Industry Structure
Corrugated paper categorization in Ukraine is based on the government standard system (GOST-DSTU). GOST 7376-89 covers all categories of corrugated board made from virgin and secondary fiber and utilized for packaging and transportation.
3-ply corrugated board (liner + fluting + liner) is currently the mostly used board category in Ukraine and makes up about 95% of the market (90% of it with profile type C and B, 4.5% with E and F type). The remaining 5% comprise all other types of corrugated board, including 2-ply, 5-ply and 7-ply category. The application of 3-ply type of board comes as a natural solution to cutting cost in food, liquor and candy packaging, providing reliable loading and palletizing solutions, while the country is experiencing the rapid growth of energy and transportation prices along with high inflation and growing salaries. The average price for 3-ply domestically manufactured corrugated board was $0.22-$0.38 per sq. meter.
Ukraine’s corrugated industry fabricates mostly the board grades T 21, T 22, T 23 and T-24. The quality of grades T 25, T 26 and T 27 has not been achieved yet, due to a lack of domestically made virgin fiber sources for liner and fluting. At present time the Ukraine’s prevailing raw material for corrugated board is recovered fiber.
In today’s Ukrainian technical language used by the corrugated industry, the English words “liner” and “fluting” are widely used, written in Cyrillic and replacing commonly used Ukrainian words. Fifteen years ago they did not exist in the standard Soviet engineering ND terminology (ND - Russian language abbreviation for paper industry standards).
Today there are about 70 local manufacturers of corrugated packaging in Ukraine (See Fig. 1 and 2). All companies, which are involved in the manufacture of corrugated packaging, can be divided into four segments:
- Corrugated board and packaging producers making their own liner and fluting, mostly the mills with a full production cycle from pulp to corrugated boxes. There are 7 mills in this group that produced 339 million sq. meters in 2004. With the estimated capacity of 596 million sq. meters the actual output shows only 67% efficiency. However this number grew almost 8% on 2003. At the present time, these integrated Ukrainian corrugated board producers supply about 2/3 of containerboard in the country and rely heavily on imported high quality processing, die-cutting and printing equipment. Here’s the list of mills.
- Rubezhansky KTK
- Zhydachivsky CPK
- Kiyvsky KPK
- Izmailsky CKK
- Tripilsky Packaging Mill (Subsidiary of Rubezhansky KTK)
- Rogan
- Donetsk-Vtorma
- Corrugated board and packaging producers without manufacturing capacity to fabricate their own liner and fluting, buying commercially available raw materials and specializing in corrugated boxes. This group consists of 59 converting plants that produced 95 million sq. meters of corrugated packaging (about 19% of total). Companies like Chizhovskaya BF, Kolopapir, Rososhskaya BF, Miropolskaya BF, Dnipropetrovskaya BF, Cherkastara, Donpak, Ukrvtorresursi, Krimpapir and Ukrtara-VolanPak make up an important local source of corrugated packaging for food industry.
- Corrugated board and packaging producers making boxes for own purpose (2%). These are Donetsky, Dnipropetrovsky and Kharkivsky confection factories, and food supplement producers Dnipropetrovsky and Tekhnikom.
- Corrugated board converters utilizing imported paperboard stock for packaging applications. Those companies heavily rely on the first and second group of suppliers.
The leader of the industry, Rubezhansky KTK , is partially owned (38%)by DS Smith Pls, British leading producer of recycled paperboard and the largest collector and merchant of recovered paper. After receiving $20 million loan from the European Bank for Reconstruction end Development, Rubezhansky mill modernized its PM#2 increasing its capacity for 30,000 ton/year. The mill made over 127,300 tons of liner and fluting in 2004. The company, with an annual production of nearly 170 million square meters of corrugated boxes in 2004, employs 1160 and is currently running an ISO-9001 certified operation in the main mill facility in Rubezhnoe (Lugansk) and the packaging plant in Kiev region.
Paper holding Osnova (the stakeholder of Zhydachivsky CPK and Izmailsky CKK) took second place (105,000 tons of liner and fluting). Zhydachivsky CPK was established in 1970 under the Soviet government driven recycling program. The mill is ISO-9001 certified and makes 3-ply corrugated board T 21, T 22, T 23, T 24, ? 31, ? 32 and ?? 2 with B and C flute. Zhydachivsky uses two Russian made (1996) corrugators LSGKP-2 and LGKP-2S along with process equipment from Curioni, Mitsibishi, Asahi and Martin. The mill is partially owned by Hungarian paper holding Dunapack.
Izmailsky CKK mill was founded in 1964 with the Soviet government intention to utilize vast reed fiber resources in the area near Danube River and started to make first corrugated board in 1969. Currently the mill employs 800, makes 3-ply corrugated board and is the largest user of secondary fiber in this region.
The principal Ukrainian board mill Kiyvsky KBK (Obukhiv, Kiev Region) produced over 95 million square meters of corrugated boxes in 2004, and makes fluting and testliner from secondary fiber. It is gradually closing a quality gap between domestic and imported stuff. This Kiev mill is the largest and most modern paperboard and tissue combine manufacturer outside Russia in the newly independent states ($66 million in 2003 sales) and employs 2,300.
Corrugated Market Structure
According to Upakovka, the leading Ukrainian packaging magazine, 40% of the country’s $0.5 billion packaging market opts for paperboard, with corrugated taking 40%. In 2004 there was 380,000 tons of corrugated board produced in Ukraine with approximately 75% of this amount utilized for packaging. Potential capacity of domestic corrugated manufacturing is estimated to be about 850 million square meters annually.
Ukrainian integrated paper mills form a very substantial part of the paperboard supply chain (See Fig. 4) - from pulp to finished boxes including quality corrugated packaging. This category usually employs a great majority of the local population, carrying a social responsibility by running health and cultural facilities and struggling to make a profit. They also sell excessive liner and fluting to an even larger group of corrugated producers and converters.
Nearly 140 billion square meters of corrugated board was manufactured in 2003 worldwide. Ukraine’s share was only 0.25% of the world volume. The country’s penchant for corrugated packaging is being fed by the rapid growth of the consumer market from food stuff to home appliances. Ukraine is the second largest country in Europe after Russia and used to be the most important economic entity of the former USSR, providing more than a quarter of the Soviet agricultural output. The economic reforms that began after the 1991 separation from Russia were inadequate to ensure a commitment to a Western style business model. With its legal and political corruption, lack of clear tax, legal and licensing laws, strict government regulation and high import tariffs, Ukraine’s economy did not attract considerable foreign investments for much of the 1990’s. In 1990 Ukraine has produced 365 million square meters of corrugated board. By 1996 production fell almost three times to 133 million square meters. However, in 1997 corrugated board production grew 2% and in 1998 the growth was 13%. From 1999 to 2001 the growth has reached 31-33% on the average annual basis. In the recent years (2000-2004) the growth rate fell to 19-21% per year, but the market is still to be considered one of the fastest growing in the world.
Corrugated is gradually replacing all other types of packaging (wood, plastic and metal), with demand shifting to complex packages, multi-layer and micro corrugated board with lamination and multicolor printing (See Fig. 3). Domestic manufacturing is keeping up with this growing demand. Imports make up 2-3% of the entire corrugated market in Ukraine and presently do not play a significant role there.
Market Forecast
The corrugated packaging segment of the Ukrainian market is heavily fragmented and competitive. The producers range from giant integrated mills to small specialized companies using commercial corrugated
board. In order to achieve the lowest level of corrugated board consumption in Europe (about 15 square meter per person), the country should double production. One way of doing it is to increase the utilization efficiency of the existing assets. The other way is to create new state-of-the-art production facilities to manufacture high quality corrugated packaging and specifically automatic lines to make boxes with multicolor printing and advanced die cutting.
In the 1990s demand for corrugated packages in Ukraine has constantly surpassed supply. In this situation, therefore, it was more economical to manufacture finished boxes than to sell corrugated board. However, in the last five years (See Fig. 5) production has surpassed consumption creating the situation when the high end corrugated packaging, destined for export, can be very competitive in the Eastern European markets due to a low labor cost in Ukraine.
At the present time, Ukrainian corrugated board converters rely heavily on imported high quality processing, die cutting and printing equipment. During the communist era of "no frills" packaging, imports from the West were scarce and boxes produced on domestically made equipment were hardly meeting world standards. Today the major Ukrainian corrugated producers and converters use new and second hand process equipment from BHS (Germany), EMBA (Sweden), Bobst (Switzerland), Klett (Germany), Simon (UK), Martin (France) and Curioni (Italy) purchased during the last 10 years. Some of the smaller corrugated box makers buy Asian and Russian made equipment.
Utilization of corrugated board in Ukraine is expected to grow from now until 2015 at about 6% annually, according to the Jaakko Pöyry study. However, the corrugated box market in Ukraine is quite far from being predictable. In 2004 Ukraine produced 570 million sq. meters of corrugated board, 7% ahead of consumption. The Ukraine’s food industry that amounts 70-75% of corrugated packaging in the country is the main driver for the board consumption. Since gaining independence in 1991, Ukraine has put forth considerable effort to regain its reputation as the bread basket of the USSR, and the current growth of the food industry is expected to spawn a growing demand for corrugated packaging.
