Feature - Market Intelligence

Spotlight on Russia

Eugene Gerden , Packaging Today's foreign features correspondent, takes a look at the growing Russian Packaging market

The Russian packaging market is growing, which is reflected by a steady growth of domestic consumption and the establishment of new production facilities in the country.
For example, in the case of paper packaging, Elopak, the Norwegian producer of packaging for liquid food products, has recently opened a second line at its plant in the city of Vsevolzhsk in the St. Petersburg region.
The first phase of the plant was launched in December 2011 and has the same capacity of 800 million units.
It is planned that the new line will specialise in the production of packaging for food products and in particular dairy products, as well as juices.
In accordance with the company's plans, the launch of a new line will allow it to compete more efficiently with its main rivals in the Russian market, among which are Tetra Pack, which operates several production facilities in Russia, as well as the Swiss company SIG Combibloc and the UK's APV, which export their products to Russia from their plants in the West.
According to analysts of the Russian Packaging Association, at present the Russian market for paper and cartonboard packaging is estimated at about 5.1 million tonnes in volume terms. The market continues to grow, due to the introduction of new technologies by producers and the launch of new products in the market.
The food industry consumes more than 65% of the total Russian production of paper and cartonboard packaging, while among the other leading consumers are the pharmaceutical and chemical industries.

Corrugated board
In recent years corrugated board has been the most promising segment of the Russian board and paper packaging industry with the annual growth rates 15%-20%, which significantly exceeded the rates of growth of other segments of the market.
The segment has been able to successfully overcome the global recession and its consequences, being able to return to pre-crisis figures, however since 2010 it has been faced with a shortage of quality and cheap raw materials. .
Since 2010 the situation has started to deteriorate, mainly due to massive commissioning of new production facilities in the market, which resulted in its overcapacity. Despite the generally favourable trends, the average capacity utilisation in the Russian board market has declined to 70% and currently remains at the same level.
According to Grigory Gusev, a senior analyst of the Perm Pulp and Paper Mill, one of Russia's largest pulp and paper mills, a shortage of raw materials, along with the industry's excessive capacities, currently remain among the most pressing problems of the Russian corrugated board industry.
According to analysts of the Russian Packaging Association, the domestic segment of corrugated board packaging is on the verge of stagnation, due to high competition in the market and the impossibility of further price increases.
The situation is aggravated by the existing oligopoly in the segment of container board, which is currently dominated by three companies, namely the Ilim Group, Arkhangelsk Pulp and Paper Mill and Mondi, which are constantly increasing prices for their production.
According to Nadezhda Ryazantseva, the commercial director of LPK Continental Management, one of Russia's largest pulp and paper producers, since 2009 the Russian market increased from 2,6 billion square metres to 4.6 billion square metres in 2013, of which up to 81% accounted for of corrugated board itself, while the remaining 19% for boxes and packages that were manufactured from corrugated board.
Nevertheless, according to Vladimir Chuikov, CEO of GOTEK, currently one of Russia's largest producers of corrugated board, despite such growth, the level of the industry's profitability remains low, which is reflected by the fact that the average profitability of sales in the industry, in terms of EBIT is currently estimated at 4%-5%.
Chuikov also comment that this is 2-4 times lower than the level of profitability of the food, chemical and other industries, which are the main consumers of corrugated board packaging in Russia.
In terms of quality, Russian corrugated board is generally inferior to its equivalents, produced by Western companies. The main weaknesses of Russian production is its insufficient strength. In addition, a significant part of local producers specialise in the manufacture of brown corrugated board, which is not subject of additional surface treatment and is unsuitable for printing. This is mainly due to the lack of modern equipment in Russian enterprises.
Before 2010 Russian producers mostly specialised in the manufacture of chemical board, however in recent years the share of chipboard in the overall structure of production has increased significantly.
The majority of production facilities are established in close proximity to their sale markets and raw materials bases.
According to Yuri Lakhtikov, head of the analytical department of RAO Bumprom, one of the largest manufacturers of paper and board in Russia, the supply of corrugated board over long the distances in Russia is unprofitable for producers, mainly due to high transportation and logistics costs and relatively low prices for corrugated board in the Russian market.
Lakhtikov also says that the market currently remains in good condition and has bright prospects for further growth, despite Russia's WTO accession, which, contrary to the predictions of some local analysts, has not led to a sharp increase in imports of corrugated board to the country.
According to Dmitry Kumanovsky, head of analytical department of JSC Investment company LMS, one of Russia's largest analytical companies in the field of packaging, due to the recent devaluation of Russian currency - ruble, caused by international sanctions, imposed on the country, imports of packaging to the domestic market this year are expected to decrease significantly, which will force domestic manufacturers to partially replace imports, by increasing their own production.
Overall, the share of paper and board packaging in the entire Russian packaging market is estimated at 57%.

Polymeric film
BOPP production currently remains the most promising segment of the Russian polymeric film market. At present the volume of the segment is estimated at 130,000 tonnes, which makes it one of the largest in the world.
According to the predictions of local analysts, the segment will continue to grow during the next several years, amid the ever growing demand and supply. There is a possibility that the volume of the market may reach 200,000 tonnes already in 2015. A high level of consolidation currently remains one of the major features of the segment, as Sibur, one of the country's largest producers of polymeric film, has officially commissioned a large new line for its production through its Biaxplen subsidiary. So far, Biaxplen has already operated total BOPP capacities in Russia in the volume of 150,000 tonnes per year. In addition to the Samara plant, the company operates facilities in the cities of Balachna (Nizhny Novgorod region), Kursk, Zheleznodorozny (Moscow Region), and in the Tomsk region.
According to Sergei Karaychentsev, a senior analyst of Market Report, one of Russia's leading analyst agencies specialising in the plastics market, the commissioning of the new line will help to increase the share of Biaxplen in the Russian BOPP film market by up to 88% and the total capacities of Russian producers by up to 205,500 tonnes. According to analysts, the already existing capacities significantly exceed the domestic demand.

Glass packaging
In recent years the Russian market for glass containers has grown significantly. Before the recession, the average annual growth rates of the market were at the level of 20.1%. As of 2013, the total volume of the market is estimated at 9.7 billion units in 0.5 litre equivalent and more than USD$2 billion in value terms.
Glass bottles account for about 86% of the total production of glass containers in Russia, while the remaining 14% for glass jars. The majority of the production is located in the southern part of the country, as well as in the central regions.
According to the predictions of analysts at the Russian Association of Packaging Producers, the segment will continue to grow during the next several years, due to the planned launch of new production facilities. At the same the level of utilisation of existing enterprises will reach 95%. However, despite this, Russia will continue to experience a shortage of glass containers, as the domestic production is still unable to meet the local demand.

Metal packaging
The share of the metal packaging segment is currently estimated at 10%, while its value is put at about USD$2,2 billion. The majority of Russian enterprises still specialise in the production of seamed metal cans. Among the leading local producers are the Kaliningrad Package Plant, Crown Cork Kuban Metarus, Greif Perm, and a number of others. Imports vary in the range of between 50%-80% of the market, depending on the segment, with the highest share in fruit and vegetable cans, which account for about 80% of the market.