Paper firms raise prices by 2-3% due to increase in raw material costs

After nearly three years of stagnation, paper prices have started firming up. 

After a good FY18, companies have again raised prices by 2-3 per cent in the current financial year due to increase in raw material costs. 

Industry official said global players have taken a price hike of 6-8 per cent in the past one and a half months and the rupee has also depreciated during the same period, which gives Indian companies room to hike prices.

Manufacturers have said that in 2019-20, the price is expected to head northward as raw material cost is likely to continue its rising trend. 

Starting fiscal 2014, prices remained almost stagnant on an annual average basis, according to CARE Ratings data. This is due to high imports, stabilisation in wood prices and lower power and fuel cost. However, beginning March, the companies have increased prices as they are not able to withstand the raw material rates.

For example, pulp prices, which is a primary raw material, alone rose by 40 per cent after China banned the use of mixed grade waste paper and the demand for wood pulp (natural fibre) increased with this. 

Major pulp exporters such as Indonesia, Malaysia and Chile diverted pulp to China at a higher price.

Moreover, prices of recycled paper, fuel, chemicals and other costs also increased. “We don’t have a choice but to increase the price since the cost of production has increased,” said J P Narain, chief executive officer, Century Pulp & Paper at Century Textiles & Industries.

On the whole, manufacturing cost rose by Rs 5,000 a tonne to touch Rs 48,000 a tonne now while the overall price increase was only around Rs 3,000-4,000. The balance is being absorbed by the industry, which is already seeing pressure in earnings before interest, tax, depreciation and amortisation (Ebitda), he said. 

In the past five months Ebitda has dropped to 14-15 per cent from 18 per cent and further a drop is expected.

“It is difficult to maintain prices and we need to increase it further,” said Narain.

A S Mehta, president, JK Paper Ltd, said the company had increased price in April and May on many product categories. For example, price of Maplitho was raised around 2-3 per cent while some categories of copier have seen price increase of around 1.5-2 per cent without increasing prices in some other category. In the coated paper, price increased was around 3-4 per cent. 

During an analyst call, he hinted in FY19 that the price hike could be in the range of 2-3 per cent. “I do not feel any necessity of doing a price correction in the domestic market. Yes, the packaging board is one product category where the margin is very low because there is a cost push of the pulp prices. But again, we need to see the demand-supply scenario and also the prices in the market...”, he said.

He added, if the domestic prices go up too steeply, then it will be an invitation to the foreign players to come to India.

As far as the margins are concerned, he added since global pulp and paper prices are higher now, domestic manufacturers have some advantage of pricing these days.

Manufacturers are hoping they would be able to increase the price because it is in a positive outlook right now. 

Mehta said India is going to be the fastest growing paper market and the growth trend should remain in the next 5-10 years in the band of 5-6 per cent, on an average. 

India is the only market, which is growing at 6% in the paper segment. While China is seeing an average growth of 2 per cent, all other markets are hardly at less than one per cent growth. Overall, global growth rate is also assumed to be one per cent, which makes India very attractive from the perspective of demand.