The domestic paper industry is facing onslaught of depreciating rupee against the dollar, forcing it to shift the burden to consumers through higher prices.
Industry officials said the paper industry is expected to suffer a loss of 0.4-0.5 % in their earnings for every fall in the rupee value but the percentage will vary depending upon their extent of indigenous use.
The rupee has depreciated over 23 % against the dollar till yesterday in the current financial year. However, it has recovered 2% in the morning trade today to stand at 65.54 against a dollar.
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Officials said coated papers are most sensitive to the fall in the rupee value as bulk of the coated paper is imported from outside.
“In coated paper almost 40 % is imported, but there are companies which have less amount of imports as well. Therefore, the impact of rupee fall will be based on the extent of indigenisation,” V. Kumaraswamy, chief financial officer JK Paper Ltd told Business Standard.
To insulate themselves from the impact of falling rupee, companies have hiked their domestic prices. Officials said already paper producers have raised their prices by around 5-8 %. Annually around 550,000-600,000 tonnes of coated paper is imported into India.
While Ballarpur Industries and Tamil Nadu Newsprint and Papers have decided to implement the price rise from September 1, JK Paper has already raised the prices of most of its products.
Despite little movement in pulp prices in global markets, its import cost has increased in proportion to the rupee's depreciation.
In July, the average price of pulp remained unchanged at $832.02, after a 1.84 % rise in June.
“ In packaging board and waste paper imports too, there could be some loss too as the import component in this is also high,” another official said .
Apart from across the board price hikes to minimise the impact of falling rupee, some paper companies are planning to increase their domestic sourcing and looking for newer export markets.
“The paper industry will also have to expand its export basket and include more countries, which though difficult is the need of the hour and manufacturers will have to consolidate their existing markets,” Kumaraswamy said.
He said expanding to markets like US and Europe is difficult as it is too far. Indian paper is largely exported to South-East Asia, Africa, Sri Lanka and Bangladesh.
He said expanding to markets like US and Europe is difficult as it is too far. Indian paper is largely exported to South-East Asia, Africa, Sri Lanka and Bangladesh.
K.L. Chandak, executive director of West Coast Paper Mills said that paper mills which have outstanding loans in dollar will also get hit because of the fall in rupee as their repayment schedules will go awry.
“There are around 3-4 paper mills which have dollar loans, they have to seriously re-think their payment schedule,” Chandak said. He said the industry will either have to face absorb the impact of fall in Indian rupee or pass it on to the consumers.
“Scouting for newer export markets is not a very feasible option as Chinese paper manufacturers are very aggressive,” Chandak said. EoM