The prevailing mood in the paper industry is sober and the continued growth is good news for the sector, say industry representatives.
Even better, the long-term prospects are bright as education, industry and changing lifestyles will drive paper consumption across diverse varieties including writing and printing and packaging paper. But there is scope to improve the policy environment to support the growth more, they say.
The paper industry has significantly increased capacity particularly in the printing and writing paper segment where close to a million tonnes of annual capacity was added in the last three years. The next round of investments is believed to be in packaging paper.
Madhukar Mishra, President, Indian Paper Mills Association, says the industry has invested over Rs 10,000 crore in recent years contributing to significant growth in capacities. There has been demand growth that has supported the additions to capacity but it has been lesser than anticipated. Paper consumption is directly linked to GDP growth and this is around 5-6 per cent against projection of 9-10 per cent on which the expansions were based.
Greater concern
Spiralling input costs, inflation in controlled and free market input including coal, electricity, fuel and wood are of great concern. The industry cannot fully pass on these costs which are also far higher than global standards. So the environment is ‘financially challenging’ for the present, says Mishra.
Government has to ensure input costs are at viable levels and allow industry set up captive plantations for raw material security and sustained growth.
Another key area of concern is on international trade. Pulp and paper should be kept out of FTAs with competitors. For instance, with the ASEAN region where there is a surplus and products could flood the domestic market, there is talk of FTA with China – this giant is facing anti-dumping duty on paper from US and Europe. It is looking at new markets and “we are sitting ducks.” Similarly, FTA with Europe could be concern for the industry as that region has the world’s largest surpluses in pulp and paper.
Harshpati Singhania, Managing Director, JK Paper, says there are short term challenges, but the medium and long term prospects are good for a variety of reasons. “The demand drivers are all intact,” he asserts.
Room for growth
The low per capita consumption of paper leaves a head room for growth. The policy emphasis on education through private sector and public-private partnership will drive growth, business and communication are on the increase driving demand for a range of paper varieties – office or copier paper, printing and writing paper, bills, invoices, telephone bills, tickets…
Printers are on the increase not just in commercial application but also in homes and shops. The demand for packaging varieties is on the increase as retail sector grows. The FDI in retail will be a further booster to packaging paper demand.
These will contribute to increasing the demand by about 80 per cent or more from the present estimates of about 12 million tonnes.
But the concerns need to be addressed. “Input costs squeeze is a greater concern” than demand slow down which is a short term issue. Raw material availability, primarily pulp wood supply is a matter of concern. A policy on industrial plantations is needed to support industry, which is now trying to push farm forestry and social forestry schemes. “Raw material is clearly an area of concern” as costs and imports increase. “Clearly value addition has to happen domestically and will generate jobs and conserve environment,” Singhania said.
N. Gopalaratnam, Chairman and Managing Director, Seshasayee Paper and Boards Ltd, says at about 12 million tonnes a year, the Indian paper industry is in the 11th place among paper producing countries. The industry is set to reach over 20 million tonnes by 2020. But while there are strong drivers to support this growth, there are major challenges that need to be overcome to realise this potential.
Raw material
The major challenge is access to raw materials including wood, agro residue and reused paper at economical prices.
Cost of these raw materials is rising sharply. Wood prices in India have risen as much as 25- 40 per cent in the last six months. This is a strain on the industry’s margins, and cripples its ability to ‘plough-back’ for enhancing capacity.
The industry needs Government support to help paper mills start industrial plantations to meet pulp wood raw material and to rein in costs to competitive levels. In the absence of this vital support, the industry’s growth will be hampered.
On the environmental front, globally, NGOs are clamouring for minimising paper consumption, maximising recycled paper content, responsible sourcing forest raw material and adopting cleaner production strategies. Indian industry, sooner than later, will have to grapple with these important issues.
More and more people are communicating over electronic media. Are they the most effective environmental choice, asks Gopalaratnam.
An examination of the entire lifecycle will reveal the full impact and performance of both electronic media and paper. Paper is bio-degradable, recyclable and re-useable. Paper has superior environmental footprint and is truly a sustainable industry unlike the electronic media whose raw material, manufacturing and end of life assessment will reveal its doubtful environmental compatibility.
The paper industry is under compulsion to moderate its energy consumption to near- global levels.
The industry has strong rural linkages and given the right support , it can play a significant part in the growth of the rural economy.
Pradeep Dhobale, Executive Director, ITC, says the environment is challenging for the industry. With an annual paper consumption of about 12 million tonnes in the domestic market, even a 5-6 per cent growth in economy represents a significant growth in consumption – about 7 lakh tonnes increase. The capacity expansion by major players such as ITC, Tamil Nadu Newsprint and Papers Ltd, BILT and West Coast, in printing and writing paper, has been absorbed in the market. Demand will be driven by education sector and growth in manufacturing and FMCG companies, which continue to do well despite the economic slow down.