The industry is likely to see supply pressure by the end of the year.
The supply overhang in the paper industry, caused by the bunching of new capacities by leading companies such as Bilt, TNPL and West Coast in 2010, seems to be getting over. After having faced overcapacity last year, the industry is likely to see supply pressure by the year end.
“There were many capacity additions last year, but nobody is carrying stocks or operating at a lower capacity. The market is absorbing whatever is being produced. Demand is expected to exceed supply in 2012 and 2013,” said A Velliangiri, deputy managing director, TNPL, which has writing and printing paper capacity of 400,000 tonnes yearly. Others in the industry echo Velliangiri’s view.
“Earlier, pressure on supply was expected to come in 2012-end. However, with the buoyant demand, this pressure is now likely by the year-end,” said V Kumaraswamy, chief financial officer of JK Paper.
During the previous financial year, pulp prices were going up but companies were unable to pass on the full increase to buyers. However, most companies have raised prices thrice this financial year, to pass on the raw material push. More, they are reporting better performance, quarter-on-quarter.
“The fact that companies are able to pass on the price increase from time to time shows the demand-supply gap is narrowing,” said Saurav Chatterjee, senior manager, Credit Analysis and Research Ltd. Companies are also looking at another round of price increase.
Madhukar Mishra, president of the Indian Paper Manufacturers Association and managing director of Star Papers, said the earlier view was misplaced. His own company he said, would look at capacity addition through expansion, since new additions were getting absorbed.
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The domestic paper industry is estimated at around 10 million tonnes yearly. Of this, the writing and paper segment accounts for 3.8 mt, the packaging grade paper segment is around 4.5 mt and the newsprint industry about 1.7 mt.
The domestic yearly per capita consumption of paper is only 9.2 kg, much lower than many other developing economies. The figure in China and Indonesia is estimated at 42 kg and 23 kg, respectively. However, all segments of the industry are growing at eight to nine per cent or above.