Column by Denis Kondratiev, General Director of the Center for System Solutions, about the problem of overproduction of containerboard
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After the pandemic, buying behavior has changed a lot: the explosive growth of distance selling has led to the emergence of new packaging solutions. Let’s consider the most massive segment, which occupies more than 50% of the entire pulp and paper production – container boards, boxes from which we see everywhere around us.
According to our data, in 2022, Russian enterprises produced about 5 million tons of containerboard. At the same time, the own needs of the domestic market do not exceed 4 million tons, therefore, we are talking about 1 million tons of products that require marketing outside the country. The global logistics crisis and the refusal of European companies to purchase Russian goods have led manufacturers to the need to find new routes and buyers.
At the same time, the launch of capacities for the production of containerboard, planned by many companies, increases overproduction: in 2023-2025, about 2 million tons of new capacities are put into operation in the Russian Federation alone. Hopes that the surplus problem will somehow “dissolve itself” become unrealistic.
China looks like the most obvious solution for reorienting exports, but the market for recycled containerboard there is self-sufficient – production exceeds demand. At the same time, demand there is growing at a rate of about 10% per year, which is no less than 5 million tons. There is a potential for increasing Russian exports, but, firstly, a one-time increase in supplies from all mills will lead to an oversupply and, consequently, to a drop in prices. Secondly, buyers are beginning to be more picky about quality, and in the recent past there were examples of complaints from Chinese corrugators, both for pulp and recycled grades. It can be said that the Chinese market will save manufacturers of only quality products.
In this situation, the continuation of the existing business model is unlikely to solve the problem of overproduction, which has kept prices for corrugated products in Russia unchanged for the past year and a half. The presence of excess raw materials requires the creation of new products. As part of the Extended Producer Responsibility (EPR) being introduced in Russia, plastic is being replaced by paper, and therefore, there is a need for new packaging solutions. The Russian paper market is still very far from being saturated – consumption must at least double in order to reach a level comparable with developed countries. At the same time, there is a product imbalance in the structure of the industry: there is an overproduction of newsprint, sack and container paper with a shortage of laminated and coated papers and cardboard.
The experience of some countries, such as Japan, shows the expansion of the range of small paper companies producing individual, personalized packaging. An excess of raw materials may lead to an increase in import substitution, and the current shortage of papers with high margins can be covered at existing enterprises. Products with better consumer characteristics bring the manufacturer not only sales guarantees, but also additional profit due to a higher price. The formation of new consumer niches and products in the domestic market, including against the backdrop of the introduction of the ERP, will give pulp and paper enterprises the opportunity to additionally sell more than 2 million tons of paper and cardboard on the domestic market.
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