forest based industries review en

Pulp and Paper

17 March 2009 Russian Forest Based Industries 2008 Results Lesprom

Growth of pulp and paper production, publishing and polygraphic activities in 2008 was very weak (+0.8% compared to the similar indicator of 2007). Production volume growth of pulp, wood pulp, paper, paperboard and its products increased by 0.3%, mainly because of growth of paperboard (+5.6%) and cardboard boxes (+4.3%) production.

Considerable retention of pulp and paper production growth in 2008 compared to the prievous year accounts for decline in demand of major consumers of market pulp.

Table 35. Major pulp and paper products output in 2008, thousand tons

Product Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Paper 349 331 353 336 339 337 335 339 320 319 312 302 Paperboard & cardboard 302 287 317 310 348 305 320 325 315 304 302 257 Table 36. Major pulp and paper products output in 2008

Product 2006 2007 2008 2008/2007, %

Pulp cooked, thousand tons 6,045 5,954 5,880 99

Market pulp, thousand tons 2,379 2,418 2,287 95

Paper, thousand tons 4,004 4,064 3,973 98

Newsprint paper, thousand tons 1,993 1,982 1,988 100

Offset paper, million sq m 6,744 6,355 6,125 96

Writing and copybook paper, thousand tons 69.5 69.7 65.0 93

Printing paper, thousand tons 7.4 5.0 4.6 92

Coated paper, thousand tons 1.0 0.9 0.7 83

Paperboard, thousand tons 3,444 3,494 3,693 106

Containerboard, thousand tons 2,493 2,568 2,815 110

Cardboard boxes, million sq m 2,243 2,687 2,907 108

Paper bags, million items 564 595 552 93

In the second half-year of 2008 there was a considerable decline in demand for pulp and paper industry products both on domestic and foreign markets. Enterprises selling products abroad suffered most of all; above all, these are pulp and paper mills which sold pulp on external markets. The crisis hit mostly those enterprises which do not have diversified markets oriented for several large product consumers. These companies had to review their production plans for 2009 and alter them decreasing planned output.

Demand for all kinds of paper decreased on the domestic market, prices for this product also fell by 30-40%. Production cost grew at that, partly because of growth of fuel prices.

One of the specific characteristics of Russian pulp and paper industry is that there are completely no capacities producing highly effective products. Many office paper grades are still not produced in Russia. Among these grades are high-quality paper for artistic printing, i.e. art paper. Diversity of packaging paper is very limited, especially of packaging for food products. Numerous Russian-made paper grades (for example, paper for office appliances, coated printing and book & magazine paper) loses in quality to its foreign competitors.

Following the results of 2008, about 165 pulp and paper mills built as fas as in the 1970s, are still in operational or half-operational state. Along with that, just ten pulp and paper mills produce about 70% of all Russian pulp and 80% of all paper, for example, Bratsk and Ust-Ilim timber processing complexes in Irkutsk region, Kotlas pulp and paper mill (all belonging to Ilim Group timber processing holding), Arkhangelsk pulp and paper mill, Segezhskiy pulp and paper mill, Kondopoga, Solikamskbumprom, Nizhniy Novgorod’s Volga, Neusiedler, Syktyvkar and Svetogorsk.

10 Russian pulpmills produce 70% of pulp

and 80% of paper

Under conditions of financial crisis of the second half-year of 2008 enterprises of North-West Timber Company (SZLK) – Neman pulp and paper mill and Kamennogorsk offset paper mill – found themselves in a complicated economic situation. Total debt of SZLK is about 6 billion roubles. Segezhskiy pulp and paper mill (Karelia) also curtails production output.

For many industries, growth of export volume is regarded as a development indicator, but in this sector export trend of products sales (84% of pulp and 50% of paper and paperboard) has become a major problem.

For the last ten years, despite unstable growth of production volume, Russian pulp and paper industry still did not manage to reach 1989 indicators, when the production output was maximal.

Russia possesses one fourth of the global forest stock. This potential, however, is used poorly: share of Russian pulp and paper products on the global market amounts to just 2-3%. Even such non-forested countries as Japan, Germany and Italy, are ahead of Russia.

Under conditions of declining demand, appreciation of raw materials and decrease of production efficiency due to decline in production capacities load competition on global markets becomes more active. Following the results of 2008, revenue of Finland’s Stora Enso corporation decreased by 6% compared to the level of 2007 and amounted to Eur 11.8 billion. Along with that, net loss of the company amounted to Eur 893 million.

Maximal decrease was registered in the fourth quarter of 2008, when the company had to close several mills.

UPM company closed the year with a revenue of Eur 9.5 billion with a net loss of Eur 180 million. Canada’s Tembec announced idling of two pulp and paper millls in France and one in Canada.

Generally, in 2008 there was a decrease in production volume on global markets. In North America, production curtailment amounted to 853 thousand tons, Asian producers curtailed 785 thousand tons, mainly bleached hardwood pulp. Latin American producers curtailed manufacturing volume by 193 thousand tons of eucalyptus pulp. European pulp and paper mills decreased production output by 360 thousand tons.

Pulp


Pulp Market pulp production volume in 2008 amounted to 2.287 million tons, which is 5.4% lower than the similar indicator of 2007. Pulp cooking also decreased (by 1.2% down to 5.88 million tons).

Chart 32. Market pulp and total pulp cooked production volume fluctuations in 2006-2008 thousand tons

2379 2418 2287

6045 5954 5880

01000200030004000500060007000

2006 2007 2008Market pulp Total pulp cooked

After production growth in the first three quarters, in the full 2008 there was

a 1.2% decrease

Decrease of pulp cooking volume was registered in the fourth quarter of 2008, while in the first three quarters a growth was registered.

Table 37. Pulp cooking volume in 2006–2008, thousand tons

Month 2006 2007 2008 2008/2007, %

January 498.3 487.1 532.1 109 February 450.7 469.8 499.0 106 March 521.8 526.0 523.4 100 April 516.1 484.5 505.0 104 May 527.8 451.2 496.8 110 June 501.4 486.6 504.9 104 July 502.2 510.3 531.5 104 August 526.0 504.7 526.3 104 September 509.2 501.2 498.9 100 October 521.5 511.4 472.1 92 November 487.6 496.6 389.9 79 December 482.6 525.2 400.2 76 Total for the year 6,045.0 5,954.3 5,879.9 99

Chart 33. Regional pattern of total pulp cooking in 2008, %

36

28

9

9

82 2 6

Arkhangelsk region

Irkutsk region

Republic of Komi

Leningrad region

Republic of Karelia

Republic of Mariy El

Republic of Buryatia

Other regions

The region leading in pulp cooking in 2008 was Arkhangelsk region. It has a 36% share of the total production volume. The second place is steadily occupied by Irkutsk region (28%), while Republic of Komi and Leningrad region have a joint share of 18%. Table 38. Regional pattern of pulp cooking in Russia, thousand tons

Region 2005 2006 2007 2008 2008/2007, %

Arkhangelsk region 2,037 2,052 2,043 2,095 103 Republic of Buryatia 90 97 99 104 105 Irkutsk region 1,633 1,694 1,766 1,671 95 Republic of Karelia 467 497 508 479 94 Republic of Komi 545 551 550 546 99 Krasnoyarsk region 78 103 118 104 88 Leningrad region 506 533 506 533 105 Republic of Mariy El 104 151 105 108 103 Perm region 182 138 65 91 141 Republic of Adygea 21 26 28 31 112 Vologda region 36 21 31 29 94 Kaliningrad region 182 132 89 52 58

Sverdlovsk region 45 43 42 37 90

Russia 5,934 6,045 5,954 5,880 99

The most dramatic curtailment of pulp cooking volume was registered in Kaliningrad and Krasnoyarsk regions (-42% and 12% respectively). Ilim Group holding had a 44% share in the total pulp cooking volume, following the results of 2008, Investlesprom had 5.2%, Continental Management – 3.5%, Solombalales – 3.4%.

In terms of companies, the most dramatic curtailment of pulp cooking volume in 2008 was registered at Kama pulp and paper mill OJSC (-69%), Sovetsk pulp and

paper mill OJSC (-52%), Neman pulp and paper mill LLC (-33%), Baikalsk pulp and paper mill OJSC (-28%), Novolyalinskiy pulp and paper mill LLC (-14%), Segezha pulp and paper mill OJSC (-12%), and Eniseiskiy pulp and paper mill LLC (-12%).

Table 39. Pulp volume cooked by major pulp and paper companies in 2006-2008, thousand tons Enterprise Region 2006 2007 2008 2008/2007, %

Ilim Group affiliate in Koryazhma OJSC Arkhangelsk region 1,023 1,024 1,067 +4

Ilim Group affiliate in Bratsk OJSC Irkutsk region 0 421 763 +81

Arkhangelsk pulp and paper mill OJSC Arkhangelsk region 834 804 755 -6

Ilim Group affiliate in Ust-Ilimsk OJSC Irkutsk region 713 404 753 +86

Mondi Syktyvkar Timber Processing Plant OJSC Republic of Komi 551 550 546 -1

Svetogorsk OJSC Leningrad region 373 360 393 -9

Segezha pulp and paper mill OJSC Republic of Karelia 294 302 266 -11

Solombala pulp and paper mill OJSC Arkhangelsk region 195 214 198 -8

Baikalsk pulp and paper mill OJSC Irkutsk region 202 216 155 -28

Kondopoga OJSC Republic of Karelia 112 111 110 -11

Mariyskiy pulp and paper mill OJSC Republic of Mariy El 111 105 108 +33

Selenga pulp and paperboard mill OJSC Republic of Buryatia 97 99 104 +5

Eniseiskiy pulp and paper mill LLC Krasnoyarsk region 103 118 104 -12

Pitkyaranta pulp mill OJSC Republic of Karelia 91 95 102 +7

Vyborgskaya Tselluloza OJSC Leningrad region 67 71 72 +1

Syasskiy pulp and paper mill OJSC Leningrad region 94 75 69 -8

Solikamskbumprom OJSC Perm region 61 17 35 +99

Neman pulp and paper mill LLC (North-Western Timber Company) Kaliningrad region 41 48 32 -33

Kartontara CJSC Republic of Adygea 26 28 31 +12

Sokolskiy pulp and paper mill OJSC (Investlesprom Holding) Vologda region 21 31 29 -6

Rabotnikov Turinskiy pulp and paper mill CJSC Sverdlovsk region 22 23 23 +3

Sovetsk pulp and paper mill OJSC Kaliningrad region 64 41 20 -52

Novolyalinskiy pulp and paper mill LLC Sverdlovsk region 0 16 14 -14 Major curtailments of production at pulp and paper enterprises occurred in November and December of 2008. For example, Arkhangelsk pulp and paper mill OJSC curtailed load of production capacities down to 70% in December of 2008. Due to lack of financing the company has to freeze some investment projects, the report says. For instance, investment cost of the project of cardboard production reconstruction in 2009 was cut from Eur 40 million down to Eur 7.5 million, start of the construction of a new neutral sulfite semichemical pulp cooking line is postponed for a year. This project would enable to improve cooking efficiency up to 308,000 tons. Investment costs of the project of cardboard production reconstruction during 2008-2013 are planned on the level of Eur 149.4 million. In 2008, the company invested Eur 5.7 million of own funds, in Q1 of 2009 it is planned to invest Eur 1.3 million.

Chart 34. Regional pattern of market pulp production in 2008, %

58%34%

4%2%2% Irkutsk region

Arkhangelsk region

Republic of Karelia

Leningrad region


Table 40. Regional pattern of market pulp production, thousand tons Region 2006 2007 2008 2008/2007, %

Irkutsk region 1,347 1,430 1,300 91 Arkhangelsk region 775 775 783 101

Republic of Karelia 90 95 101 107

Leningrad region 62 58 51 88

Republic of Mariy El 37 39 43 110

Kaliningrad region 56 15 8 50 Other regions 12 5 0 0 Russia 2,379 2,418 2,287 95

Irkutsk region, following the results of 2008, was the leader on production of market pulp (1.3 million tons). This indicator is, however, 9% less than in the previous year. The second is Arkhangelsk region with 783 thousand tons of pulp produced in 2008. Generally, Russian production of market pulp decreased by 5% in 2008 compared to the previous year.

Table 41. Market pulp production by major pulp and paper companies in 2006-2008, thousand tons Enterprise Region 2006 2007 2008 2008/2007, %

Ilim Group affiliate in Ust-Ilimsk OJSC Irkutsk region 660 373 690 +85

Ilim Group affiliate in Bratsk OJSC Irkutsk region 0 267 474 +77

Ilim Group affiliate in Koryazhma OJSC Arkhangelsk region 351 356 365 +2

Arkhangelsk Pulp and Paper Mill OJSC Arkhangelsk region 234 211 206 -2

Solombala Pulp and Paper Mill OJSC Arkhangelsk region 189 209 192 -9

Baikalsk Pulp and Paper Mill OJSC Irkutsk region 181 194 137 -30

Pitkyaranta Pulp Mill OJSC Republic of Karelia 90 95 101 +7

Mariyskiy Pulp and Paper Mill OJSC Republic of Mariy El 37 39 43 +11

Syasskiy Pulp and Paper Mill OJSC Leningrad region 54 46 41 -11

Vyborskaya Tselluloza OJSC Leningrad region 7 13 10 -20

Sovetsk Pulp and Paper Mill OJSC Kaliningrad region 34 15 8 -50

Ilim Group mills has produced 2.345 million tons of pulp and paper products in 2008, i.e. down 0.5% over 2007 results. Market pulp production totaled 1.492 million tons, 4.1% down compared with twelve months of 2007. Containerboard production rose by 12.9% to 612 thousand tons. Paper output was 242 thousand tons, down 6.6% compared with 2007. The reduction in annual pulp and paper production volume was due to shrinking manufacturing capacities in 4Q 2008 caused by the global financial crisis and economic recession. As pulp and paper production volume reduced, the Company optimized costs by reducing consumption of its highest cost wood and cut back own harvesting volumes at IlimSeverLes, ULiL and IlimSibLes. The Company harvested 6.7 million cubic meters of wood, which is 6% down on 2007. The share of own wood supplies accounted for 48.3% of the total supplies volume. The company's priorities for 2009 will be to retain its financial stability, increase overall Company efficiency and

search for new opportunities during the crisis period which would secure Ilim's long-term competitiveness and performance.

In 2008, Vyborgskaya Tselluloza OJSC (Leningrad region) cooked 1.4% more pulp than in 2007 (71.9 thousand tons versus 71 thousand tons). Paper and paperboard production volume in 2008 increased by 3.2%, from 91.7 thousand tons up to 94.6 thousand tons, while production of powder lignin sulphonate at the enterprise, on the contrary, fell from 41.85 thousand tons down to 39.98 thousand tons (-4.5%).

In 2008, Solombala pulp and paper mill (part of Solombalales holding) manufactured 191.6 thousand tons of market pulp. The planned volume was exceeded by 1.4%. Compared to the level of 2007 pulp production volume decreased by 8.5%. In 2008, 5 thousand tons of folding paper was produced, which is on the planned level. 3.3 thousand tons of paper were produced in the previous year.

Market pulp export volume in Russia in 2008 amounted to 2.214 million tons, which is 8.4% higher than the similar indicator of 2007.

Chart 35. Pulp export fluctuation in 2004-2008, thousand tons

1931 2020 1841 2043 2214

0500

1000150020002500

2004 2005 2006 2007 2008

Paper

17 Marchм 2009 Russian Forest Based Industries 2008 Results Lesprom Network

Paper Following the results of 2008, production of paper amounted to 3.973 million tons, which is 2.2% lower than in the previous year.

Chart 36. Paper production in 2005-2008, thousand tons

39694004

4064

3973

3900

3950

4000

4050

4100

2005 2006 2007 2008

Paper production started to decrease in the second

half-year of 2008

Paper production started to curtail since July 2008. Average monthly curtailment in the second half-year was 5%, while in December just 87% of paper compared to the level of December 2007 were produced. Table 42. Paper production volume in 2006-2008, thousand tons

Month 2006 2007 2008 2008/2007, %

January 337.3 336.1 349.1 104

February 313.4 318.5 330.8 104

March 350.9 351.0 352.9 101

April 343.4 330.9 335.6 101

May 344.6 347.3 339.1 98

June 323.1 336.5 336.7 100

July 344.0 347.8 335.4 96

August 342.2 342.1 339.3 99

September 336.5 337.6 320.5 95

October 343.5 339.5 319.5 94

November 317.5 330.2 312.2 95

December 307.5 346.2 302.2 87

Total for the year 4,004.0 4,063.8 3,973.2 98

Chart 37. Regional pattern of paper production in Russia in 2008, %

24

16

15

14

13

82

1 7 Republic of Karelia

Republic of Komi

Nizhniy Novgorod region

Perm region

Leningrad region

Arkhangelsk region

Kaliningrad region

Republic of Tatarstan

Other regions

Republic of Karelia, following the results of 2008, was the leading region in terms of paper production. It had a 24% share of the total Russian output volume. The second is Republic of Komi with a share of 16%, the third is Nizhniy Novgorod region with 15%. Table 43. Regional pattern of paper production, thousand tons

Region 2006 2007 2008 2008/2007, %

Republic of Karelia 960.6 964.4 964.5 100 Republic of Komi 610.8 638.5 635.9 100 Nizhniy Novgorod region 551.1 579.3 582.9 101 Perm region 646.5 587.8 562.4 96 Leningrad region 483.6 504.8 507.3 100 Arkhangelsk region 348.5 344.7 326.9 95 Kaliningrad region 70.4 97.2 60.1 62 Republic of Tatarstan 52.4 54.8 53.7 98 Kaluga region 37.7 52.0 48.9 94 Sverdlovsk region 40.5 41.5 37.7 91 Krasnoyarsk region 38.7 36.4 33.5 92 Vologda region 19.4 24.0 31.2 130 Penza region 33.3 30.0 27.1 90 St. Petersburg 27.2 25.3 23.1 91 Republic of Mariy El 20.9 19.5 19.4 100 Kirov region 19.6 21.0 17.1 81 Novgorod region 13.3 13.3 13.4 101 Vladimir region 1.5 4.5 6.5 144 Republic of Buryatia 6.4 5.8 6.0 104 Other regions 21.6 18.9 15.7 83 Russia 4,004.0 4,063.8 3,973.2 98

Share of Kondopoga company in the total Russian paper production volume for the full year of 2008 amounted to 18.9%, of Mondi Syktyvkar Timber Processing Plant — 15.4%, of Solikamskbumprom — 10.4%, of Svetogorsk — 8.8%, of Ilim Group — 6%, of Continental Management — 2.2%, of Investlesprom — 7.1%, of North-West Timber Company (SZLK) — 1.2%.

Table 44. Paper production volume by major pulp and paper companies, thousand tons

Enterprise Region 2006 2007 2008 2008/2007, % Kondopoga OJSC Republic of Karelia 741.00 732.56 752.83 +3 Mondi Syktyvkar Timber Processing Plant OJSC Republic of Komi 594.79 621.55 614.23 -1

Volga OJSC Nizhniy Novgorod region 551.10 579.26 582.78 +1 Solikamskbumprom OJSC Perm region 456.13 418.31 415.16 -1 Svetogorsk OJSC Leningrad region 324.32 333.11 351.98 +6 Ilim Group affiliate in Koryazhma OJSC Arkhangelsk region 261.66 260.32 243.36 -7

Segezha pulp and paper mill OJSC Republic of Karelia 219.61 231.86 211.26 -9 Goznak Krasnokamsk paper mill (FGUP affiliate) Perm region 73.98 74.37 76.42 +3

Arkhangelsk pulp and paper mill OJSC Arkhangelsk region 81.44 80.79 71.39 -12

Kama pulp and paper mill OJSC Perm region 105.60 92.09 70.72 -23 Naberezhnye Chelny Paper and Paperboard Mill (Public Enterprise) CJSC

Republic of Tatarstan 52.43 54.85 53.45 -3

Neman pulp and paper mill LLC Kaliningrad region 47.79 76.90 48.89 -36 Syasskiy pulp and paper mill OJSC Leningrad region 43.23 43.64 45.05 +3 SCA Hygiene Products Russia, Svetogorsk affiliate LLC Leningrad region 42.26 41.84 40.78 -3

Troitsk paper mill OJSC Kaluga region 21.76 22.30 37.51 +68 Eniseiskiy pulp and paper mill LLC Krasnoyarsk region 38.66 36.40 33.52 -8 Vyborgskaya Tselluloza OJSC Leningrad region 35.32 32.73 32.21 -2

Kommunar Paper Mill OJSC Leningrad region 35.22 46.30 27.08 -42

Sokolskiy pulp and paper mill OJSC (Investlesprom holding) Vologda region 17.51 24.09 26.06 +8

Syktyvkar Tissue Group OJSC Republic of Komi 15.91 16.95 21.58 +27 Goznak St. Petersburg Paper Mill (FGUP affiliate) Vologda region 21.96 22.51 20.51 -9

Turinskiy pulp and paper mill CJSC Republic of Komi 18.79 19.91 20.19 +1 Mariyskiy pulp and paper mill OJSC Republic of Mariy El 18.21 16.46 16.88 +3 Kondrovo Paper Company OJSC Kaluga region 23.84 24.47 16.74 -32 Elikon OJSC Kirov region 17.91 18.84 14.95 -21 Mayak-Technocell LLC Penza region 4.49 14.87 14.90 Flat Novolyalinskiy pulp and paper mill LLC Sverdlovsk region 0.00 16.27 14.62 -10

Velgiyskaya Paper Mill OJSC Novgorod region 13.30 13.31 13.40 +1

Mayak OJSC Penza region 28.84 15.14 12.18 -20 Sovetsk pulp and paper mill OJSC Kaliningrad region 22.59 20.33 11.19 -45 Kamennogorsk Offset Paper Mill CJSC Leningrad region 22.65 26.53 10.41 -61

In 2008, Syktyvkar Timber Processing Plant produced 812.8 thousand tons of paperboard and paper products, which is 1% higher than the planned level and 1% less than in the previous year. Slightl decrease in production volume was planned for 2008 because of start of Step project implementation which required to shut down some equipment in order to update it. In particular, in October and November modernization works were finished at the BM-14 unit which produces Snegurochka office paper, the main brand of the enterprise. Short temporary shutdowns of the equipment caused by difficulties with products sales in late 2008 were also used by Syktyvkar Timber Processing Plant to modernize production lines within the framework of the project. Development and reconstruction project started at Mondi Syktyvkar Timber Processing Plant on July 1, 2008. By the end of the year project experts concluded contracts amounting to about Eur 400 million in total (overall project cost is Eur 500 million), all major equipment was also procured. By the end of 2008, Syktyvkar Timber Processing Plant received 12 thousand tons of details and parts of machinery units which is more than half of the total volume of deliveries within the framework of Step project.

Kommunar Paper Mill OJSC shareholders (Leningrad region) approved attraction of a Sberbank credit to the amount of not more than 50 million roubles at an extraordinary meeting held on October 15, 2008. Kommunar company is going to attaract this credit for the period of five years at an annual interest rate not more than 14.25% in order to offset investment expenses incurred earlier. Shareholders also approved transfer of some company’s equity on a mortgage in order to secure credit obligations.

In the third quarter of 2008, loss of Stora Enso Oyj company, the largest paper producer in Europe, was less than predicted by analysts. The company announced its plans to curtail production volumes and investments and increase prices. Stora will be cutting production down to “realistic volumes”, which will “obviously have adverse affect” on benefit. Despite complicated macroeconomic situation, the company will increase prices for newsprint and magazine paper in 2009. European prices for paper decreased by 25% since 2001 due to a growing share of internet media, but demand for both paper and paperboard still decreased due to weakening of consumer preferences amid worl economic recession. Stora also announced closure of its paper-making machine in Germany and line producing consumer packaging in Finland. These measures are taken in order to fight decline in demand which did not revive after previous pulp and paper mill shutdowns. According to a data from Stora’s corporate site presentation, the company will curtail capital investments down to Eur 650—700 million, which is lower than July’s estimations (Eur 700—750 million). In the previous year, capital expenses were Eur 820.4 million. The company has to spend around Eur 250 million for current maintenance of the machinery. The decision on pulp and paper mill construction project in Nozhniy Novgorod region of Russia is still not made. Loss of the company in the third quarter amounted to Eur 119.5 million, or 15% per a share, compared to Eur 273 million, or 56 cents per a share in the previous year. Sales deepened by 5.4% down to Eur 2.72 billion.

Chart 38. Paper, paperboard and cardboard export volume fluctuations in 2004-2008, million tons

2,6 2,6

2,5 2,5 2,5

2,42,42,52,52,62,62,7

2004 2005 2006 2007 2008

Paper and paperboard export volume in 2008 amounted to 2.5 million tons, which is on the previous year’s level.

Chart 39. Regional pattern of paper, paperboard and cardboard export in Russia in 2008, %

30

14

13

13

10

7

76

Republic of Karelia

Arkhangelsk region

Republic of Komi


Perm region

Irkutsk region

Leningrad region

Other regions

Share of Republic of Karelia in the total Russian export volume was 30% (+2% compared to the level of 2007). The second is Arkhangelsk region with 14% (-1%), the third is Republic of Komi with 13% (-5%).

Table 45. Regional pattern of paper and paperboard export, thousand tons

Region 2006 2007 2008 2008/2007, % Republic of Karelia 695 718 735 102 Arkhangelsk region 387 353 351 99 Republic of Komi 344 347 329 95 Nizhniy Novgorod region 290 303 317 105 Perm region 278 222 258 116 Irkutsk region 167 181 172 95 Leningrad region 152 165 168 102 Kaliningrad region 23 40 22 56 Republic of Mariy El 21 14 18 133 Krasnoyarsk region 23 21 12 61 Kaluga region 10 11 11 97 Republic of Buryatia 15 16 9 55 Republic of Tatarstan 5 7 8 107 Tula region 5 7 8 111 Moscow 9 9 8 89 Vologda region 5 6 7 123 St. Petersburg 16 10 6 59 Moscow region 5 6 5 82 Novgorod region 2 4 4 100 Other regions 27 29 25 85 Russia 2,481 2,469 2,472 100

Republic of Karelia exported 735 thousand tons of paper and paperboard in 2008, which is 2% higher than the similar indicator of 2007.

Newsprint paper


Newsprint paper

Newsprint paper production volume in 2008 amounted to 1.988 million tons, which is 0.3% higher than the similar indicator of 2007. Maximal decrease during the year was registered in the third quarter. However, in the fourth quarter there was a growth compared to the similar period of 2007.

Chart 40. Newprint paper production in Russia in 2006-2008, thousand tons

1993

1982

1988

1975

1980

1985

1990

1995

2006 2007 2008

Table 46. Newsprint paper production volume in 2006-2008, thousand tons Month 2006 2007 2008 2008/2007

January 173 164 168 103 February 158 157 158 101 March 176 170 170 100 April 173 166 163 98 May 169 164 164 100 June 170 166 167 101 July 171 168 161 96 August 169 171 169 99 September 165 165 161 98 October 168 167 172 103 November 154 158 166 105 December 148 166 168 101 Total for the year 1,993 1,982 1,988 100

Chart 41. Regional pattern of newsprint paper production in Russia in 2008, %

29

23

29

37

Republic of Karelia


Perm region

Republic of Komi

Krasnoyarsk region

The leader in newsprint paper production in 2008 was Republic of Karelia, which had a share of 37% in the total Russian volume. Then are Nizhniy Novgorod region with 29% and Perm region with 23%. Table 47. Regional pattern of newsprint paper production, thousand tons

Region 2006 2007 2008 2008/2007, % Republic of Karelia 726 716.8 737.7 103

Nizhniy Novgorod region 536 564.6 568.4 101 Perm region 510 471.3 460.2 98 Republic of Komi 180 190.3 187.1 98 Krasnoyarsk region 38 34.9 31,6 90

Vologda region 3 3.6 2,7 76 Russia 1,993 1,981.6 1,987.7 100 Newsprint paper production volume in the Republic of Karelia was 737.7 thousand tons, which is 3% higher than in the previous year. Kondopoga сompany produced 37% of all Russian newsprint paper volume in 2008, one third of the total volume fell within Volga company, one fifth within Solikamskbumprom. Mondi SLPK produced 9.4%. Table 48. Newsprint paper production by major pulp and paper companies, thousand tons

Enterprise Region 2006 2007 2008 2008/2007, %

Kondopoga OJSC Republic of Karelia 725.8 716.8 737.7 +3

Volga OJSC Nizhniy Novgorod region 536.0 564.6 568.5 +1

Solikamskbumprom OJSC Perm region 446.1 406.8 403.9 -1

Mondi Syktyvkar Timber Processing Plant OJSC Republic of Komi 179.7 187.3 187.0 flat

Kama pulp and paper mill OJSC Perm region 64.2 64.6 56.2 -13

Eniseiskiy pulp and paper mill LLC Krasnoyarsk region 37.8 34.9 31.6 -10

Sokolskiy pulp and paper mill OJSC Vologda region 2.9 3.5 2.7 -22

In 2008, Volga OJSC (Balakhninskiy paper mill, Nizhniy Novgorod region) manufactured 568.4 thousand tons of newsprint paper, which is 3.8 thousand tons more than the level of 2007. In 2008, a record volume of products in the whole history of the enterprise was produced. All paper produced is shipped to consumers, including 338,870 tons of paper for export.

Paperboard and Cardboard


Paperboard and cardboard Paperboard production in 2008 amounted to 3.693 million tons, which is 5.7% higher than the similar indicator of 2007. Containerboard production also increased: the growth was 9.6% up to 2.815 million tons.

Chart 42. Paperboard and cardboard production in 2006-2008, thousand tons

3444 3494 3693

2493 25682815

0500

1000150020002500300035004000

2006 2007 2008

Total cardboard and paperboard, thousandtons Containerboard, thousand tons

Steady paperboard production growth is

accounted for less considerable fall of

demand compared to other pulp & paper

products

Paperboard production growth in 2008 was 5.7% compared to the level of 2007. Growth of containerboard production compared to the previous year’s indicators was also registered (+9.6%).

Table 49. Paperboard production volume in 2006-2008, thousand tons Month 2006 2007 2008 2008/2007, %

January 266 275 302 110 February 255 267 287 108 March 290 304 317 104 April 292 294 310 106 May 276 278 348 125 June 286 271 305 113 July 286 285 320 112 August 299 305 325 107 September 295 297 315 106 October 300 308 304 99 November 300 299 302 101 December 300 313 257 82 Total for the year 3,444 3,494 3,693 106

Growth of paperboard production was registered in almost all months of the year, except for October and December. The decline in these months amounted to 1% and 18% respectively.

Table 50. Regional pattern of paperboard production, thousand tons

Region 2006 2007 2008 2008/2007, %

Arkhangelsk region 809 809 863 107 Leningrad region 499 473 489 103 Irkutsk region 232 220 239 109 Republic of Komi 207 214 208 97 Perm region 143 171 191 112 Republic of Tatarstan 154 159 161 102 Kaluga region 113 130 134 103 Republic of Mariy El 89 105 117 112 Bryansk region 98 92 98 106 Republic of Buryatia 91 93 96 104 Krasnoyarsk region 88 103 91 89 Tula region 42 66 69 105 Republic of Karelia 84 83 68 82 Republic of Bashkortostan 68 72 66 93 Vologda region 54 62 65 105 Republic of Adygea 58 60 65 108 Yaroslavl region 11 8 64 802 Kirov region 43 54 60 112 Tver region 49 51 54 106 Other regions 510 472 493 104 Russia 3,444 3,494 3,693 106

Arkhangelsk region was the leader in terms of paperboard production volume in 2008: 863 thousand tons were produced (+7%). Then are Leningrad region with 489 thousand tons (+3%) and Irkutsk region with 239 thousand tons (+9%).

Chart 43. Regional pattern of paperboard and cardboard production in Russia in 2008, %

29

16

876

5

5

43

17

Arkhangelsk region

Leningrad region

Irkutsk region

Republic of Komi

Perm region


Kaluga region


Bryansk region

Other regions

Arkhangelsk region leads the pack of paperboard producers. It had a 30% share of the total Russian paperboard production volume. The second is Leningrad region with 17%, while Irkutsk region occupies the third place with 8%.

Chart 44. Regional pattern of containerboard production in Russia in 2008, %

31

8

7764

44

3

26

Arkhangelsk region

Irkutsk region

Republic of Komi

Perm region


Kaluga region


leningrad region


Other regions

In 2008, the same Arkhangelsk region was also the leader in containerboard production. Its share in this industry was 31% of the total Russian volume. Then are Irkutsk region (8%) and Republic of Komi (7%).

Table 51. Paperboard production by major pulp and paper companies, thousand tons

Enterprise Region 2006 2007 2008 2008/2007, % Ilim Group affiliate in Koryazhma OJSC Arkhangelsk region 333.2 330.7 542.5 +64 Arkhangelsk pulp and paper mill OJSC Arkhangelsk region 476.1 478.5 480.8 flat St. Petersburg paperboard and polygraphic plant OJSC Leningrad region 239.8 247.2 250.7 +1

Ilim Group affiliate in Bratsk OJSC Irkutsk region 0.0 121.6 237.4 +95

Mondi Syktyvkar Timber Processing Plant OJSC Republic of Komi 206.2 213.6 207.5 -3

Permskiy Karton LLC Perm region 138.5 168.7 187.8 +11 Public Enterprise Naberezhnye Chelny Paper Mill CJSC Republic of Tatarstan 151.7 156.9 158.5 +1

Mariyskiy pulp and paper mill OJSC Republic of Mariy El 85.7 100.1 110.6 +11

Selenga pulp and paperboard mill OJSC Republic of Buryatia 91.2 92.9 96.3 +4

Eniseiskiy pulp and paper mill LLC Krasnoyarsk region 87.5 102.6 91.1 -11

Svetogorsk OJSC Leningrad region 82.1 78.3 83.3 +6 Stora Enso Packaging BB LLC Kaluga region 77.6 80.8 77.0 -5 Proletarii CJSC Bryansk region 75.4 72.2 72.3 flat Aleksin paper and paperboard mill CJSC Tula region 47.6 63.6 67.8 +7 Kartontara CJSC Republic of Adygea 57.2 59.3 64.3 +8 Vyborgskaya Tselluloza OJSC Leningrad region 57.7 59.0 62.4 +6 Sukhonskiy pulp and paper mill LLC Vologda region 43.2 50.5 59.8 +8 Elikon OJSC Kirov region 38.0 51.4 58.5 +14 Yaroslavskaya Bumaga CJSC Yaroslavl region - - 57.0 - Kamenskaya paper and paperboard mill OJSC Tver region 48.8 51.3 54.3 +6

Smurfit Kappa St. Petersburg CJSC Leningrad region 88.9 50.8 52.2 +3 Ryazan paperboard and asphalt board (roof felt) mill CJSC Ryazan region 42.4 43.4 42.8 -1

Segezha pulp and paper mill OJSC Republic of Karelia 58.1 53.0 40.5 -24

Paperboard and packaging LLC Republic of Bashkortostan 37.6 38.8 40.0 +3 Altaikrovlya CJSC Altai region 40.5 39.6 38.8 -2

Alatyr paper mill LLC Republic of Chuvashia 15.8 25.6 31.3 +22

Mayak OJSC Penza region 9.9 21.9 28.2 +29 Suoyar paperboard mill Republic of Karelia 26.3 29.6 27.0 -9

Paper and paperboard mill LLC Republic of Bashkortostan 32.0 30.9 26.4 -15

Poligrafkarton OJSC Nizhniy Novgorod region 18.9 21.0 26.4 +25 Geopak LLC Moscow region 21.4 22.1 26.1 +18 Kommunar Paper Mill OJSC Leningrad region 16.2 20.9 25.9 +24

Polotnyanyi Zavod Paper Mill OJSC Kaluga region 14.4 17.4 25.6 +47

Bryansk Paper Mill LLC Bryansk region 23.2 25.0 25.4 +2 Karavaevo Paper Producing and Recycling Mill OJSC Moscow region 25.0 23.8 23.6 -1

Perm pulp and paper company group is going to invest $80 million into timber harvesting complex establishment and modernization of the existing paperboard, paper and corrugated packaging production capacity at Uralbumaga LLC in Perm region. It is planned that timber harvesting volume will amount to about 1.5 million cubic meters annually, while capacity of Uralbumaga LLC (in terms of paper, fine layers of cardboard and corrugated packaging production) will increase fourfold up to 240 million sq m annually. Perm pulp and paper company group comprises companies producing corrugated packaging and raw materials for its

manufacturing (Permskiy Karton LLC, Uralbumaga LLC, and Permskie Oboi Trade House which deals in production and distribution of wallpaper).

The corrugated packaging mill of GoTECH Severo-Zapad CJSC (Leningrad region, Vsevolozhsk municipality) finished adjustment and commissioning works and is preparing the equipment for the launch in November 2008. Start of the construction of the enterprise started in June 2007, not long before 11th St. Petersburg economic forum, one year later the enterprise manufactured its first corrugated products shipment. According to independent specialists, GoTECH Severo-Zapad CJSC is a unique industrial production complex not only in Russia but in Europe,

which allows manufacturing corrugated products meeting top world standards. Major field of company’s activity is production of transportation packaging with printing from corrugated board. One of the mill’s advantages is well-organized production logistics which enable to cut internal expenses and minimize time of order execution and delivery. Apart from that, in order to meet existing high regional demand for packaging from moulded paper pulp a production line manufacturing retail packaging for eggs with multi-coloured printing is installed at the enterprise. GoTECH Severo-Zapad CJSC company tries to meet top world standards in quality of its products and services rendered to customers. GoTECH Severo-Zapad CJSC is the part of GoTECH group, a leader in packaging market in terms of corrugated products production volume. Cost of this investment project was about Eur 55 million. Rated capacity of the mill is 160 million sq m of corrugated products annually. After reaching full capacity the new mill will employ 300 people.

Table 52. Containerboard production by major pulp and paper enterprises, thousand tons

Enterprise Region 2006 2007 2008 2008/2007, % Ilim Group affiliate in Koryazhma OJSC

Arkhangelsk region 333.2 330.7 542.5 +64

Arkhangelsk pulp and paper mill OJSC Arkhangelsk region 474.5 477.2 479.3 flat

Ilim Group affiliate in Bratsk OJSC Irkutsk region 0.0 121.6 237.4 +95

Mondi Syktyvkar Timber Processing Plant OJSC Republic of Komi 196.2 199.7 197.8 -1

Permskiy Karton LLC Perm region 138.5 168.7 187.8 +11 Public Enterprise Naberezhnye Chelny Paper Mill CJSC Republic of Tatarstan 151.7 156.9 158.5 +1

Mariyskiy pulp and paper mill OJSC Republic of Mariy El 85.4 99.7 110.3 +11 Selenga pulp and paper mill OJSC Republic of Buryatia 91.2 92.9 96.3 +4 Eniseiskiy pulp and paper mill LLC Krasnoyarsk region 87.1 101.2 89.8 -11 Stora Enso Packaging BB LLC Kaluga region 77.6 80.8 77.0 -5 Kartontara CJSC Republic of Adygea 56.9 59.1 64.2 +9 Vyborgskaya Tselluloza OJSC Leningrad region 57.7 59.0 60.9 +3 Elikon OJSC Kirov region 38.0 51.4 58.5 +14 Sukhonskiy pulp and paper mill LLC Vologda region 28.2 32.0 58.1 +82 Yaroslavskaya Bumaga CJSC Yaroslavl region 0 0 56.0 0 Segezha pulp and paper mill OJSC Republic of Karelia 58.1 53.0 40.5 -24 Altaikrovlya OJSC Altai region 34.3 34.2 38.8 +13 Kamenskaya paper and paperboard mill OJSC Tver region 33.1 36.1 38.5 +6

Alatyr paper mill LLC Republic of Chuvashia 15.8 25.6 31.3 +22 Mayak OJSC Penza region 9.9 21.9 28.2 +29 Paperboard and paper plant LLC Republic of Bashkortostan - 30.9 26.4 _25 Geopak LLC Moscow region 21.4 22.1 26.1 +18 Kommunar paper mill OJSC Leningrad region 16.2 20.9 25.9 +24 Polotnyanyi Zavod Paper Mill OJSC Kaluga region 14.4 17.4 25.8 +48 Bryansk paper mil LLC Bryansk region 23.2 25.0 25.4 +2 Sovetsk pulp and paper mill OJSC Kaliningrad region 11.8 12.6 17.9 +42 Rostovbumaga CJSC Rostov region 13.4 13.9 14.3 +3 Komsomolets Paper Mill CJSC Leningrad region 14.7 16.3 14.2 -13 Karavaevo Paper Producing and Recycling Mill OJSC Moscow region 11.7 11.2 12.8 1+4

Vesta LLC Kaluga region 13.6 12.2 11.6 -5 Gofropacktyumen LLC Tyumen region - 6.7 10.7 +60 Gofrotara LLC Belgorod region 0.0 13.6 8.7 -36 Kuzbass-Tara LLC Kemerovo region 8.5 8.6 7.9 -8 Technicheskaya Bumaga OJSC Yaroslavl region 9.2 8.3 7.4 -11 Bumaga OJSC St. Petersburg 4.0 6.5 6.6 +2 Astrakhan container and packaging mill LLC Astrakhan region - 0.6 4.9 +667

Kondrovo paper company OJSC Kaluga region 11.3 11.9 4.4 -63 Neman pulp and paper mill LLC Kaliningrad region 11.4 8.3 4.2 -49

Despite the crisis, Arkhangelsk pulp and paper mill OJSC (Novodvinsk, Arkhangelsk region) continues implementation of its investment project of paperboard production reconstruction having top priority status with a total cost of more than 5.3 billion roubles. The project is listed as top priority forest exploration investment project, for which forestland lots in Arkhangelsk region were granted without performing an auction. In 2008, the plant assimilated the full volume of the funds within the framework of the project (more than 260 million roubles). It is the first stage of KDM-2 machine reconstruction. By 2010, in the framework of the project construction of a new production line of neutral sulfite semichemical pulp cooking with a capacity of 1,000 tons every day and cost of 710 million roubles.

However, the project implementation will be heavily affected by coming problems of 2009, which will direсtly change its schedule and if federal authorities do not take any corrective measures, the changes will be considerable. Among major problems which effect directly project implementation are: decline in demand for plant’s ready products with a decrease of prices for pulp and paper products, growth of payment delays for products already shipped and, as a result, the company is forced to curtail production volume and decrease financing of technical reequipment of the plant. Along with that, a considerable growth of prices for some raw and other materials which are used in the production process as well as services related to delivery of required materials is scheduled for 2009.

Paper bags

Production of paper bags in 2008 decreased by 7.2% and amounted to 552 million items.

Chart 45. Paper bags production volume in Russia in 2005-2008, million units

526,1

563,7

595,1

552,0

480500520540560580600620

2005 2006 2007 2008

Table 53. Paper bags production volume in 2006-2008, million items

Month 2006 2007 2008 2008/2007, %

January 32.4 46.7 47.6 102

February 36.8 44.1 46.4 105

March 46.5 52.6 55.9 106

April 48.4 51.3 57.6 112

May 54.1 52.8 61.4 116

June 57.9 56.2 60.6 108

July 59.6 59.8 53.3 89

August 60.1 65.3 39.5 61

September 49.8 55.7 42.9 77

October 45.5 43.9 36.6 83

November 38.8 34.6 28.9 83

December 33.9 32.3 21.4 66

Total for the year 563.7 595.1 552.0 93

Chart 46. Regional pattern of paper bags production in Russia in 2008, %

6110

7

5

33 2

2 7

Republic of Karelia

Arkhangelsk region

Sverdlovsk region

Republic of Bashkortostan


Tomsk region

Moscow region


Other regions

Table 54. Paper bags production volume by major pulp and paper companies, million items Enterprise Region 2006 2007 2008 2008/2007, %

Segezha pulp and paper mill OJSC Republic of Karelia 0.0 182.1 338.1 +86

Ilim-TNP LLC Arkhangelsk region 77.8 64.8 53.6 -13 Novolyalinskiy pulp and paper mill LLC Sverdlovsk region 0.0 40.5 36.9 -9

Selenga pulp and paper mill OJSC Republic of Buryatia 16.9 16.8 17.7 +5

Mariyskiy pulp and paper mill OJSC Republic of Mariy El 6.0 7.1 8.1 +14

YuI 78/3 GUIN Russian Ministry of Law in Ulyanovsk region unitary enterprise

Ulyanovsk region 4.2 5.0 4.6 -7

Tatlesstroy LLC Republic of Tatarstan 5.1 4.1 4.3 +4 OSh-25/5 GUIN Russian Ministry of Law unitary enterprise Republic of Mariy El 0.4 0.3 0.3 -7

Chart 47. Paper packaging export volume fluctuations in 2005-2008, thousand tonst

2117

28 25

05

1015202530

2005 2006 2007 2008

Chart 48. Regional pattern of paper packaging export from Russia in 2008, %

26

14

1376

6

65

3

14

Republic of Karelia


Novgorod region

Kaliningrad region

Moscow

Kurgan region

kaluga region

Arkhangelsk region

Sverdlovsk region

Other regions

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