The paper industry may recover its losses from the next quarter due to an expected rise in demand because of robust industrial and economic growth. The industry was suffering from overcapacity, low demand and competition from cheap imports. While no fresh capacities have been added in the recent past except in the writing and printing paper segment, analysts hope the demand to improve soon.
“Volume growth has been lower this year due to softening of economic growth earlier this year. But with an improvement in growth prospects, demand for paper should pick up. Moreover, we have been able to improve margins and even though there has been a fall in product prices, it is lower than the decrease in cost of inputs,” said V Kumaraswamy, chief financial officer, JK Paper.
Paper industry is hoping for better days ahead. “The worst is over for the paper industry. The robust economic growth and strong corporate performance would boost the domestic demand in the near term,” said Saurav Chatterjee, Senior manager, Credit Analysis and Research Ltd. (CARE).
He said there was a direct correlation between the country’s GDP growth and the demand for coated and kraft paper which has a 50 per cent share in the total volume of the paper industry. Writing and printing paper share is 30 per cent and balance is newsprint paper.
Cheap import of kraft and coated paper from China and Korea had adversely affected Indian paper companies as their products prices were higher compared to the cost of imported paper. After the government increased the import duty on kraft paper, the segment stabilised but problem continues in the coated paper segment. Industry sources said the government is considering whether Indian companies need duty protection or not.
“The market is tough due to overflow, especially in the writing and printing category. We hope the new capacity to get absorbed in the next one or two quarters”, said Shreeyash Bangur, director (Corporate), Andhra Pradesh Paper Mills.
“A numbers of paper mills have expanded and the new capacities have come at one go. But there will be a lag in demand (writing and printing paper) and it appears that there is an overcapacity situation. However, the situation should normalise in the next two quarters and the industry will see an improvement in demand,” said B Hariharan, director (Finance) at Bilt, the country’s largest paper producer.