Cardboard manufacturers sharply increased prices on the domestic market

The introduction of exchange rate export duties on October 1 forced producers of containerboard to sharply increase prices on the domestic market. Certain types of products rose in price by almost 15% just a week after the introduction of the measure. Experts expect that price increases will continue until the end of the year. But starting from January, new large capacities of Ilim will enter the market, exports from which will be limited by duties. As a result, prices on the domestic market may fall sharply.

The main brands of container boards rose in price by 8.5–14.8% in the first week of October, according to data from the Center for System Solutions. MS-5B grade waste paper, which is used in production, added 2.8%. From October 9 to October 15, prices for some species continued to rise, but not at such a rapid pace (by 1.6–2.4%).

The sharp increase was provoked by the introduction of export duties on October 1, pegged to the ruble exchange rate. The minimum duty level is 4% when the dollar exchange rate is from 80 to 85 rubles, the maximum that is currently in effect is 7% when the dollar exchange rate is more than 95 rubles. In the timber industry, the duty affected the pulp and paper segment, the main export product of which is container boards. Their largest producers are Ilim, Arkhangelsk Pulp and Paper Mill, Selenga Pulp and Paper Mill, etc.

As Denis Kondratiev, Deputy General Director of the League of Waste Paper Recyclers Association and Managing Partner of the Center for System Solutions, notes, exporters are faced with the fact that their long-term contracts with foreign consumers, which cannot be quickly changed, have become economically unprofitable. The situation was complicated by the obligation introduced on October 11 to sell foreign currency earnings on the domestic market.

“After the introduction of the duty, enterprises had no choice but to raise prices on the domestic market to compensate for losses on exports,” says the expert. Although, he notes, not all manufacturers supply their products abroad, but when large factories acting as market makers begin to raise prices, all other players adapt to the new conditions. The largest cardboard manufacturers declined to comment officially. Kommersant’s interlocutors at the companies confirmed the existence of problems due to the introduction of exchange rates.

At the same time, already at the beginning of next year, according to the forecast of the Center for System Solutions, the price environment in the containerboard sector will change dramatically. “In January, a new pulp and cardboard mill will be launched in Ust-Ilimsk (Ilim Group) with a capacity of 600 thousand tons. Initially, these volumes were supposed to be exported, mainly to China, but after the introduction of the duty, most likely, a significant part will remain in Russia, which will cause overproduction and lead to a colossal drop in prices,” explains Mr. Kondratiev.

The pulp and paper industry in Russia in recent years has developed as an export-oriented industry, so sanctions and the restructuring of logistics have hit the economics of production extremely hard, especially those located in the European part of the country. The negative dynamics in the industry gradually began to improve from the middle of the year against the background of the weakening of the ruble. Kommersant’s interlocutors among manufacturing companies emphasize that now the state in the pulp and paper sector should, on the contrary, stimulate exports in order to prevent the collapse of the domestic market, rather than introduce duties. An export duty, Denis Kondratyev believes, would be appropriate for products that are in short supply on the domestic market, which manufacturers can begin to export against the backdrop of the ruble exchange rate—for example, boxboards.

Olga Mordyushenko