Helsinki , February 14th

RUSSIA and Global Trends In Sawmilling & Logsupply Seminar - “Baltic Sea Wood Market”

Global recession hit the lumber sector hard in 2009

Source: WOOD MARKETS 2012 – The Five Year Outlook for North America

Global Softwood lumber demand

Global output to increase at about 5% per year in 2011 & 2012

Source: WOOD MARKETS 2012 – The Five Year Outlook for North America

Global Softwood lumber production

Global Trends in Sawmill Industry

TREND: Global redistribution of timber sales

volumes and structural change in the industry

DRIVERS: • Decrease in demand leads to

rationalization of production capacity • New role of China • Sustainable growth of saw log prices and

lack of availability • International control on the origin of wood • Climate change policies (biofuel, etc.)

One more driver: RUSSIA joining WTO

• Enforcement in September 2012

• Medium term impact on the global markets

• Production regions affected: - Finland, Sweden, China, Japan - USA, NZ, Canada

Russia joining WTO, approved December 2011

• Reduction of taxes of Pine logs from 25% to 15% for the first 16 million cubic meters shipped each year. • Within that 16-million-cubic-meter quota, 3.6 million cubic meters can be shipped to the European Union and 12.4 million cubic meters can be exported to China, Japan, and South Korea combined under the lower tax rate.

• 6.5 million cubic meters of Spruce logs can be exported from Russia each year at a 13% tax rate. The quota will allot 5.9 million cubic meters for shipment to EU member countries at the reduced tax rate, and 600,000 cubic meters to China, Japan, and South Korea combined. If the above format receives final approval, Russian Pine and Spruce log exports beyond volumes outlined in the quotas would be taxed at the current 25% rate, which was established in 2008. Quotas would not be imposed on species other than Spruce and Pine, according to the consultant. The export tax on Larch logs would be reduced to 15% with no quota. The proposed plan calls for the quotas to be reviewed annually.

Russia: Production & Consumption of

softwood logs

0

10000

20000

30000

40000

50000

60000

70000

2010 2011e 2012f

10

00

m3

Production

Consumption

Export

Export volume of saw log could grow 5-7% in 2012

Russia: Production & Consumption of

softwood sawn timber

0

5000

10000

15000

20000

25000

30000

2010 2011e 2012f

10

00

m3

Production

Consumption

Export

5%growth in production is forecasted for 2012

China import structure 2011

9

CHINA LOG IMPORT BY COUNTRY CHINA LUMBER IMPORTS BY COUNTRY

Russia 34 %

New Zealand

19 %

USA 11 %

PNG 7 %

Australia 3 %

Canada 6 %

RoW 20 %

Russia 28 %

Canada 32 %

USA 13 %

Thailand 7 %

New Zwaland 2 %

Indonezia 3 %

Germany 1 % RoW

14 %

25.4

14.5

1.3

8.9

0.3 6.5

0.12.7

0

5

10

15

20

25

30

35

2007 2011 (projected)

mil

lio

n m

3

China: Softwood Log Imports2007 vs. 2011

Canada

U.S.

New Zealand

Russia

Source: China Bulletin

Russia has lost huge market share; other countries more than picked up the slack.

China Log Imports: Supply Shift

Canadian softwood lumber has overtaken Russia

China’s Lumber Imports = Soaring

12

Chinese / Russian Border - Suifenhe

World’s Lowest Cost Sawmill: China

North-West of Russia: production of sawlog

and sawn timber

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2010 2011e 2012f

10

00

m3

Sawlog

Sawn timber

North-West of Russia: export of sawn timber

5200

5400

5600

5800

6000

6200

6400

6600

2010 2011e 2012f

10

00

m3

Sawn timber

Roundwood imports by assortment 1965-2010 Roundwood imports in 2010 to Finland –

61% from Russia

Europe has next highest log costs; Russia has the lowest

Global Delivered Log Costs - Average Mill 2008

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

So.

Hem

ispher

e

Sca

n/W. E

urope

C. E

urope/

Bal

tics

Rus

sia*

USA

Can

ada:

SPF

Chi

na

BC C

oast

Intn'l WOOD

MARKETS Group

/ PwC / Beck; Copyrirhgted

by Intn'l WOOD Markets

Group *Logs at Cost

US

$/N

et

m3

- L

um

be

r B

as

is

Total

Delivered

Log Costs

Global Avg

Delv'd Log

Cost

Russia joining WTO. Delivered Log Costs

Russia & USA = higher costs than W. & E. Europe

Global Sawmilling Costs (excl. logs) - Average Mill 2008

90

6552

81 7782

19

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

So.

Hem

ispher

e

Sca

n/W. E

urope

C. E

urope/

Bal

tics

Rus

sia*

USA

Can

ada:

SPF

Chi

na

Intn'l WOOD

MARKETS Group

/ PwC / Beck

* Logs at Cost

US

$/N

et

m3

- L

um

be

r B

as

is .

Total Mill

Costs + OH

Global Avg

Sawmill

Costs

Russia joining WTO . Sawmilling Costs

Russia joining WTO. Consequences

1. More competition for Russian sawmill industry

2. More pulplog for Russian pulp and board produsers

3. More motivation for harvesting in Russia

4. Positive for neighboring countries

ABOUT THE COMPANY

ILIM TIMBER IN

BRIEF

Eastern Siberia:

Ust-Ilimsk Sawmill

Ilim Bratsk Sawmill

Ilim Bratsk Plywood Mill

North-West of Russia:

IlimSeverDrev

Combined production capacity:

1 mln.cbm of sawn goods

150 thous.cbm of plywood

45 mln.sq. m of fiberboard

ILIM TIMBER ASSETS: RUSSIA

Ust-Ilimsk Sawmill

Ilim Bratsk Sawmill

Ilim Bratsk Plywood Mill

RUSSIA

Ilim Timber Headquarters

IlimSeverDrev

Ilim Nordic Timber (Wismar)

1200 thous.cbm of sawn goods

Raw material: softwood sawlog from Germany and

Baltic region: pine, spruce

Sales: Europe, USA, MENA, China, Japan,

Australia

Ilim Timber Bavaria (Landsberg)

800 thous.cbm of sawn goods

Raw material: softwood sawlog from Bavaria

region: spruce

Sales: German domestic market, European Union

GERMANY

Ilim Nordic Timber

Ilim Timber Bavaria

ILIM TIMBER ASSETS: GERMANY

Tolleson Lumber, Perry, Georgia

450 thous.cbm. of sawn goods

Tolleson Lumber, Preston, Georgia

450 thous.cbm. of sawn goods

Raw material: southern yellow pine

Sales: USA domestic market, China, Japan

USA

Tolleson Lumber

ILIM TIMBER ASSETS: USA

GEOGRAPHY OF SALES

50 %

23 %

19 %

6 %

2 %

Europe

USA

China

MENA

Japan

Key markets

USA

Russia

China Japan

Europe

MENA