Russia currently faces an excess of approximately 600 thousand tons of corrugated cardboard, and this surplus is expected to reach a total of 1 million tons.

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Crisis looms over Russian pulp and paper industry amidst sanctions and plummeting Chinese demand

Crisis looms over Russian pulp and paper industry amidst sanctions and plummeting Chinese demand

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The Russian pulp and paper industry is facing an acute crisis in product sales. The main reasons for this difficult situation are sanctions and a severe lack of demand in the Chinese market, exacerbated by exorbitant export logistics costs.

Pulp and paper mills, have been forced to cut down production volumes. In the first half of 2023, the volume of production of wood pulp in Russia decreased 3.5% to 4,267 thousand tons, according to Rosstat. The production of paper and cardboard declined 4.6% to 4,863 thousand tons. Since the beginning of the year, the price of Russian BHKP in China has fallen by 43%, reaching $449 per ton, the lowest since February 2021, according to Lesprom Analytics.

To counter this downturn, some of mills attempted to boost domestic sales by lowering pulp prices and shifting to using pulp in corrugated cardboard production instead of recycled paper. This strategy has been deemed unsuccessful, leading to losses of approximately 100 million rubles ($1.1 million) for each of the three major producers - Ilim Group, Segezha Group, and Arkhangelsk pulp and paper mill, as said insiders to Russian Kommersant newspaper.

Starting from the second quarter, the leading enterprises with pulp and paper mills in their structure have returned to traditional production schemes using recycled paper. However, the domestic market's historical low demand continues to persist, creating a substantial surplus of pulp and paper products in Russia. One of the prominent producers, Segezha Group, has already redirected some of its export volumes of kraft paper, including from Segezha pulp and paper mill, to the domestic market to cater to local needs.

Russia currently faces an excess of approximately 600 thousand tons of corrugated cardboard, and this surplus is expected to reach a total of 1 million tons, not accounting for the launch of the new pulp and paper mill of the Ilim Group in Ust-Ilimsk.

Russian producers are still counting on the return to Europe in the foreseeable future, one of the experts said. However, over the past year, this market has already been taken over by pulp and paper producers from India, Brazil and Argentina, where they have recently launched large-scale capacities in fast-growing raw materials such as eucalyptus and bamboo. Products from these countries are likely to be significantly cheaper than pulp from Russian pulp and paper mills, most of which were built over 50 years ago.