In Russia, the production of packaging cardboard will be reduced by a quarter

Manufacturers of packaging board decided to reduce production due to falling demand. The Ministry of Industry and Trade claims that not a single enterprise has stopped work,

Demand for Russian container board, which is used for the production of bulky cargo packaging, has fallen by 25-30% since the end of February, or by 112-134 thousand tons per month. This was told to RBC by Andrey Guryanov, general DIRECTOR of the League of waste paper processors (it includes 70 enterprises that process 80% of waste paper in the country). The containerboard market in 2021 grew by 6%, to 5.39 million tons, of which 23% were exported, the Center for System Solutions estimated earlier.

According to Guryanov, in the face of declining demand, the largest cardboard producers decided to reduce its production in 2022 by 25%. “Attempts to attract additional orders by sharply reducing prices would be the worst solution, dumping in itself is unable to generate additional demand and will only destroy the industry,” he explains. Producers are trying to keep prices at the level of February - from 51 thousand to 68 thousand rubles. per ton (excluding VAT) — depending on the type of container board.

The press service of the Ministry of Industry and Trade specified that some manufacturers of such cardboard slowed down the pace of production, but not a single enterprise stopped work.

Why did the demand for cardboard fall?

The main buyer of Russian containerboard abroad is CHINA , which accounts for more than 50% of exports. In addition, cardboard was supplied to Senegal, Guatemala, Ecuador, Uzbekistan, Ukraine, Lithuania, Italy, Germany, the Philippines, Turkey, Latvia, Vietnam, Belgium, according to the United Paper Company's 2021 market review.

80% of exports are cellulose containerboard, 20% are recycled paperboard. European countries accounted for 20% (200 thousand tons per year) in the EXPORT of paperboard from pulp. 4% of cardboard from waste paper was supplied to Ukraine (8 thousand tons per year), to Lithuania - 3% (6 thousand tons per year). According to Kondratiev, the main Russian exporters of such cardboard are the Ilim group of Zakhar Smushkin and partners and the Arkhangelsk pulp and paper mill. RBC sent inquiries to these companies, as well as to a representative of another major Russian packaging board manufacturer, SFT Group.

After the start of Russia's military special operation in Ukraine in February 2022, deliveries to this country and Western Europe ceased, says the commercial director of the containerboard and waste paper direction of the United Paper Mills company (ranks fourth among Russian containerboard manufacturers) Zhan Kudaibergenov. The reason was not only the start of hostilities, but also the disruption of supply chains in Europe due to sanctions. Russian ships were banned from entering EU ports, and Russian and Belarusian hauliers were banned from operating in Europe.

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Due to the almost complete cessation of exports to Europe, manufacturers of packaging cardboard may increase supplies to China, says Denis Kondratyev, deputy HEAD of the League of Waste Paper Recyclers. But due to the growth in trade between Russia and China (according to the Federal Customs Service, it increased by 28.7% in the first quarter of 2022), there was already a shortage of wagons for transportation, which led to a decrease in cardboard exports to this country, he noted. It is possible to increase supplies to the markets of other "friendly countries" - Africa, Latin America, as well as Turkey and India, adds Kudaibergenov.

In addition, there was a reduction in demand in the domestic market due to the departure of large foreign retailers who were buyers of packaging made from containerboard. So, in March, IKEA and H&M announced the suspension of work in Russia. The construction supermarket chain OBI also announced its exit from the market. In addition, the Spanish retailer Inditex, the world's largest clothing retailer, which owns brands such as Zara, Pull & Bear, Bershka, Massimo Dutti and others, has also suspended work in Russia. Deputy General Director of L-Pak for commercial activities Alexander Vasiliev confirmed the decrease in orders for corrugated cardboard from foreign companies that have suspended their activities in Russia.

How will the production of cardboard be reduced

Companies are trying to prevent the appearance of excess products on the market: filling warehouses with finished cardboard, reducing production and transferring scheduled repairs from summer to spring, the leaders of leading manufacturers say. According to the League of Waste Paper Recyclers, the stocks of containerboard in their warehouses already amount to about 650 thousand tons, which is comparable to the production for 1.5 months.

“We have several paper machines. We are stopping some in turn, maintenance work is planned somewhere, if earlier we were in a hurry to make repairs, now we are in no hurry, ”Kudaibergenov said. According to him, the company's warehouses are already full. He also expects production to decline by about 25% by the end of 2022.

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The volume of products in warehouses has increased by four to five times, notes the general director of the Nikol-Pak company (tenth place in the production of containerboard) Valery Mirzin. The company's warehouses allow one or two more months to work at full capacity. Mirzin does not comment on the possibility of reducing production at the end of the year.

Corrugated cardboard manufacturers, which are the main consumers of containerboard, expected an oversupply of products on the market and a large discount, says Yuri Almeev, director of strategic marketing at Gotek (one of the top 3 largest cardboard manufacturers in the North-West). This would bring short-term benefits to packaging manufacturers, but in the long run, some of the containerboard factories would simply go out of business, he warns. Therefore, according to him, reducing production volumes and maintaining prices in the market is the right strategy to save the industry.

How will producers be helped?

To support strategic enterprises, the government will provide them with preferential loans at a rate of 11% per annum (now the key rate of the Central Bank is 17%), the press service of the Ministry of Industry and Trade reported. One enterprise will be able to receive a preferential loan in the amount of up to 10 billion rubles. for one year, a group of companies - up to 30 billion rubles.

So far, 40 billion rubles have been allocated from the budget for these purposes, in April it is planned to increase funding for the program by another 80 billion rubles. But the Ministry of Industry and Trade did not specify what part of the money will go to support paper industry enterprises.

According to Kudaibergenov, the volume of support for cardboard manufacturers should be about 25 billion rubles. in year. He also believes that it is necessary to allocate money not once a year, but quarterly.

What kind of cardboard is missing in Russia

At the end of March, MILK and juice producers announced a shortage of tetrapacks - multi-layer packaging made of cardboard, foil and polyethylene. The Kommersant newspaper reported that the Swedish company Tetra Pak suspended the production of 2-liter packages due to a shortage, including cardboard blanks. It purchased raw materials from partners in Western Europe, but due to sanctions, supplies were canceled, Almeev confirmed to RBC.

There were two factories left in Russia that could make up for the deficit - Svetogorsk Pulp and Paper Mill (the Russian division of the American company Sylvamo) and Syktyvkar timber complex, owned by the international timber holding Mondi.

Svetogorsk Pulp and Paper Mill did not stop the production of raw materials for tetrapak, and the line for the production of this type of cardboard was stopped at the plant in Syktyvkar. But in April, its work was resumed: the Syktyvkar TPP produced an experimental batch of bleached food cardboard for aseptic packaging - blanks for tetrapack packaging, RBC was told in the press service of the Ministry of Industry and Trade. This was also confirmed by Kondratiev from the League of waste paper processors: as soon as there was a shortage of this raw material, Mondi redesigned underutilized capacities within a month. RBC sent inquiries to the press services of Mondi and Tetra Pak.

Kondratiev is sure that, if necessary, other Russian containerboard factories can also master the production of raw materials for the manufacture of tetrapak packaging.

How to solve the problem with the lack of office paper

In March, prices for white office paper rose sharply - from 400 rubles. for a pack up to 700 rubles. This happened due to the fact that the Finnish chemical company Kemira stopped deliveries of paper bleach to Russia due to sanctions and there was a shortage on the market. Almost immediately after that, Svetogorsk PPM and Arkhangelsk PPM announced the development of new types of paper based on Russian raw materials. According to Denis Kondratiev, Deputy General Director of the League of Waste Paper Converters, there are no difficulties with paper supplies in Russia now.