinese wood-buyers, but they’re also creating terrific potential for the companies growing trees inside China, Dundee Securities analyst Richard Kelertas wrote in a note this week.

The export tax, which increased to 15 Euros per cubic meter on April 1 and is expected to balloon to 50 per cubic metre next year, is nothing but good news for Mr. Kelertas’s top pick, the Canadian-traded Chinese plantation owner Sino-Forest Corp.(SNOFF.PK). He wrote:

This will likely crunch supply, therefore driving all Chinese log prices even higher … and help offset any potential weakness from the additional wood coming on from the salvage cuts due to the damage from the Chinese snowstorms.

After seeing year-over-year log price increases of 15% last year, a Sino-Forest consultant’s report predicted annual real price increases of only 1-2% this year. Mr. Kelertas is far more optimistic, suggesting 5-7% a year over the next half-decade is more likely, “although this may prove to be conservative given the voracious Chinese demand for timber and dwindling log export supplies from Russia.”

As a result, he is maintaining his buy recommendation with a 12-month share price forecast of C$31.50, which is nearly double its current trading value.