Corrugated Packaging in Russia Now Faces Its Worst Crisis Since The Collapse Of The Soviet Union in 1991

Corrugated packaging in Russia is now facing its worst crisis since the collapse of the Soviet Union in 1991 due to the ongoing military escalation between Russia and Ukraine. On a related note, the level of sanctions imposed by the West on Russia could lead its domestic packaging industry to return to levels seen decades ago.

    As the military conflict between Russia and Ukraine has lasted for more than two months and there is currently no sign of a resolution, many leading corrugated packaging manufacturers, as well as several global group companies, considering the various options, and their further development An assessment of the risks associated with new operations and business developments has begun. There is a good chance that the positive development of the industry since the collapse of the Soviet Union will be undermined by a catastrophic decision that threatens the future of the thousands of people employed in the industry.

    One of the biggest problems for them right now is probably related to logistics and financial issues. So far, many local producers have faced serious problems, mostly related to the delivery of new equipment and machinery to their factories, as well as transfer payments. Many industry analysts expect the current situation to continue to deteriorate, as most industry players are unable to continue modernizing their fixed assets and more and more machinery suppliers and producers have suspended supplies to Russia.

    After the Russian corrugated industry has grown steadily since the early 2000s, the imposition of sanctions is likely to result in further growth in the Russian corrugated packaging industry in the coming years and will also affect all previously planned projects in the industry. At present, almost 97% of corrugated packaging manufacturers in Russia use imported equipment in their factories, and the termination of equipment supply will force packaging manufacturers to modify their investment plans, and many of them may even have to stop production completely. Many companies have ordered and paid for such equipment from abroad; due to the recent boycott of Russian commerce and goods by some suppliers, it is clear that the delivery of the equipment will be severely delayed (and may never happen).

    Most local analysts expect further development of the Russian corrugated packaging industry to be impossible under the current economic conditions and the growing pressure of sanctions in the West. Apart from the lack of necessary equipment and technology, lack of capital will be another major problem facing producers, which will hinder the initiation of new investment projects in the industry. While the government may ease access to some financial resources, these late measures will not be enough to support further growth in industry investment and will not have a significant and positive impact on the industry as a whole.

    The majority of corrugated packaging production in Russia has traditionally been concentrated in the Northwest Region (St. Petersburg) and the Central Region of Russia. Before the war, the industry consisted of hundreds of businesses. However, most analysts expect those numbers to drop significantly in the coming months. This is mainly due to the withdrawal of many producers from the market, mainly producers of small and medium enterprises. Most major Russian producers declined to comment on their plans because most of them are suffering from the rapidly escalating and changing economic and geopolitical situation.

    So far, several foreign investors operating in the Russian corrugated packaging industry have announced plans to exit the Russian market. For example, Smurfit Kappa, Mondhi and Stora Enso have all made clear their intention to leave Russia, as has folding carton maker Huhtamaki.

    Another major foreign investor, International Paper, said it was exploring possibilities for Russian papermaker Ilim Group, including a possible sale of its 50 percent stake. International Paper said it has no intention of seeking to suspend operations or initiate any liquidation or bankruptcy proceedings against the group. In 2007, International Paper completed a $650 million acquisition of a 50% stake in Ilim Group. This is the most important partnership for foreign participation in the Russian paper and corrugated packaging industry.

The Ilim Group, the largest pulp and paper producer in Russia, also has branches in Koryazma, Bratsk and Ust-Ilimsk, logging enterprises and two in the St. Petersburg and Moscow regions. Corrugated packaging plant. The company produces 75% of Russian domestic pulp (2.2 million tons per year), 20% of corrugated board (967,000 tons) and 10% of paper (320,000 tons per year). The total annual output of Ilim pulp paper and corrugated packaging exceeds 3.6 million tons. International Paper also owns the Svetogorsk pulp and paper mill in the St. Petersburg region.

    The presence of shareholders like International Paper enables Ilim to obtain cheap loans. In addition, so far, the total investment of Ilim Group from International Paper has exceeded 3 billion US dollars. Some Russian analysts said a potential decision to spin off Ilim could lead to a pause in the implementation of most of its investment projects. The situation is also complicated by the fact that there is a significant discount to the current value of any asset in Russia. Under current conditions, selling the Ilim Group stake could be difficult for International Paper and could result in huge losses as the discounted price does not match the actual value of the business.

    Will this situation create an opportunity for investors from China to try to buy these factories at deep discounts?