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Overview of the 2009 Russian Market of Corrugated Board and Corrugated-Board Containers
10.06.2010

Production

According to Abercade studies, a total of 3,579,500,000 m2 of corrugated-board products were produced in Russia in 2009. That year, the output of commercial corrugated board was in the order of 777,300,000 m2. Growth rate was down by 2% as compared to 2008.

Production of corrugated-board containers is distributed throughout Russia extremely unevenly. Two federal districts – Central and Privolzhsky – account for 67.6% of the Russia’s total output.

Regional Structure of Corrugated-Board Container Output by Federal Districts, 2009

Source: Abercade Research Company

In 2009, production of corrugated-broad containers changed in all federal districts. The largest growth of output in kind was observed in the Southern (12%) and Siberian (9.3%) districts. In the Central, Privolzhsky, Urals and Far-Eastern districts the volume of output dropped.

Corrugated-Board Products Output Structure by Enterprise, 2009

Source: Abercade Research Company

Due to negative macroeconomic conditions, the share of some enterprises in Russia’s total output of corrugated-board products can change. According to the Russian Association of Organizations and Enterprises of the Pulp-and-Paper Industry, Bumprom.ru:

• August 10, 2009. In the first half of 2009, proceeds of Famadar Kartona Limited were 178,500,000 rubles. According to the Company, it was 3.2% lower than in the previous year (184,400,000 rubles). The Company’s net profit was 7,820,000 rubles, which was 2.92 times more than in the same period in 2008 (2,680,000 rubles).
• August 10, 2009. In the first half of 2009, the Ilim Group of Enterprises OJSC produced 1,121,000 tons of pulp-and-paper products. The volume of output was down by about 8% as compared to the same period in 2008. The output of commercial pulp decreased by 9% to reach 703,000 tons, while the output of container board grew by 5% to reach 319,000 tons. The Group produced 98,000 tons of paper (-25%). Pulping was equal to 1,227,000 tons, or 9% less as compared to the reporting period in 2008.
• August 12, 2009. At the Yeniseisky Pulp-and-Paper Mill, the output dropped by 34% in the first half of 2009. The Mil is under the impact of two important factors: dumping restrictions and financial problems leading to a negative production result. In the first six months of 2009, the volume of output of the pulp-and-paper, printing and publishing sectors in Krasnoyarsk Territory decreased by 20%.
• September 30, 2009. Uralbumaga enterprise operating on the basis of the Permsky Pulp-and-Paper Mill carried out a project of establishing a shop for putting out corrugated-board products with the volume of investment in the order of 2 billion rubles. After a thorough analysis of the situation concerning the provision of close-lying regions with corrugated-board products, at the beginning of 2008 a decision was taken at the Permsky Pulp-and-Paper Mill on raising the existing capacities by more than twice. Now the enterprise can produce up to 300 million m² annually instead of 115 million m². In the first eight months of 2009, the enterprise produced over 100 million m² of corrugated-board products, which was equal to the entire 2008 annual output. The latest equipment was installed in the newly-opened shop. All of the five processing lines by Martin Company and the Fosber corrugator (equipment produced by leading European manufacturers) are already putting out high-quality products, increasing the volume of output with every passing month. Three hundred new jobs have been created in the shop. One of the main advantages of the enterprise is production logistics at the level of international standards. The traffic of orders, from the receipt of an application to the shipment of products to customers, has been halved. All food industry enterprises in Permsky Territory and most Russian regions are consumers of Uralbumaga Ltd products.
• November 19, 2009. According to FOEX (Finnish Option Exchange), changes in the situation in the world market resulted in an increase in prices on container board starting from March 2009. This could not but produce an impact on the Russian market. According to some earlier FOEX data, the trend towards an increase in prices manifested itself by the 4th quarter of 2009, which was corroborated by the 8.5% rise in prices on cardboard in Europe in October. The trend is expected to persist in 2010. At the beginning of October 2009, Russian manufacturers announced a rise in prices on pulp containerboard (the so-called craft-liner, the main feedstock for corrugated board production in Russia). According to the data supplied by manufacturers of corrugated-board packing, the increase in prices on pulp-containing paper and board constituted 5-9%. Following the example of manufacturers of pulp-containing products, enterprises producing paper waste also announced a rise in prices on their products. The expected growth of prices will amount to 11-16% by the end of the year. Obviously, changes in the pricing policy of Russian paper waste manufacturers is bound to lead to a rise in prices on corrugated-board products, which will be the only way out of the crisis for their manufacturers under the current economic conditions. With the start of the crisis, prices on the products of pulp-and-paper mills began to fall. In order to retain the volume of output, manufacturers had to cut prices substantially. The fall reached its peak in March 2009: the dollar price of containerboard dropped by 30%. Later, the market attempted to raise prices again, but they have yet failed to reach the pre-crisis level.
• November 23, 2009. In October 2009, Mondi SLPK OJSC produced a record amount of board and paper products – 77,618 tons. It was the maximum output not only within the framework of the 2009 production plan of the enterprise, but also in its entire history. According to Gerhard Cornfeld, Mondi SLPK Director General, it became possible thanks to the stable operation of papermaking machines – the main equipment at the enterprise – and the well-organized and effective work of its entire staff. ‘A substantial share has been contributed by Papermaking Machine #14, modernized within the framework of the Step Project in 2008. It achieved a record result by producing 28,700 tons per month. We intend to increase its speed further and raise the volume of output,’ said the Company’s manager.
• February 16, 2010. An investment project of the construction of a corrugated board plant is being implemented in Blagoveshchensky District, Bashkiria. The project has attracted an investment of 360 million rubles. The enterprise will provide jobs for 260 workers and employees and produce 8 million sq. m of packing products per month. The construction has practically been completed, and equipment assembly and testing is underway. In the opinion of investors, the money will be paid off within 4-5 years.
• March 4. 2010. In 2010, the Selenginsky pulp-and-paper mill plans to increase the output by 40% as compared to 2009, to up to 84 million sq. m. In 2009, corrugated board output is to be raised by 70% and the output of board – by 15%. Containerboard production is planned to be raised to 80,000-85,000 tons.

Segmentation of Manufacturers Based on the Color Printing on Board Containers

Manufacturers have two opinions considering demand for containers with and without printing. Some of them believe that containers with color printing become increasingly popular among manufacturers of various goods. Such containers carry the manufacturer’s logo, and the latter believe that packing should be as attractive as the goods themselves. Other manufacturers think that containers without printing are still in demand, especially when it is important to minimize expenses.

Today, the following companies can produce four-color printing:

• Altaikrovlya
• Ussuriysky Board Mill
• «Arkhbum (Podolsk)
• PEF Soyuz
• Totek
• Stora Enso Packaging BB
• Gofra Production Amalgamation
• Stora Enso Packaging BP
• Gofron
• «SCA Packaging Kuban
• Kappa St. Petersburg
• Yaroslavsky Karton
• Naberezhnochelninsky Board-and-Paper Mill

Ten companies are capable of producing three-color printing, namely, Azovtara, Astron Packaging, Bumsnab, Digorskaya Corrugated Tare Factory, Ilim Gofropak, Nizhkarton, SCA Packaging StP, Selenginsky Pulp-and-Board Mill, Vesta Company and Famadar Kartona Ltd.

Ava Plus Two, Kamenskaya Paper-and-Board Factory, Kartontara (Maikop), Kuzbass-tara, Permsky Karton, Ryazansky Board-and-Ruberoid Plant and Taroupakovka print their products in two colors.

One-color printing is typical of Arkhangelsky Pulp-and-Paper Mill, Bryanskaya Paper Factory and Kondrovskaya Paper Company.

Export

In 2009, a total of $15.5 million worth of corrugated products was exported. From 5% to 7% of the volume of export was reexport, i.e. reusable packing was returned.

As compared to 2008, in 2009 the volume of export of corrugated-board products increased by 55.7% in kind and 24% in terms of money. In 2009, the share of commercial corrugated board constituted 18.3% (of the volume of export in kind). The share of export in the total Russian corrugated board output is very low, about 2.1%.

The main exporter of Russian-made corrugated-board products is Naberezhnochelninsky Board-and-Paper Mill. Its share in the total 2009 exports constituted 16.6%. All of its export went to Kazakhstan.

The second largest share of total exports in kind, 15.3%, in 2009 belonged to Arkhangelsky Pulp-and-Paper Mill Ltd. The enterprise exported T-24 corrugated board and corrugated-board containers to Estonia, Latvia and Mauritania.

Smerfit Kappa StP rated third in the volume of export deliveries (11.9%). In 2009, it supplied corrugated-board transportation containers to Latvia, Estonia and Finland.

The fourth place (7.4%) went to Kondrovskaya Paper Factory OJSC, which exported containers made of corrugated board #4 to Latvia. *The fifth place belonged to the Byelorussian Sveltogorsky Pulp-and-Board Mill. In 2009, its products (containers made of corrugated board #4) were exported from Russia to Latvia. Ilim Gofra OJSC (4% of the Russian export of corrugated-board products in 2009) supplied corrugated-board containers for packing confectionery to Latvia and Estonia.

The volume of export of other manufacturers was less than 2%.

Thus, most of the export of corrugated-board products goes Kazakhstan, Latvia and Estonia.

Import

In 2009, the share of commercial corrugated board in the volume of import dropped to 0.7%, and that of corrugated-board containers increased to 99.3%. As compared to 2008, the volume of import of corrugated-board products decreased by 37% in kind and 52.9% in terms of money.

In 2009, 56.3% of the total volume of imported corrugated-board products came from Ukraine, 14.6% from Poland and 11.2% from Lithuania. The shares of Germany, China and Korea constituted 4.6%, 3.6% and 2.5% respectively. The shares of others supplier countries did not exceed 2%.

It should be pointed out that the share of Ukraine in Russia’s imports of corrugated-board products has remained practically at the same level over the past few years, while the share of Poland increased from 2.8% in 2007 to 14.6% in 2009, and the share of Lithuania dropped from 22.5% t0 11.2%.

In 2009, the volume of import of corrugated-board containers constituted 83.3 million sq. m. They were mostly used as packing for: 1. Household appliances 2. Household chemicals 3. Foodstuffs 4. Other goods

Structure of Import of Corrugated-Board Containers by Areas of Use, 2009

Source: Abercade Research Company

In 2009, the undeniable leader as regards the volume of delivery of corrugated-broad products into Russia was the Rubezhansky Board-and-Tare Mill OJSC (55.7% of total imports in kind).

Ecopak Company rated second (6.1% of imports). It supplied corrugated-board containers for packing stacks of paper.

The third share in the total volume of import of corrugated-board products belonged to Klaipedos Kartonno Tara CJSC (4%). Its main products were corrugated-board containers for packing foodstuffs.

The fourth place in the rating (3.2%) belonged to DS Smith Polska Company, which supplied corrugated containers for packing TV-sets and furniture.

Among foreign manufacturers of corrugated-board products, SCA Packaging supplying corrugated-board containers for foodstuffs plays a role.

About 38.4% of 2008 imports were intended for enterprises in Kaliningrad Province, which mostly imported corrugated-board containers for packing household appliances. Tula Province and Belgorod Province are also among the leaders of import with 21.7% and 7.3% respectively.

Trends in the Corrugated-Board Products Market

According to estimates of board manufacturers, the annual corrugated board consumption growth rate in the Russian market is bound to return to the pre-crisis level of 5-7%.

As manufacturers of corrugated-board products point out in issuers’ reports (Gotek CJSC, Arkhangelsky PPM OJSC, Gofron CJSC, PEF Zoyuz OJSC and others), the main factors influencing the dynamics of the corrugated-board packing market growth, are as follows:

• general growth of economics and consumer expenditures;
• increase in the share of packed and branded products;
• development of retail trade;
• development of packing technologies;
• increasing importance of packing in marketing and logistics;
• toughening of product storage conditions.

The most intensive competition is observed in the segment of four-flap corrugated-board containers with two-color printing. The segment is characterized, on the one hand, by a large capacity and a high saturation (demonstrating relatively low growth rates as compared to the market at large), and by the availability of a considerable number of enterprises capable of producing such products, on the other hand. These enterprises include both the sector’s leaders and small regional manufacturers processing purchased corrugated board. The latter are capable of producing a certain effect on the level of prices in their region because they can save on transportation expenses working predominantly with small clients, but they cannot influence the market of large industrial consumers.

The negative factors are as follows:

1. Consumption: Decreasing growth rate or reduction of the main sectors consuming corrugated-board packing. Consumption structure by sectors may change due to the greater impact of the crisis on non-food industries.
2. Regional competition: The possibility of new players entering the market is estimated as low. The high costs of entering the market (generally an investment of approximately $40-50 million in a mill with a production capacity of 60-100 million sq. m) and substantial investments in training and establishment of a control system create a sufficiently high barrier for new large and medium entities. Besides, large players, if necessary, can raise the volume of output sharply in case of a rise in demand.
3. Import of corrugated-board packing: In 2007-2009, the import of corrugated-board packing tended to decrease. However, the impact of this factor is not threatening because most of the import consists of products, for the production of which Russia lacks technological possibilities, and their share in the total consumption volume is not large.
4. Consumption of substitute products: The impact of substitute products is not strong.

The following situation is taking shape in the market:

• corrugated-board packing is actively ousting wooden and plastic tare from some segments (beer, liquor, etc.);
• polymer film is replacing corrugated-board packing, for instance, in the production of soft drinks.

Since corrugated-board packing is the most profitable transportation tare from the viewpoint of its cost to consumers, it is highly improbable that new products with similar consumer properties will emerge in the market in the near future.

5. Dependence on feedstock suppliers can be regarded as strong, and for this reason, manufacturers of corrugated-board products will do their best either to reduce the extent of their dependence or get rid of it altogether. The process has already started but only in remote areas.

The technological race among large manufacturers of corrugated-board products will continue leading to an increase in investment (for instance, in the production of triple-wall corrugated board).

Research Company Abercade is specializing on the investigation of industrial markets and technologies.

Author: Abercade Research Company

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Comments

Hannah EDWARDS	10.06.2010 19:25
Truly nice article u got here. It'd be just great to read more about that matter. Thanks for sharing that info.

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