International Paper Co. (IP:US), the world’s largest pulp and paper maker, expects costs to rise in Russia as the country’s imminent entry into the World Trade Organization drives up competition.
Russia’s membership, which requires it to cut export duties on timber and curb import taxes on paper products, will push up wood costs at International Paper’s Svetogorsk mill near the Finnish border, said country head Franz Marx. “We’re working on forestry concessions with the Russian government to alleviate the short-term impact,” he said.
Russia, the largest economy outside the WTO, has until July 23 to ratify the protocol for its entry after being invited to join the organization in December. The nation’s membership, set to boost economic output by improving market access and luring foreign investment, may also raise costs for manufacturers amid increasing competition.
International Paper has four pulp and paper mills in Russia, including one that it owns directly and three held through a 50-50 venture with local partner Ilim Holding.
“We feel comfortable with a 50-50 joint venture,” Marx said in an interview in St. Petersburg. “Our Russian partners bring to the table their experience in running a business locally, while we bring global markets access and expertise in big projects.”
International Paper will provide half the $1.3 billion investment that’s earmarked for the Ilim venture’s mill upgrades in Siberia and northern Russia in 2011 to 2012. The Ilim venture is set to become Russia’s first producer of coated paper, used in magazines and catalogs, according to the company.
International Paper produces paper and board for packaging, news and photo printing, and office supply. While demand for office paper is falling 2 percent to 3 percent a year in developed markets following a shift to electronic documents, consumption is growing in the emerging markets including Russia, where it’s the largest paper producer, according to the company.
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