Russian Forestry and Wood Supply Operations Analysis
PULP AND PAPER INDUSTRY
Figure 5: Industrial Sector and Corrugated Consumption
in Russia
6,0%
5,0%
4,0%
3,0%
2,0%
1,0%
0,0%
Annual Average: 07-12
2013
2014
■GDP Manufacturing Production Production in Food, Beverage and Tobacco Corrugated Production
Source: Orifjon & Associates Estimates Based on Various Sources
2007. As domestic consumption declined, the
wrapping paper segment was able to maintain
flat production only thanks to increased exports
over the same period. Production of cartonboard
amounted to 280,000 tonnes in 2014, a drop of
70,000 tonnes from 2007 levels.
What happened to tissue
and corrugated consumption
in 2014?
Tissue and corrugated consumption diverged in
2014 and in contradiction to general wisdom. Most
market reports point to the fact that despite the
on-going crisis, tissue and containerboard in Russia
were the only segments that posted growth in
2014. As mentioned above, preliminary figures
do not support this conclusion given unexpected
contraction in Russian tissue consumption for the
last two years. At the same time, during the last
two years we saw several new tissue machines
being brought in Russia (SCA Hygiene Products
Russia, Pulp Invest Hayat).
As can be seen from Figure 4, growth in Russian
tissue consumption was three times real GDP
growth, while outperformance in corrugated
production relative to GDP was just 50 basis points
ORIFION PACKAGING
ASSOCIATE DESEARCH
per year between 2007 and 2012. Over the same
period, annual growth in tissue consumption of
11 per cent also outpaced the growth in both
household consumption and real disposable income.
On the other hand, despite continued growth in
major macroeconomic indicators in Russia, tissue
consumption posted its first contraction since 2009
in 2013 driven by both "at home" and "home-away"
segments. In 2014, the combination of a drop in
real disposable income and a further contraction in
fixed asset investments accelerated the contraction
of tissue consumption from 3.8 per cent in 2013
to 8.3 per cent in 2014.
On the other hand, demand for corrugated products
in Russia can be affected by the performance of
both consumer and manufacturing sectors in
the country. An increase in consumer spending
through a growth in real disposable income can
positively affect retail sales because an improved
distribution of consumer products requires more
packaging through the supply chain. The growth
in retail sales in the country for the last seven
years is probably the major factor explaining the
outperformance of corrugated production relative
to manufacturing production. And with the recent
restrictions of imports on agricultural products
from Europe and North America, Russian domestic
production in the food, beverage and tobacco
sectors benefitted most from reduced competition
from imports. A portion of domestic production
was oriented towards import substitution
and helped industrial plants to increase their
utilization rates. This created additional domestic
demand for corrugated packaging last year.
What does the future hold
for Russian paper and board
consumption and production?
In this final part, we try to forecast a possible
trend for Russian paper and board markets in
near-term. On the other hand, the changing
macroeconomic situation means that making a
forecast is a little challenging. Generally, to certain
extent the history guides us in our assessment
of future market developments.
Some experts predict Russian real GDP to
contract by up to 5 per cent in 2015. According
to our estimates, total Russian paper and
board consumption contracted by 9.7 per
cent in 2009, while real GDP dropped by 7.8
per cent. If we apply the same relationship
between the expected changes in GDP and total
paper consumption for 2015, then total paper
consumption is likely to contract by just 6 per
cent. On the supply side, the country's total
paper and board production will likely perform
much better this year compared to domestic
consumption given the expected sharp drop in
imports of some paper materials and sustained
high exports. Indeed, the majority of Russia's
trading partners (in Europe, the Middle East and
Africa) are expected to see their consumption of
paper and board grow (albeit at a lower rate than
in the past), which will maintain Russian exports
in traditional segments of paper and board in
2015. In addition, the depreciation of the Russian
ruble relative to major
world currencies will
likely keep Russian paper
and board competitive
on export markets.
Orifjon ABIDOV,
Founder and Managing
Director
of Orifjon & Associates
Orifjon & Associates is a relatively new company founded by Orifjon Abidov, who worked for several
years for a leading information provider for global forest products industries as head of its European
paper packaging economic analysis service. His responsibilities included overseeing work at both the
back and front offices, such as providing a forecast analysis for the European paper packaging markets
for regular monthly and quarterly reports, conducting various multi-client and single-client studies
concerning different segments of the European and Global paper packaging markets, speaking at
several global industry conferences, and in various customer seminars on service. At the same time
he was responsible for the content and product development, as well as supporting sales teams in
expanding customer portfolios. In his role, he was a leading specialist in developing the coverage
of European white top containerboard and Russian paper packaging markets. Orifjon & Associates
is headquartered in Brussels, Belgium.
For more information contact at [email protected] or call +32(0)497050730
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