Market Overview

Global scale of Pulp and paper sector in Russia in 2010

Market pulp output in 2010 increased, which shows that the industry is going out of the crisis. The growth in 2010 is accounted not only for gradual stabilization of the industry and restoration of export markets, but also by the harsh fall of production in 2009. Only pulp and paper industry kept positive profitability during the crisis era, and generally in had better financial indicators than other forest industry sectors.

Perspectives

1. The majority of the enterprises belongs to forest industry holdings.
1. This fact gives enterprises constant access to raw materials and control the low COS on that budget item.
2. Pulp market is largely consolidated: seven largest enterprises provide around 70% of the total pulp volume. Many enterprises belong to foreign companies partly or fully.
1. Large amount of international capital guarantee the stability to enterprises. This fact gives a serious independence for companies from changes in Russian economy.
2. At the same time belonging to foreign companies ease the process of manufacture re-equipment – main low COS advantage loss reason.

Pulp

Production of pulp in 2009-2010, thousand tons

Perspectives of post-crisis restoration of the Russian pulp and paper industry to large extent depend on external situation on fiber, newsprint and kraftliner markets which are traditional for Russian producers. Because these perspective are not very optimistic, other ways to solve the problem are becoming important: widening of the product portfolio, production of import-replacing products on the Russian market, search of new market niches.

For instance, Ilim Group started a research project aimed at converting larch wood to pulp. Development of such technology will allow the company to reach new sales markets, including those segments of domestic market which are now occupied by foreign producers only. Russian pulp export growth is a good illustration of market positive dynamics:

Export of pulp from Russia in 2008-2010, thousand tons

Russian pulp and paper industry is characterized by advantage both in raw material and energy components of cost. In oven dry tons, Russian softwood is one third cheaper than that of its competitors. Hardwood is even more price-competitive. Energy costs are also one third lower than in competing countries, the gap in CHP costs reaches 66%. Also, Russian pulp and paper industry is characterized with low personnel costs.

The only problem is that low cost is offset with high production losses and ineffective production management. This issue was particularly obvious during the crisis. Lack of equipment investments leads to poor quality in many pulp and paper sectors. Now, when the economy moves from crisis to restoration, Russian pulp and paper industry needs to utilize directly its competitive advantages and reorganize its strategy. These days Russian industry becomes even more favorable for investments, because the only complication towards effective utilization of low production costs is need of manufacture re-equipment.

Paper & Paperboard

Paper production in 2008 – 2010, thousand tons

The sate of market confirm that new technologies and research work may widen the list of applications of paper as packaging. This could provide market growth in the long-term perspective. Take-out food and ready food products, beverage boxes and packs for goods delivery are only few paper packaging applications to name, they all can lead to high growth rates.

Geographic pattern of import of paper and paperboard from Russia in 2010, %

The leading paper and paperboard importer from Russia in 2010 was India, which shared 13% of the total volume. Compared to 2009 levels, the growth was 50%. Ukraine also increased deliveries from Russia by 21% and held 11% of this market. Russian paper and paperboard import maintain rapid growth.

The major competition factor will be the product price. Demand for paperboard and corrugated board will grow within few years. Positive trend on this market will be registered due to short-storage goods sector, which gives 3/4 of the total demand for packaging. Growth of the long-storage boxes market which uses more expensive and massive boxes will also become a major factor in board packaging development. Among other stimulating factors are beverages and foods, their volume is growing after the global financial crisis. Apart from that, premium class goods are also being sold more actively. This gives wonderful perspectives to packaging producers, especially in Russia with its low energy, lobar and raw material costs.

Paperboard production in 2008-2010, thousand tons

Corrugated board and boxes market is one of the most rapidly growing branches of pulp and paper industry. With growing GDP, national welfare is also growing, so, various consumer goods are sold better. This leads to growth in containerboard demand.

Also lack of board and paper for corrugating provoked growth of prices for board products. Monthly growth in the second half-year reached 5-10%. The major reason for this was shutdown of several large producers due to production upgrade. It is expected that in 2011 situation will not change considerably, prices will continue to grow, although not so rapidly.

Corrugated market perspectives are linked with economy growth in Russia. The more production lines are opened everywhere, in light or heavy industry, in food or chemistry sector, the more demand will be for packaging market. It is likely to follow European path: segmentation of packaging producers will start depending on type of containers, so less companies will produce wide range of packaging products.

Dear clients, if you need more information concerning Russian Pulp and Paper industry and actual market activities we are ready to send it to you by e-mail. Please, contact our exhibition team.

The research is made by Lesprom Network. wood.lesprom.com