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What do the experts of the “Geoburo” company want to discuss and describe in this article with their clients and readers?

• What are the problems in the forestry industry;
• What actions are foreign owners of forestry plants taking;
• Which foreign manufacturers of the pulp and paper industry have left the market;
• Prospects for the forestry industry and the pulp and paper industry in 2023-2024.

The presence of foreign businesses in the Russian Federation may cause a shortage of some forestry products, as a result, in the near future, Russian manufacturers will occupy the vacated niches. The departure of foreign manufacturers is associated with a special military operation on the territory of Ukraine.

What are the problems in the forest industry market:

1. A decrease in quality and an increase in the price of products are expected, since the supply of components and consumables has ceased.
2. Many Russian forest industry companies, including foreign companies with production facilities in Russia, are left without sales of products to Europe.
3. Since the largest freight carriers have refused to work with Russia, rates for cargo delivery to Asia have increased.
4. European equipment has become more expensive, manufacturers have begun to focus on Asian and Russian equipment.
5. Chemical shortage. But Russian manufacturers have largely resolved the issue.
6. Spare parts, especially licensed units of equipment not manufactured in China. If the issue is not resolved, some enterprises may close.

Actions of foreign timber industry companies in Russia:

1. Swedish IKEA.
   The company ranks first in terms of production volumes among Russian wood processing companies. The company owned wood processing plants in the Leningrad, Novgorod and Kirov regions. The total capacity of IKEA plants is 500 thousand square meters of sanded chipboard, 25 million tons of laminated chipboard, 190 thousand cubic meters of sawn timber, 50 thousand tons of pellets and 25 thousand cubic meters of furniture per year. Today we know who the buyers are: the government has approved a deal with the manufacturers of decorative coatings and interior furniture from St. Petersburg “Slotex” for the sale of a plant in Novgorod and one of the leading wood processing enterprises of Komi, “Luzales”, which acquired plants in Tikhvin and the Kirov region.
2. Mets Group.
   The Metsä Svir sawmill, owned by the Finnish Metsä Group, also suspended operations in July 2022, with a capacity of 280 thousand m3 of sawn timber and 150 thousand tons of chips. The plant is currently not operating, but is not up for sale. On the other hand, according to Lesprom Network, Metsä Group’s logging company Metsä Forest has launched production, reducing volumes.
3. Stora Enso.
   Stora Enso left Russia, selling the Setnovo plant and the Setles plant with a total capacity of 350 thousand cubic meters of sawn timber and 65 thousand tons of pellets. The buyer is unknown.
4. Mayr-Melnhof Holz.
   At the beginning of 2022, Mayr-Melnhof Holz sold the MM Efimovsky plant in the Leningrad Region with a capacity of 380 thousand cubic meters. m. of sawn timber and 58 thousand tons of pellets, the buyer is Aspek Les.
5. Kronospan.
   The company continued to operate in Russia, Kronospan owns five plants with a total capacity of more than 1 million cubic meters of OSB, 2 million chipboards and 50 thousand cubic meters of laminated chipboard.
6. Egger.
   The Austrian Egger has not stopped operating in Russia, two plants are operating with a capacity of 873 thousand cubic meters of chipboard, 350 thousand cubic meters of MDF, 15 million square meters of laminate and 55 million cubic meters of impregnated paper.
7. Kastamonu.
   The Turkish Kastamonu plant continues to operate in Tatarstan, with a capacity of 1 million cubic meters of MDF boards and 35 million square meters of laminate. m.
8. Swiss Krono Group.
   Swiss Krono Group with a plant located in the Kostroma region continues to operate, capacity 500 thousand cubic meters of MDF and 700 thousand cubic meters of fiberboard.
9. Iida Group.
   Iida Group owns 75% of the Far Eastern company RFP Group, the production volume is 2 million cubic meters of round timber, 240 thousand cubic meters of sawn timber, 240 thousand cubic meters of veneer, 10,000 tons of pellets.
10. PERI
    German PERI continues to own the Noginsk plant near Moscow, production is operating, capacity more than 2 million linear meters of beams.
11. Hasslachers Norica Timber (Hasslacherles).
    The Austrian Hasslachers Norica Timber is also located in Russia; the company owns the Hasslacherles plant. The capacity is 49.2 thousand cubic meters of sawn timber and veneer logs over 8 thousand cubic meters, chips 89,000 cubic meters and 15 thousand tons of pellets.
12. Several dozen smaller companies have resold their enterprises to their partners in Russia at an option contract price with the condition that they will be able to buy these enterprises before 2030, at the sale price. So-called fictitious or sham transactions, in legal terms. But in fact, in essence, they remain the beneficiaries of these enterprises, retaining hidden control.

Foreign owners of Russian enterprises Pulp and paper industry.

The volume of the international market is growing at an average of 4.1% per year, leaving Russia, European companies are losing their raw material base and production capacity, this will lead to an increase in world prices. At the same time, the Russian market will shrink by 10% in the short term. Growing demand for Russian paper from China, but limits the growth in logistics costs. A recycling fee is being introduced in Russia, so far voluntary.

In 2022, large European packaging manufacturers left the Russian market:

1. Tetra Pak.
   Tetra Pak sold 3 plants with a total capacity of 7 billion units of packaging to local management.
2. Stora Enso.
   Stora Enso owned 4 plants with a capacity of 395 million m3 of corrugated packaging, sold it to Novopak, the founders of which are the management of these plants.
3. Elopak.
   Norwegian Elopak owned the Elopak plant with a capacity of 1.6 billion units of packaging, sold to the management of the plants. (OUR OPINION – under a fictitious contract with an option for return sale after the end of the SVO Russia in Ukraine).
4. Amcor.
   Amcor sold three of its plants.
5. Huhtamaki.
   Finnish Huhtamaki also sold plants to the company Espetina, which belongs to Alexander Govorov and the head of the management company NeftekhimServis Yuri Kushnerov.
6. Smurfit Kappa Group.
   Smurfit Kappa Group The Irish manufacturer announced its withdrawal from Russia, the work of three plants has been suspended, capacity: corrugated cardboard – 220 million sq. m. and packaging – 40 million sq. m.
7. Sylvamo.
   Pulp Invest acquired from Sylvamo – Svetogorsk Pulp and Paper Mill with a capacity of 700 thousand tons.
8. Mondi.
   The Austrian company Mondi sold its packaging production plants to the Gotek group of companies for 1.6 billion rubles, with the exception of Mondi SLPK.

What difficulties awaited foreign companies in selling plants?

Selling foreign companies with large assets has become a difficult task for European owners. Even if a buyer is found, according to existing legislation, the transaction is approved by the Russian government commission for control over foreign investments. At the request of the Ministry of Finance dated December 22, 2022, the sale must be at a discount of at least 50%. As in the banking sector, the sale of large assets in the forestry industry is difficult.
As reported by the Financial Times, due to the need to obtain government approval for the sale of Russian assets, some foreign banks from unfriendly countries were unable to quickly sell their assets in Russia and had to continue their work. Due to the new discount requirement, the sale of assets will be even more difficult. There is an opportunity for corruption schemes.
Austrian Mondi tried to sell the Mondi SLPK plant with a capacity of 1.1 million tons for 95 billion rubles to Viktor Kharitonin, but the government did not approve the deal, since the price was too high.

Prospects for the forestry complex and pulp and paper industry in 2023-2024.

• A shortage of certain goods produced by foreign companies that have left may occur.
• Gradually, import substitution of foreign goods will occur in the vacated niches.
• Some of the currently imported positions will be displaced.
• Russian equipment manufacturers will strengthen their positions
• Asian manufacturers of woodworking equipment will take a larger share of the market.
• The cost of export delivery will fall as routes are built.
• Due to the growth of the global pulp and paper market, the demand for paper and cardboard in the medium and long term will grow both in Russia and abroad.
• Russian suppliers of chemicals will adapt and offer a replacement for foreign chemicals.

Experts from the Geobur company believe that by complicating entry or exit from business in the forestry industry of Western countries, the Russian government stimulates the growth of Russian companies. Also in the big plus when entering the Russian investment market were companies from China, India, Arab countries, Turkey, Iran and former Soviet republics from Central Asia – Uzbekistan, Kazakhstan, Kyrgyzstan and Tajikistan.

The article was prepared by an expert from the company “Geoburo” Kichaev Andrey. 22/08/2024.