Russian pulp and paper market to revive not earlier than in 2010

According to intermediate results, Russian timber industry remains unprofitable – in the first half of 2009 most segments of the industry didn’t fix any growth. Increased energy tariffs and credit interest rates, decreased paying capacity of customers led to a number of suspended investment projects, which in its turn turns back technical modernization of the enterprises and makes companies non-competitive.

Referring to Lesprom data pulp and paper sector suffers from the analogous problems as timber industry in general. In January-September 2009 market pulp production volume decreased by 18.6%, that of cardboard – by 10.4%, paper – by 5.6% with production volumes to continue decreasing. The only segment that managed to keep its position is newspaper production, which can be connected with its export that increased by 5.5%. This fact was proved by Andrey Vasyukov from UPM-Russia. According to his words, 25% of Finnish newspapers are printed on the paper produced in Russia as domestic paper production cost decreased due to ruble devaluation and as a result foreign enterprises find it economically profitable to cooperate with the Russian pulp and paper mills. However, it is not so profitably for a pulp and paper mill itself as having large loads they finally lose incomes due to low costs.

Thus, the branch picture looks rather sad. Share of loss making enterprises in such sectors as pulp, paper, cardboard and pulp and paper products increased by 9.1% and reached 40.2% in the first half of 2009. Considering the fact that many foreign investors refused from investing in Russia partly due to the crisis situation, paper and cardboard producers have to rely only on the governmental support However, most actors in the market find it unreliable. The Russian Government is now considering some amendments to the Forest Code as it is impossible to operate in current conditions. There is a Forest Code but it doesn’t work. And nobody knows how much time it will take to introduce new measures.

As expected, pulp, paper and cardboard production market is to revive not earlier than in 2010 with it operating already in new conditions. As a variant in such situation consolidation of the branch could speed up.  It presupposes not only mergers and acquisitions, but closing down inactive facilities, changed structure of demand and sales markets, completely changed Russian market.