Paper companies building fast in Eastern Europe and Russia.

Eastern Europe and Russia have become important growth markets for pulp and paper. From a relatively small base, paper consumption and the machines that supply it are growing fast.

Recent startups of new machines and new mills in Eastern Europe and Russia have been carried out by local industrialists. In addition, announcements for new machines have been made by myriad companies in Eastern Europe and Russia, including local companies, government owned entities, Pan-European firms and partnerships between various groups. Clearly, the ownership base is expanding.

With larger investments, partnerships typically come into play. A good example is Estonian Cell, where the partners are Larvik Cell Holding (Norway), Heinzel Group (Austria), and the European Bank of Reconstruction and Development. The Group's plan is to build a 140,000 metric tons/yr greenfield mill in Kunda, Estonia to produce chemi-mechanical market pulp. Another major project is the Amazaraski Pulp Mill in East Siberian Chita region in Russia, where a 400,000 metric tons/yr unbleached kraft pulp mill is under construction. This joint venture is between Heilongjiang Province in China and the neighboring Chita Region.

Many projects are focused on tissue, where financial investments are more manageable for private companies. For example, Higi Papersoft of Hungary is building a new tissue mill at Baja, and Drenik of Serbia is in the process of starting up its tissue machine in Belgrade after some delays. Lamix of Poland has started up a tissue machine using a second hand Yankee cylinder. Apis of Poland also plans to install a second hand tissue machine at its Chodecz mill. In Bulgaria, Kostenez has plans for a new virgin fiber tissue machine.

In addition to locally owned mills, Pan-European companies are seeking to further solidify their market positions and grow in Eastern European countries. ICT Poland (owned by Industrie Cartarie Tronchetti) will install a large new tissue machine at Kostrzyn with start up expected in mid 2007. In Slovakia, a new joint venture between Paloma and Horgen (a merger of the companies' away-from-home tissue businesses) has led to a joint project to relocate and start up two second hand tissue machines in Cersak, Slovakia. In addition, Metsa Tissue has rebuilt its mill in Warsaw, Poland.

Global paper and board producers International Paper and Mondi have publicly announced investments and plans in Eastern Europe and Russia. International Paper has recently completed rebuilds at its Kwidzyn mill in Poland to increase capacity of folding boxboard and whitelined chipboard. IP's Svetogorsk mill in Russia produces uncoated freesheet and liquid packaging board (340,000 metrics tons/yr) and the mill plans to install a 200,000 metric tons/yr BCTMP line based on aspen in the near future.

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Mondi has a large presence in Eastern Europe, mainly through acquisitions, and has several modernizations underway, including:

* rebuilding the pulp dryer at the Steti mill, Czech Republic:

* rebuilding PM1 at the Swiecie mill in Poland (completed);

* two new woodhandling lines at the Syktyvkar mill in Russia;

* converting Syktyvkar softwood line to ECF bleaching in 2006;

* a new recovery boiler, turbine, and upgrades of the woodyard, cooking plant at the Ruzomberok mill in Slovakia (completed).

Future investment plans in Eastern Europe and Russia cover a wide range of products and markets. The biggest projects are in pulping, SC, coated paper, and linerboard. Intercell in Poland may invest in a 250,000 metric tons/yr testliner and recycled fluting machine. Estonian Pulp (a Norwegian/Estonian joint venture) and the regional government have plans to build a greenfield BCTMP in Northwestern Russia. Myllykoski is going ahead with its new SC machine project (400,000 metric tons/yr) in the Czech Republic.

Note: This article is part of a series by Jaakko Poyry Consulting, Tarrytown, New York, USA, a provider of consulting services. Contact Ms. Soile Kilpi by email at [e-mail], or by phone at [phone].

JAAKKO POYRY CONSULTING