The fortunes of the Paper Industry appears muted in 2021-22

The fortunes of the Paper Industry appears muted in 2021-22

- Indian Paper Industry will witness highest annual growth of about 6.5% per annum

- Demand is expected to pick up and grow by 11-15% year on year in fiscal 2022.

- Demand for copier paper (~20% of P&W segment) is expected to increase at 3 - 4% CAGR through fiscal 2025

5th July 2021 | The Pulp and Paper Times:

Paper Industry which was one of the worst hit in the wake of the COVID-19 pandemic, has been witnessing signs of revival from Q4 of 2020-21 onwards. However, the escalating second wave of COVID-19 infection poses serious down-side risks to the economy and heightens the possibility of business disruptions - according to a S&P Global Ratings report.

Paper Industry is a significant player in the World Economy. Its annual revenue exceeds US $ 500 billions. World consumption of paper and paper boards grew from 169 million tonnes in 1981 to 253 million tonnes in 1993 and to 352 million tonnes in 2005. Current consumption is in excess of 400 million tonnes. Paper usage has been declining in North America and Europe since 2006 while steeply rising in China and other Asian Economies. About half of the paper produced each year is recycled. (200 million tonnes).

A CRISIL study 

A CRISIL study indicates that demand for P&W paper would fall by a sharp 25-30% in fiscal 2021 because of 1) most of the schools and colleges are shut and shifted to digital based education, 2) fall in demand from office space as majority of them are working from home and also fall in advertising spaces and bill boards, 3) Govt ban on printing & distribution of all kinds of diaries, calendars and festival greeting cards by all ministries, depts & public sector undertaking from 2021 to cut costs and promote digitalisation. 

However, demand is expected to pick up and grow by 11-15% year on year in fiscal 2022 with schools, colleges and office spaces are likely to open and drive the demand.

Going ahead, CRISIL expects demand for P&W paper to grow at a muted 1-3% CAGR and reach 5.5 million tonnes by fiscal 2025. Enrolment of students is expected to increase at a relatively faster pace of 0.5 - 1% CAGR over the next 3 years, compared with de-growth of 0.4% CAGR during the past 3 years. Also with new education policy, coming into effect and a gradual rise in education spend by the Govt (~20% higher spend) and increased thrust on education are likely to support demand for creamwove and maplitho (60-65% P&W segment).

Demand for copier paper (~20% of P&W segment) is expected to increase at 3 - 4% CAGR through fiscal 2025, primarily on account of moderation of spends on stationary by corporates due to focus on digital based commercial. 

Demand growth for coated paper is expected to remain moderate at 1-2% CAGR led by slow down in the circulation of magazines and newspapers.

Paperboard demand is expected to de-grow 4-7% on year in fiscal 2021, on account of muted demand across major end-user industries along with lower export demand (paperboard used for packaging of goods). In fiscal 2020, paperboard demand registered a moderate growth 3.9% on-year due to moderation in demand from FMCG and consumer durables sectors. However, we expect growth to recover to 5-6% CAGR in the next five fiscals to -12.5 million tonne by fiscal 2025. This revival will largely emanate from growth in sectors such as consumer durables, readymade garments, FMCG, pharmaceuticals: and rising penetration of e-commerce during this period.

CRISIL Research expects demand for specialty paper to increase 8-11% on-year in fiscal 2021, driven by strong demand for Tissue paper. “Over the next five fiscals, we expect this segment to grow at robust 10-12% CAGR to -1.8 million tonne by fiscal 2025 from-1.1 million tonne in fiscal 2020. The main varieties of specialty paper are: tissue, decor. thermal fine printing. cigarette, and business card paper.

In fiscal 2021, demand for newsprint is expected to de-grow sharply by 30-35% on account of severe contraction of newspaper circulation and reduction in no of pages. Demand for newsprint is expected to de-grow at 4-5% CAGR between fiscals 2020 and 2025 on account of decrease in circulation of both vernacular as well as English newspapers due to increased smartphone and internet penetration and shift in preference towards e-newspaper.

“Paper 360” (a TAPPI publication) has provided the following sectoral assessment of impact of COVID-19 in the year 2020. 

Printing & Writing Paper 

Printing & writing suffered its worst decline in 2020, with operating rates tumbling to as low as 50% during the worst of the crisis, in the U.S. However, the sector began to recover from Aug 20 onwards. 

Global demand is estimated at 102 million tonnes and an increase of 1.8 million tonnes is expected in 2021. 

In North America, demand was expected to drop by 22.6% in 2020. For the total graphic paper sector, since 2015, nine million tonnes of capacity have closed of which half was converted into other grades.

Packaging Grades 

In the last couple of years, a global downturn in manufacturing followed by Covid-19, has hurt paper & packaging demand. China and Europe have suffered big drops in 2020. 

In 2019, global demand for packaging was 265 million tonnes with Asia accounting for about 40% of demand. In North America, two thirds of demand is for container board which is closely tied to the manufacture of consumer goods. Carton Board is about 25% of the market, balance was met by wrapping and industrial grades. 

There has been a 36% drop in away from home activities in North America. Cup-stock demand fell sharply due to sudden loss of demand from entertainment sector. 

In Europe demand growth is slowing and over-supply is developing with one million tonnes of new capacity added in 2020.

In Asia, Chinese recovered paper policies are changing the way Companies are operating around the globe. Chinese container board production fell by 4 million tonnes in 2020. In rest of Asia, demand has declined but should rebound in 2021. Shifts in retail trade are giving a boost to corrugated demand. 

Overall, an annual increase of 1.5% is expected through 2022. 

Tissue 

Everything, seems to have changed for Tissue market in 2020. 

Consumer Tissue sales boomed while AfH (Away from Home) sales suffered. North America, Europe and Australia were hit hard, because extra capacity was not available to fill demand. In China, excess capacity in the industry helped to increase production even though some mills closed down for about 8 weeks. 

In the short term, in the USA, impact will definitely be positive for the at-home sector. While AfH, suffered most in 2020, the outlook for AfH is still positive. In 2019, global tissue consumption was 40.6 million tonnes, Asia accounted for 39% share of this market. Continued growth is expected in this sector through 2022. 

In western Europe, a growth of 1.8% is estimated in 2020, which may go down to 0.5% in 2021. 

In China, the growth rate is estimated at 6% - 7% in 2020.

Market Pulp 

Pulp consumption growth has softened as frenzied pace in Tissue consumption eases and graphic papers hit a low point in the cycle. In all, in 2020, there is likely to be a 5% collapse in the world paper demand i.e. about 20 million tonnes. Consequently a decline in market pulp demand by around 2.5 million tonnes is estimated in 2020. However, demand is expected to rebound in 2021 and 2022.

While fortunes of the Paper Industry appears muted in 2021-22, according to Poyry, Indian Paper Industry will witness highest annual growth of about 6.5% per annum while China’s growth is projected to be in the order of 5.25%, in the near term. North America and Japan may witness marginal or negative growth. Amongst the various grades, Container Boards, Tissue Paper, followed by Carton Boards will witness higher rates of growth, while growth rate of Coated / Uncoated wood-free Paper is expected to be under 2%.

The extract of above reports is taken from Seshasayee Paper and Boards Ltd’s annual report for FY 20-21

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