Paper manufacturers shredded by lack of policy clarity, pile-up of stocks

Paper manufacturers are burdened with a huge stock build-up as the trade is yet to settle down to normal a fortnight after the shift to GST.

According to a senior executive with a paper manufacturer based in the western region, the stock pile-up could be 900,000 tonnes. Large mills have about 40 – 45 days of material. This is against an estimated domestic monthly demand of about 1.25 million tonnes across all segments of paper. The normal stock is about 15-20 days’ demand.

Lack of clarity among dealers on GST categorisation of a wide range of products, some tax rate issues and the increased disclosure demands under GST which have income tax implication for dealers are some of the concerns for the slow offtake. Traders are getting a grip on things now, say manufacturers.

On the stock exchanges, shares of leading paper mills including JK Paper, TNPL, International Paper APPM and Seshasayee took a beating early this month ahead of the shift to the new tax system. However, they have begun to pick up from the dip.

According to a South-based manufacturer, businesses that handle up to 400 tonnes per day now demand just about 180-200 tonnes. The end user market for paper and related products is more or less intact but the business-to-business segment is severely impacted. Stock build up is an issue for paper mills.

Mills had stopped despatches through most of June as trade demand had dropped ahead of the transition to GST from VAT. The order flow is yet to pick up, the manufacturer said.

There are wide range of categories in paper and paper products and there is a lack of clarity, said the senior executive. For instance, carton makers are not sure if they are in the 12 per cent or 18 per cent category. In Maharashtra the converters are playing safe and opting for 18 per cent hoping they will get a refund if it is in a lower rate.

Elsewhere, others are going with 12 per cent. Also MRP details have to be changed and many suppliers are yet to get GST numbers from the trade.

Enquiries have just started picking up and manufacturers are hoping things could settle down from August. This week “there is a semblance of demand returning,” he said.

It is unlikely that the pipeline stocks will be restored for at least one more month.

Some manufacturers are contemplating a maintenance shut down as they do not have storage space.

Fortunately, this year festivals like Diwali, Dussehra and Raksha Bandhan are coming early and this could help to restore demand fast, he said.