Rising fuel and chemical cost may impact the profitability of writing and printing paper producers such as BILT, JK Paper, West Coast and TNPL, in the second half of the current financial year. The cost of pulp, however, has not moved up.
“Production cost will be higher in the second half of the current financial year since cost of inputs such as fuel and chemical has been rising,” said A Velliangiri, deputy managing director, TNPL, which has writing and printing paper capacity of 400,000 tonnes.
The cost of pulp, the main input, has remained steady in the range of $650-700 per tonne, though at much lower level compared to $840 in the first quarter. “Pulp prices were expected to go down to around $500 per tonne, but has remained steady,” said V Kumaraswamy, chief financial officer of JK Paper, adding the impact on profit would not be a drastic one.
BILT, the biggest domestic paper manufacturer, however, said the profit margin would improve since pulp prices were lower. “We do not see pulp prices hardening from here,” said B Hariharan, director (Finance).
The paper industry did well in the April-June period last year. It was able to improve its realisation, while cost had been stable. Most companies were able to increase prices by over 8 per cent. TNPL, for instance, saw a net profit of Rs 93 crore in the period, up 152 per cent from corresponding period in the previous year. Seshasayee Paper saw its net profit move up over 87 per cent to Rs 39.84 crore. JK Paper saw its net profit move up over 33 per cent to Rs 58.19 crore.
The industry is also faced with a capacity overhang nearly one million tonnes in the past two years.
Companies like BILT, TNPL, West Coast and Andhra Pradesh Paper have added capacities most of which became operational in the last calendar year.
“Lot of capacity addition has been done, both in the organised and unorganised sector. There is an overhang of extra supply that will get absorbed in the next year,” said R R Vederah, managing director, BILT.
The industry is also worried about the imposition of high anti-dumping duty on several varieties of Chinese paper by the US. “US has imposed an anti-dumping duty ranging from 25-300 per cent on Chinese paper. Therefore, China may be looking at the Indian market more seriously. A threat is there,” said M L Pachisia, managing director, Orient Paper and Industries.
Chinese imports had forced some companies to take a price cut of up to Rs 3,000 per tonne on coated paper. While they have tried to increase the price by Rs 1,000 from January, there is some resistance from the market. Chinese coated paper is available at around Rs 49,000 per tonne, which is Rs 2,000-3,000 lower compared to domestic price.
The domestic paper industry is estimated at around 10 million tonnes. Of this, writing and paper segment accounts for 3.8 million tonnes, packaging grade paper segment is around 4.5 million tonnes while the newsprint industry is about 1.7 million tonnes.
The domestic per capita consumption of paper is only 9.2 kg, much lower compared to the developing economies. The per capita consumption in China and Indonesia is estimated at 42 kg and 23 kg, respectively. However, all segments of the industry are growing at 8-9 per cent or above.
