P&P sector during the recent decade has been holding the leading position in the Russian timber industry (sawmilling, harvesting and deep mechanical wood processing lagging behind in terms of production growth rate and general output indexes development). In spite of this fact, already in 2005 (when the annual production growth index made up some 5.5%) some experts forecasted the coming soon (within 1-2 years) decline in production growth and even turning towards a lame-duck industry.

Such a forecast was easily explained by the urgent necessity to upgrade operating facilities, to launch new lines and machines, as well as new facilities construction, since the potential of the sector facilities were heavily exhausted – for some enterprises deterioration index reached 90%. The issue was supposed to be taken urgent care of within the near future for the sector to be able to keep its competitive ability in the European sales market – working with outdated equipment lead to increased production costs due to application of energy- and resource-intensive technology, which was aggravated by constant increase of power supply, transportation and raw-material costs (in year 2005 those costs were even higher that in some European countries). Those factors naturally caused the risk of losing competitive advantage over European producers.

Today the structure of the Russian domestic market is likely to be offset towards increased consumption of cheaper P&P products, towards reduction of import volume and increasing import substitution. As far back as in 2006 experts stated that the main promising development pattern for Russian P&P sector is re-orientation from raw material export to manufacture of high value added products for the receptive domestic market.

In order to escape pulp and paper market collapse in Russia it is urgently required reconsidering the development strategy of the Russian timber industry and creating something that would match the reality. Existing economic situation led to the significant decline in demand for pulp and paper products – e.g. paper and cardboard export volume reduced by 11% starting from the beginning of 2009 with import decreased by 30%.

In the near coming future the Ministry for Natural Resources is to introduce some measures that according to some experts will make the situation even worse. As a result the crisis being over, many pulp and paper enterprises won’t be able in competitive conditions.

Business Support Bureau "Runa"  www.runa.info 

For more information about Russian timber industry, please see MOST  (Market Overview. Statistics. Trends) - regularly updated digest of the situation in the Russian timber industry! New edition - September 2009!