Pulp and paper production of Ukraine (2007)

In the end of 2003, 14 leading enterprises and organizations of Ukraine operating on the local market of pulp and paper products created UkrPapir (Ukrainian Paper) Association of Ukrainian pulp and paper enterprises.

Today the Association includes 31 companies:

• OJSC Zhidachev Pulp and Paper Works (Lvov region),
• OJSC Kiev Cardboard and Paper Works (Kiev region),
• OJSC Izmail Pulp and Paper Works (Odessa region),
• UkrPapirProm State Joint-Stock Holding Company (city of Kiev),
• OJSC Malin Paper Factory (Zhitomir region),
• OJSC LvovKartonoPlast (Cardboard Plant) (city of Lvov),
• UkrVtorma (Ukrainian Secondary Resources) Production and Economic Association (city of Kiev),
• OJSC Dnepropetrovsk Paper Factory (city of Dnepropetrovsk),
• OJSC Koryukovka Non-printing Paper Plant (Chernigov region),
• OJSC Poninkivskiy Cardboard and Paper Works (Khmelnitskiy region),
• CJSC KSU TechMontazh (Technical Mounting) (city of Kiev),
• LLC Donetsk-Vtorma (Donetsk Secondary Resources) (city of Donetsk),
• LLC ELO Ltd (city of Kiev),
• LLC August-Ukraine (Kiev),
• Ukrainian Paper Trade and Industrial Group (city of Kiev),
• LLC Interpap (Dnepropetrovsk),
• LLC Malin factory of special paper (Zhitomir region),
• LLC Tetrada (city of Kiev),
• LLC Shkolyaryk (Schoolboy) (city of Ternopol),
• LLC Mechty Zbuvayutsia (Dreams Come True) (city of Kiev),
• LLC Brisk (city of Kharkov),
• LLC Premier-papir (city of Kiev),
• OJSC Ukrainian R&D Institute of paper (city of Kiev),
• LLC Polisvit (city of Dnepropetrovsk),
• LLC Pen Line (city of Dnepropetrovsk),
• LLC Publishing house Podillya (settlement Litin, Vinnitsa region),
• CJSC Poligrafist (city of Kiev),
• LLC OrgBumProject (city of Kiev)
• LLC Trade House Dukat,
• CJSC Perspektiva, and
• LLC Planeta-servis-K.

The goal behind creating the Association is to improve the efficiency of its members, represent and protect their interests, and contribute to the economic and social development of pulp and paper enterprises and organizations in Ukraine. The main direction of the Association’s activities is to develop and implement the complex state program of pulp and paper industry development through 2020 regarding the attraction of investment.

March 21, 2006 the official ceremony of singing the Memorandum of cooperation with the International Financial Corporation has been held, and starting July 2006 activities were held jointly with Jaako Poyry company to elaborate the Development Program for pulp and paper industry of Ukraine and domestic market of cardboard and paper products till 2020.

The work over the Program draft had been completed in 2007.

Jaako Poyry company presented a grounded document, which was prepared on the basis of object analysis of current situation and development prospects of cardboard and paper markets in neighbor countries. The project contains a number of detailed offers upon main development lines. Based on the document received, executive directors of UkrPapir Association has already started drafting the project “Conception for development of pulp and paper industry of Ukraine” in order to obtain state status for this core program.

The members of the Association are the top producers of pulp and paper articles in Ukraine. In 2007, the Association’s members accounted for some 63% of the gross commercial pulp and paper output in Ukraine, 97.3% of print newspaper volume, 85% of offset paper, 97% of box board, and 77% of notebooks.

Throughout 1990-2007 the country has been seeing simultaneous changes in production level, as well as the specific consumption of paper, cardboard, and their articles. Production volumes of 1990 (912 ths. tons) when pulp and paper industry witnessed the highest peak before lengthy period of decline, were outran in 2007 for the first time over 17 years. Aggregate consumption of paper and cardboard items in Ukraine over the last eight years alone has been growing by average 15.0% per annum. It exceeded 1.5 mn tons in 2007. Since the year 2000, consumption of paper and cardboard increased 2.5 times. It is expected that by 2010, paper articles consumption in the country will exceed 2.0 mn tons, of which more than 1.0 mn tons will be provided as imports.

Regarding production, export, import, and consumption of cardboard and paper articles in general and by types (newspaper, offset, sanitary and hygienic paper, packing cardboard, including fluting, box cardboard, corrugated packages, wallpaper, and notebooks), the period under review did not have any negative influence into processes in the industry. Almost every enterprise throughout the year showed stable performance and even more – kept boosting production volumes and improving product quality each month.

In 2007, Ukraine produced 913.8 ths. tons of paper and cardboard, which accounted for 113.9% of the previous year level (802.4 ths. tons in 2006). Companies producing cardboard boxes developed rapidly last year (rates of production accretion was 115%). Production of corrugated cardboard materials expanded by 21.1% and notebooks – by 15.5%.

In the last several years, the limited capacities of the State budget of Ukraine prevented the allotment of government funds to the development of the local pulp and paper industry. That is why, almost all jobs in reconstructing and upgrading working production is conducted by the industry’s companies via current assets, cash from stockholders, and bank loans.

Important event of the past year was commissioning of new equipment at the industry’s enterprises, as well as completion of earlier started technical works of modernization and reconstruction of available facilities.

Hence, in October 2007 OJSC Kiev Cardboard and Paper Works launched the second stage of corrugating plant. It is an independent production complex, which has cutting edge equipment permitting production of the highest quality. The plant installed unique lines of intraindustrial logistics. Facilities of the new corrugator will double current capacity of corrugated sheet production to 250 mn sq. m. They have launched the systems of automatic web-up in drying unit and knurling at cardboard manufacturing machine, which will nearly half the time for loading of the machine.

Donetsk Cardboard and Paper Factory LLC Donetsk-Vtorma is through with complex modernization of paper making production, which will expand the product range, improve quality, and increase output volumes. Further on, ISO 9000 quality management system has been launched at the enterprises since September 5, 2007.

OJSC Rubezhnoye Cardboard Container Works modernized paper producing machine (BDM) No.2, which increased the speed of the machine, reduced steam consumption, and improved quality of the products.

In general, more than USD 140 mn were invested in development of Ukrainian pulp and paper industry over 2000-2007. Major volumes of the investments were forwarded to OJSC Kiev Cardboard and Paper Works, OJSC Rubezhnoye Cardboard Container Works, OJSC Zhidachev Pulp and Paper Works, OJSC Koryukovka Technical Paper Plant, OJSC Izmail Pulp and Paper Works, as well as other largest enterprises of the industry.

By conclusions of foreign experts, Ukrainian market of cardboard and paper products is considered a prospective one from the point of view of investments and real profitability.

Among the problems that pulp, paper, and cardboard producers face is first of all the problem of raw stock supplies to paper and cardboard manufacturing. The problem is not new, and its solution is to create a pulp manufacturing enterprise in Ukraine, however the economic situation in the country yet prevents this step from occurring. Thus, today the primary task is to support the development of the secondary raw stock market – that is, the market of scrap paper. Local manufacturing of paper and cardboard to a great extent is based on scrap paper raw stock. Its share exceeds 80% in fiber composition. For this very reason, companies operating in the industry keep making bulk investments in the system of scrap paper procurement in Ukraine. The state feels deficit of scrap paper at the moment. Commissioning of new facilities will naturally result in increase of consumption and further growth of scrap paper shortage.

The pulp and paper industry of Ukraine has shown production volume growth in the last few years. Meanwhile, reserves of intensive growth are only now available among medium and small businesses. There are almost no opportunities to use intensive factors to increase output volumes at large enterprises.

The main direction of development for local pulp and paper companies in the short term is to reconstruct and upgrade available paper and cardboard manufacturing machinery, improve production processes, and introduce new and more efficient chemicals and technological additives, which will improve quality of finished product.

One should also expect facilitated growth of technologies related to the utilization of local natural resources, including processing of straw, which is practically a free resource in Ukraine.

Today Ukraine’s cardboard and paper products market has plenty of free niches which may be challenging for investor to develop. The most effective directions for investments, as experts from the Association claim, are development of the following materials:

• fiber semis for cardboard and paper production based on utilization of annual crops (including straw, etc.);
• printing types of paper;
• folded paper for form sheets;
• office paper for copiers; and
• bag paper.

Analysis of local cardboard and paper enterprises’ performance as well as the situation with their assets helps determine key problems in the way of further development. The conclusion was that the gradual upgrade of effective assets via so called project financing is the only realistic way to develop effective enterprises of Ukrainian pulp and paper industry over the next several years.

Output of main pulp and paper products in January-December 2007