Pressure mounts on Russian containerboard market
Russia’s containerboard prices remain largely stable in April but sources say this could change as economic activity slows
Despite heavy sanctions imposed on Russia after its invasion of Ukraine, Russian containerboard prices remained at all-time highs in April. While declining demand for corrugated packaging, a slowdown in consumer activity and logistical challenges have not yet led to falling prices, pressure on the market is starting to build, according to contacts.
Sources among buyers and sellers estimated that demand for containerboard dropped by approximately 20-25% in April compared to a year earlier, and the trend is expected to continue, with May likely to prove even more difficult.
April marked the one-year point of historically high containerboard prices in the country, with unbleached kraftliner and semi-chemical fluting levels closing out the month at Rouble 70,000 per tonne and Rouble 66,000 per tonne, respectively, while the major producer of white-top kraftliner increased prices by 5%, in line with plans, bringing the price to Rouble 84,000 per tonne, contacts said.
Recycled containerboard prices (RCCM) were on hold, remaining at Rouble 65,000 per tonne, with some contacts reporting small spot decreases for lower-quality board from smaller producers.
Inflation in Russia has picked up significantly since the start of the war in Ukraine and reached some 17.5% in April, driving consumer activity down, which in turn lowered demand for corrugated packaging and put downward pressure on all containerboard grades, contacts agreed.
The declining demand for containerboard was especially notable in central and north-western Russia, where international packaging manufacturers who announced plans to stop production are located. Meanwhile, demand in the south, where the summer agricultural season is approaching, was more stable.
Corrugators are already reducing their orders for May, contacts said, and they are not producing extra stocks. As a result, containerboard producers are planning to reduce production by taking additional downtime and will start manufacturing based only on orders placed, according to market players.
Recycled containerboard holds steady
RCCM prices were stable in April, market sources said, however, some noted that this situation may not continue much longer, given rising consumer prices and the general slowdown in consumer activity.
While some market fundamentals suggested price dips could have already started in April, large producers reportedly did not hold negotiations this month, while small- and medium-sized players with lower-quality testliner were more open to bargaining and negotiated some spot volumes at discounts, sources said.
...packaging companies would not buy additional volumes just for the sake of a discount.
“For producers, it did not matter whether or not they changed their prices – packaging companies would not buy additional volumes just for the sake of a discount. They are buying just enough to produce according to their contracts. It is a zero-sum game,“ an industry source said.
During the last two months, many international companies have announced that they will stop operating in Russia or will limit production to only essential goods, which has negatively influenced demand for both containerboard and packaging.
Corrugated packaging manufacturers hope that paper producers will be more willing to negotiate in May and June.
One large Russian RCCM manufacturer has already decided to lower its prices by Rouble 4,000 per tonne from May.
The production of RCCM has become slightly more expensive due to logistical problems and sanctions, but chemicals and equipment maintenance contribute much less to production costs than raw materials such as paper for recycling (PfR), which has not increased in price, sources said.
Paper for recycling prices move down
There were no problems with PfR availability in April and prices were stable during the first part of the month, with levels for old corrugated containers standing at some Rouble 20,000–21,000 per tonne, contacts said, noting that collection levels were good.
However, as demand began to show signs of tapering off, prices eventually slipped to around Rouble 18,000 per tonne by the end of the month. PfR collectors from central Asia did not leave Russia as some thought might happen, because the rouble strengthened against the euro and it was still profitable for them to conduct their collection activities.
But as consumer activity weakens, the amount of PfR is expected to decrease, and the lower supply may cause prices to move up again, a contact explained.
Unbleached kraftliner stable
Producers of the virgin grades decided not to pursue their previously planned Rouble 3,000 per tonne increase in April due to lower demand, and prices for the month were unchanged. While factors such as lower demand will weigh on the market, producers said they will do everything they can to keep prices stable at the current high levels.
Without export options, the market is finite, another source said. “The market is shrinking, and if you lower prices you will not sell additional volumes, so you might as well hold them. Lowering prices is a road to nowhere,” he added.
“Why do they think they can hold prices steady when market fundamentals are declining? There’s no logic to it, it’s just greediness. They want to hold on to high profits, and the same goes for RCCM producers,” a buyer said.
For integrated companies, it may also be more profitable to sell their high-priced containerboard internally, as the profit margin is higher than that of packaging.
Even if corrugated packaging production generates zero profit, it is still more profitable for the company as a whole, and helps to increase market share, a contact explained. Such a situation will also lower the market share of smaller independent packaging producers, as it will be more difficult for them to buy expensive containerboard.
Russia does have excess kraftliner capacity, as around 50% of domestic production is exported.
Russia does have excess kraftliner capacity, as around 50% of domestic production is exported, a source said. After exports to the EU became impossible due to the sanctions, kraftliner producers continue to look for new markets.
“We were supplying to China from one of our mills, and we are now redirecting production from our other mill there,” a producer said. However, due to Covid-19, demand in China is not as high as it used to be, but there is hope that it will improve,” he added.
“At the very end of April, Russian Railways will approve its logistics plans for the next month, and usually once these are approved, it becomes clearer how much production can be supplied to China,” he said.