2007 Container Board Market: Overview of the CIS Countries Market

In 2007, production of cardboard and pulp stabilized in Russia. In that year the cardboard output grew by 1.3% against the previous year, while the output of container board (including fluting) increased by 1.8%.

The rates of growth of domestic cardboard and container board output were equal to +1.3% and +1.8% respectively as compared to 2006.
Container cardboard production including fluting paper is concentrated in three federal districts: North-Western, Privolzhsky and Siberian. In 2007, the total output of container board by the three districts constituted 86.8% of its total production in Russia.

Source: State Statistical Committee of the Russian Federation; estimates: Abercade Research Company
Market research "2007 Container Board Market: Overview of the CIS Countries Market"

Within the framework of each federal district, there is a sufficiently high concentration of production in certain regions. In the Central Federal District, Kaluga Province accounted for about 49.4% of all container board produced in that District in 2007. The shares of other regions were as follows: Moscow Province – 19.5%, Tver Province – 16.2% and Bryansk Province – 11.2%.
In the North-Western Federal District 82.9% of production was concentrated in two regions: Arkhangelsk Province – 66.5% and the Republic of Komi – 16.4%.
In the Privolzhsky Federal District, 31.4% of the total output of container board was produced in the Perm Territory; 29.8% in Tatarstan, and 18.9% in the Republic of Mary El.
In the Southern Federal District, the leading positions in the production of container board belonged to the Republic of Adygei (79.7%) and Rostov Province (18.7%).
In the Siberian Federal District, half of the volume of output (48.1%) came from Irkutsk Province. The second place belonged to the Krasnoyarsk Territory (22.2%), and the third place – to the Republic of Buryatia (20.3%).
In the Urals and the Far Eastern federal districts no container board was produced in 2007.
Based on the reports of the State Statistical Committee of the Russian Federation, seven major areas can be singled out in the regional structure of container board (including fluting paper) production where the volume of output was more than 100,000 tons. In 2007, the aggregate share of such regions constituted in the order of 69.6% of the total output.

In 2007, the total output of container board in Russia stabilized, but some changes took place in the regional production structure. The largest production growth in kind was manifested in the Privolzhsky Territory (82,900 tons or 15.8%), and in terms of percentage – in the Siberian Territory (3,600 tons or 0.8%). In the Southern District, the volume of output reduced by 25.1% or 18,700 tons (due to a considerable decrease in the volume of output in the Krasnodar Territory – 28,800 tons or 95.4%).
In 2007, about 61.3% of container board including fluting was produced by seven enterprises: the Arkhangelsk Pulp-and-Paper Mills, the Ilim Group in Koryazhma (Kotlas Pulp-and-Paper Mills), the Mondi Syktyvkar Timber-Processing Mills, Permsky Cardboard, the Naberezhnochelnsky Board-and-Paper Mills, the Ilim Group in Bratsk and Yeniseisky Pulp-and-Paper Mills.


In 2007, the volume of export of fluting paper and liner in kind was 34.2% less than the similar 2006 indicators, while in terms of money the 2007 volume of export was 29.8% less than similar 2006 indicators.



Source: Federal Customs Service; estimates: Abercade Research Company
Market research "2007 Container Board Market: Overview of the CIS Countries Market"
Fluting Export

About 45.5% of fluting paper exported from Russia in 2007 was produced at the Yeniseisky PPM Ltd. The second place in the volume of export in kind belonged to the Koryazhma branch of the Ilim Group (the Kotlas PPM – 31.4%). The main destination countries were Azerbaijan and Italy. The third place went to the Nemansky PPM Ltd. (6%). The main destination countries were Ukraine and Poland.

Fluting paper was exported to the CIS and remote foreign countries. The largest partner was Kazakhstan, with a share of 42.8% of the 2007 total fluting export in kind. The second place went to Azerbaijan with its 18.8%. Smaller amounts were exported to Italy, Kirgizia and Ukraine – 9.7%, 9% and 6.4% respectively. The volume of export into any other country did not exceed 3% of total exports.
Liner Export
The following types of fluting liner are exported from Russia:
• Unbleached kraft liner;
• Kraft liner with one bleached external layer (the content of unbleached pine-wood pulp of 68.0% to 79.4%);
• Top-liner KOMWHITE (fluting liner with a beached external layer of sulfate pine-wood pulp);
• Mottled board KOMIMOTTLED (mottled cardboard from sulfate pine-wood pulp);
• Test-liner (regenerated cardboard for lining fluting).
In 2007, about 81% of export fell on unbleached kraft liner. The second place in the volume of export (18.3%) belonged to the top-liner with one bleached layer. The third place went to the top-liner KOMIWHITE (0.4%).

About 50% of liner export came from enterprises of the Ilim Pulp Timber Processing Corporation (Ilim in Koryazhma, Ilim in Bratsk, and the Pulp-and-Cardboard Mills OJSC). The second largest share of 23.6% of total exports in kind belonged to Svetogorsk OJSC. And the third largest share of 13.8% of total exports in kind came from Mondi Business Paper Syktyvkar Timber Processing Mills OJSC (MBP STPM).
Fluting liner was mostly exported to remote foreign countries. One of the major partners was China, which accounted for practically one third of all liner export in kind in 2007. The second place belonged to Germany with its 12.4%. Less liner was exported to Italy and Turkey – 7.5% and 7.2% respectively.

In 2007, the share of fluting paper in the import structure constituted 28.5%, and that of fluting liner – 71.5%.
In 2007, the volume of fluting import in kind decreased by 62% and in terms of money – by 54% as compared to 2006. In 2007, the volume of liner import increased by 67% in kind against 2006.
In 2007, more than 51.9% of imported materials were supplied from Ukraine. Finland and Hungary supplied 19.5% and 10.4% respectively, and the import from Moldavia and Slovakia accounted for 8.1% and 4.6% respectively. The share of other fluting or liner supplier countries did not exceed 2%.

In 2007, about 32.1% of the total volume of import came from the Kiev BPM OJSC. The second largest share of import came from the Rubezhansky Board-and-Tare Mills OJSC – 11.1%, and the third largest share of total import in kind (8.3%) came from the Zhidachevsky PPM OJSC.
As for destination regions, in 2007 fluting materials were imported to:
• Kursk Province (41.1%) where Gotek CJSC, one of  the largest enterprises of the packing industry, is situated;
• 27.9% - to Rostov Province for Rostovvtorpererabotka CJSC;
• 11.8% went to Moscow where there are a lot of small packing companies;
• 8.5% went to Kaluga Province where Stora Enso Packaging Ltd. is situated.

Trends in the development of the Russian container board market

In 2007, the Russian production of cardboard and pulp stabilized. In 2007, the cardboard output grew by 1.3% against the previous year and the container board output (including fluting paper) – by 1.8%.
The pulp-and-paper industry owed it to several factors, which had a strong impact on the entire industry.
Firstly, practically all of the main enterprises had reached their maximum production capacity.
Secondly, state nature protection agencies, by their tough measures, forced pulp-and-paper enterprises to make substantial investments in purchasing equipment permitting to cut emissions of toxic substances into the environment.
Thirdly, a considerable increase in prices on feedstock used by the pulp-and-paper industry is observed at present. In order to restrain the price growth, Russia plans to raise customs duties on the export of rough timber in 2008.
Fourthly, competition in the external market has intensified considerably.
At the same time, there are also some negative aspects in the Russian pulp-and-paper industry.
Russia, which possesses one fourth of the world’s forest resources, accounts for less than 5% of the world pulp, paper and cardboard market. This is primarily connected with the fact that, despite the above positive changes and growth rates in the past few years, the volume of output of pulp, paper and other pulp-and-paper products in Russia is much less than in Western Europe, America and Asia. Per capita consumption of paper products in Russia is several times less than in Western countries.
Secondly, foreign investors make a lot of statements about investing millions in Russian enterprises for in-depth timber processing. However, many of them, after acquiring access to regional resources, start to export timber abroad without building anything in Russia.
In their foreign economic activity, pulp-and-paper enterprises encounter such a negative trend as decreasing profitability of export operations despite growing export volumes. This is associated with the unsatisfactory dollar to ruble ratio.
On the whole, the Russian cardboard market is very promising for pulp-an-paper enterprises. A forecast foresees the further growth of the domestic market due to the following factors:
1. Economic growth, especially that of the food industry, one of the main pulp-and-paper consumers;
2. Increasing popularity of paper-based packing materials and cardboard tare;
3. Rising prices on crude oil causing a considerable increase in prices on feedstock for manufacturing multiway plastic tare, which is the main rival of cardboard tare.
Due to the rise in world prices and the demand for pulp, pulp-and-paper mills also have a possibility of expanding their sales markets and increasing the export of marketable cellulose.
Among the negative factors, which may influence the sale of pulp-and-paper products, are:
1. Decreasing consumption of PP products (due to the use of alternative materials);
2. Rising energy tariffs;
3. Rising transportation tariffs;
4. Changes in the customs control rules and customs duties (increasing export and decreasing import duties).

The Ukrainian container board market is mostly formed thanks to domestic production. In 1990-1998, 92-95% of cardboard consumption requirements were met by its own production. Starting with 1999, the volume of output has exceeded consumption, but the situation varies in different cardboard groups. For instance, the volume of imitation chromo board produced by Ukrainian factories is insufficient for the domestic market. In general, it should be pointed out that paper and board tare remains the most widespread packing material. According to estimates of many experts, the Ukrainian market will grow at a rate of 10-12% annually in the next few years, and in this connection leading Ukrainian container board manufacturers have modernized their production capacities and renewed production equipment.
 Materials for corrugated tare production are exported to CIS and remote foreign countries. Russia is the largest partner, for it accounted for 30% of all Ukrainian container board export and fluting paper in kind in 2007. The second largest partner is Austria (21.7%). Less is exported to the USA, Moldova and Romania – 14.5%, 10.1% and 6.5% respectively. The volume of export to any other country does not exceed 5% of total exports.
The largest share of Ukrainian export comes from the Zhidachevsky PPM, which accounts for 59.5% of total Ukrainian export of materials for fluting manufacture. It is followed by Kiev BPM (27.3%) and Rubezhansky BTM (7.3%).
In general, the Ukrainian market of materials used for producing corrugated board has a considerable capacity for growth, since container board consumption in Ukraine is several times lower than in West European countries. Enterprises operating in the cardboard market inherited from soviet time have exhausted their maximum technological capacity. At the same time, Ukraine’s accession to the WTO in 2008 will undoubtedly stimulate the inflow of foreign investment into this sector because Ukrainian manufacturers have established economic contacts not only in the domestic but also in the foreign market.

A peculiarity of the Belorussian pulp market is full public control.
The Belorussian pulp-and-paper industry includes 11 enterprises, which produce paper, cardboard and pulp. Eight of them form Bellesbumprom State Concern.
The largest Belorussian enterprise producing corrugated board is the Svetlogorsk Pulp-and-Paper Mills OJSC. All cardboard produced by the enterprise is used for its own production of corrugated tare and corrugated board. Despite the fact that in the mid-1980s the enterprise was privatized, in October 2005 the state increased its share in its authorized capital from 47.23% to 75.95% in exchange for loans amounting to USD 14.7 million for completing the construction of the second stage of the  mills.
Besides cardboard, the Svetlogorsk Mills also produces fluting paper. In 2007, the Mills produced approximately 100,000 tons of fluting paper. Its main sales markets are Belarus (55%), Russia (35%), Ukraine (4.7%) and the Baltic countries (3.5%), with some occasional sales to Poland, Moldavia, Azerbaijan and Georgia.
A major fluting paper manufacturer is the Spartak Paper Factory (town of Shklov, Mogilev Province). The factory was founded in 1898, and in 1993 it was transformed into an open joint-stock company. In 2007, Spartak produced 22,800 tons of fluting paper, 40% of which was exported to CIS countries.
Besides that, Б.3 112-140 g/m² fluting paper for liner is produced by the “Geroi Truda” Dobrushskaya Paper Factory OJSC. The enterprises was founded in 1870 and turned into a joint-stock company in 1997. At present it produces a wide range of various paper and cardboard wares. In 2007, it introduced a technology permitting to obtain feedstock for paper production from tetra-pack and laminated board production wastes.
On the whole, it can be said that Belarus fully meets its requirements in corrugated board by its own production and is actively fighting to enter the markets of neighboring states (primarily Russia).

The data have been provided by Abercade Research Company
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