Paper producers feel the heat as prices fall

The margins of paper producers are under tremendous pressure due to rising raw material prices and lower realisation from their customers resulting in stocks being sold at discounted prices.

In the raw materials segment, pulp prices have gone up by almost 8 per cent over the last four months, while waste paper prices have surged by 5-7 per cent in the period under consideration.

Prices of waste paper have surged by $15 to $180 per tonne today from $165 per tonne four months ago. Similarly, pulp prices have also gone up in Europe to $ 730 per tonne.

About 70 per cent of the country's pulp consumption is met indigeneously, while 30 per cent is imported. India imports about 600,000 tonne of paper waste every year from countries including US, Europe and the Middle East. Producers of writing, printing and newsprint are feeling the pinch from both sides.

The end users are not ready to accept another price hike due to falling paper prices internationally.

The paper prices have subdued by almost 3 per cent due to supply boost from China and presently ruling in the range of $580-620 per tonne depending upon the quality.

In contrast, prices remained stagnant at Rs 27 per kg in the domestic markets during the period under consideration offering a tough time for producers to maintain the margin.

"Paper industry is known for lower margins, which vary between 5 and 6 per cent. In the wake of this, a price rise of up to 8 per cent in raw materials may change the entire dynamics of producers," an analyst said.

India's paper demand is growing at a combined growth rate of 8 per cent with the present installed capacity of 6.45 million tonne. The demand is estimated to grow to 8 million tonne by 2010 and 11 million tonne by 2015, which would mainly be driven by the "education for all" programme by the government.

There are 525 paper mills in India with an average production per mill stands at 12,210 tonne. About 38 per cent of total demand comes from cultural paper (creamwave) while 58 per cent arises out of industrial paper sector.

The rest 4 per cent comes from speciality paper, including coated paper, tissues, posters, one time carbon (OTC), cheques, drafts etc.

"Albeit few companies, we have not randomly raised the prices across board. We are waiting and watching. But, the scenario is testing our patience perhaps," said R Narayan Moorthy, secretary general of Indian Paper Manufacturers Association.

India is facing an alarming shortage of raw materials including baggasse and agri-residues due to their adequate use for co-generation.

"We have made several presentations to the government including the finance minister to take a holistic view on the entire aspects for the economic viability of paper mills in India. But, we are still awaiting for an assurance," Moorthy said.

"If the plant would not be profitable in India, why industrialist would not look for options abroad?" Moorthy asked.

Local millers have started clearing stocks at discounted price with Balkrishna Papers have reduced the price between Rs 500 and 700 per tonne for December. Market prices of copier paper is also said to be subdued and prices are down by Re 1 per packet which is quoted about Rs 110 -111 per packet.

Early next year, season for school books and stationery will start and mills are waiting to see how the demand comes. Some traders expect the price to rebound in the next month anywhere between 3 and 5 per cent.