Fairly small but considered to be one of the fastest growing in the world, the Indian paper industry continues to give mixed signals as its public utterances emphasise the numerous challenges it faces. The main culprit in a country that is fibre-scare, is the mounting prices of key inputs, such as wood pulp and fibre, which are eating up the profit margins of paper mills.
Big mills like JK Papers and Seshasayee Paper are apparently suffering from low profit margins and talking about passing on the burden of increased input prices to printers and print buyers. International paper companies, such as International Paper which recently acquired APP Mills in South India, think that the capacity to absorb rising input prices depends on operational efficiencies to a large extent. Nevertheless in the current scenario, it is highly likely that paper prices in India will rise in the near future.
Although the customs duty on waste paper has been reduced to zero in the new budget, a cause of concern for the paper industry is the import duty on wood pulp and increasing paper imports from China. As per IppStar’s research, Indian export of paper is not very significant ranging between 500,000 to 600,000 tonnes, while in 2010-11 Indian paper imports exceed this amount by more than four times. This situation can be improved if the Indian government adopts an industry friendly forestry and pulpwood plantation policy so that reliance on pulpwood imports can be reduced and paper mills can become more competitive.
According to the industry experts, such as Harsh Pati Singhania managing director of JK Papers, and Paul Brown president of International Papers, the long term growth prospects of the industry are very promising. Beyond its acquisition of APPM, International Papers is willing to acquire more paper mills in India and most of the top paper mills, such as JK Papers, BILT and Century are in a huge capacity expansion mode to cater to the growing paper demand.
The large expansion of the top paper companies validates forecasts of significant paper demand increase in the next five years. In addition, the per capita consumption of paper is still very low in India (published figures are generally around 11 kg) as compared to the world average that is assumed to be around 55 kg. Moreover, the main growth drivers of paper demand in India are packaging industry and education sector coupled with the growing middle class.
In the past two years, the capacity of the Indian paper industry to produce printing and writing paper has increased by more than one million tonnes. Therefore, it would be in the interest of its customers if the paper industry succeeds in dealing with rising prices of inputs by increasing efficiency and minimizing wastages. This in turn may further increase the paper demand in the Indian market and make the paper industry more competitive.