Arkhangelsk PPM: Russian economy possibly to face prolonged recession

The first half of 2013 passed under the negative impact of the crisis. As noted in the study of marketing department of Arkhangelsk pulp & paper mill, a protracted recession may await Russian economy. In January-May 2013, pulp production in Russia decreased by 10% due to the crisis at the pulp and paper mill “Kondopoga” and Solombala pulpmill, as well as due to the reduction of pulp production at Ilim mill in Bratsk during the construction works.

According to the leading economist of marketing department at Arkhangelsk pulpmill Mikhail Konoplev, paper production in the first half of the year fell by 8%, or by 152,000 tonnes, primarily due to lower production of newsprint. “Writing and offset paper production was supported by the seasonal surge in consumption of school notebooks”, says Mikhail Konoplev, “but at the beginning of the second half-year the potential of this seasonal demand has been exhausted, and difficulties are anticipated in selling paper in the Q3-Q4 of 2013”.

Konoplev believes that consumption of corrugated packaging in Russia is not falling, but not growing either. “There is interest of containerboard processors primarily to cheap (recovered) raw materials”, says Mikhail Konoplev. “Against the background of containerboard production growth by 2% or 12,300 tonnes in 2012, exports in the first half of 2013 increased by 4.5% or 15,000 tonnes, while imports – by 46.5% or 26,600 tonnes.”

According to the study, woodfree grades account for 99% of the exports, while imports are dominated by cheap recovered containerboard (up to 88%), mainly produced in Ukraine. As Michael Konoplev recalls, since February 2013 Russia began to import recovered test-liner from the new plant of Stora Enso in Ostroleka (Poland), and the monthly volumes of these shipments has risen from 155 to 1,200 tonnes by July and are still growing.

After Russia’s accession to the WTO, the transition period continues. Old rates of customs duties on imports of paperboard and pulp still remain in force. According to the Director of Marketing and Sales of Arkhangelsk PPM Alexey Dyachenko, the mill supplies most of the bleached pulp and containerboard to the Russian domestic market, and the existence of duty is protecting home market from imported products. Smooth weakening of the ruble in the second half of 2013 further reduces the ability to import pulp and paperboard into Russia.

As the top manager of the company noted, in the current economic climate it is vital to retain competitive quality of the products offered to the market.