Packaging grade paper demand plummeted; silent shutdown by paper mills, the headwind is expected to continue for a couple of months

Packaging grade paper demand plummeted; silent shutdown by paper mills, the headwind is expected to continue for a couple of months

Growth in the eight infrastructure sectors of the economy slowed in March after recovering to a four-month high in the previous month after supply-side disruptions caused a contraction in coal and crude oil output and a slowdown in some others.

The slow growth is mostly due to soaring prices and the subsequent hit to consumer spending and investments, according to analysts. 

At present, the main reason for the continued decline in the market is the huge reduction in the demand of both finished paper and waste paper in the market. The decline in domestic waste collection has been due to the reduction in consumption and use of consumer goods at the domestic level.

“The market is in a very struggling position for the last one or two months, according to me, the world economy is getting disturbed and changes are taking place, and the sales of the products in the core sector have decreased like you see in steel, edible oil, Automobile, and other sectors. The slowdown in demand of core sector is also impacting the packaging grade paper. Recycled Kraft and Duplex demand have seen a significant decrease by registering a price drop of Rs. 10 to 12 per kg in last two months,” says Indian Recovered Paper Traders Association (IRPTA)’s President Mr. Naresh Singhal. 

The Price of Imported OCC waste from Europe and US have dropped to $250 PMT from $ 350 pmt in March. In the current scenario, the price of OCC is expected to be more plummeted to compete with Indian domestic recovered paper market, where the prices of Kraft waste paper is hovering between approx Rs 19/ per kg to a maximum of Rs 21.50 per kg. In March, the Domestic price of waste paper had touched to Rs 32 to Rs 34 per kg in march month.

“The situation is very worse in Gujarat, due to lack of demand, most of the paper mills are not willing to discharge their imported OCC from the port, few indenters and shipping line are selling these goods at a cheaper price say $ 200 or $ 210 pmt to clear the port congestion,” said Mr. Bhavesh Rajput an Indentor of Imported OCC at Gujarat. 

Mr. Singhal further says that Packaging paper distributors, dealers, paper converting industry like box manufacturers, and printers reduced their stocks and inventory expecting more rates declination and also heavy money crunch in the market. It has been observed that all stakeholders in paper trade like paper mills, paper dealers, paper conversing units and also recovered paper traders everyone is passing through the process of price correction since long. Since last week the rates of All grades of recovered paper have declined a lot. There is a number of reasons behind this, but none of them is specific.

There will be no significant change in the demand for kraft paper as there is no possibility of any increase in the demand of consumer goods in July month. Due to short supply of duplex in the market by duplex mills in the past, the demand may remain higher than the current month in July as the stock of duplex is available in very controlled quantity in the market due to good understanding of duplex mills.

“Most of the Duple and Kraft mills Uttar Pradesh and Uttarakhand have taken a shut down since last week to control the damage due to price decrease, and also to hold the price of finish products uptick,” Mr. Singhal pointed out.

Mr. Rajput informed that due to liquidity crunch and demand decrease, paper mills in all across Gujarat are taking silent shutdown ranging from one week to ten days in a month.

“Paper Mills are not interested to place new order for imported OCC at a higher price which is not proportionate to local waste price. Domestic waste paper price is hovering between Rs. 19 to 21 per kg” Mr. Rajput says.

In this regard Kraft paper and duplex board manufacturers have reduced the rates of bottom grade recovered paper up to 10% only in last week

“Monsoon season is running in most of the parts of the country and has to reach soon in rest parts of the country. As per our past track record, we observe that monsoon season is always poor time for recycled paper and recovered paper both” he says.

As the monsoon is approaching, a paper mill does not want to keep the goods in the open, there has been apprehension of catching moisture due to rain.

Sluggish demand of finished has further dropped the US and Europe’s OCC prices by $30 per metric ton.

“As per our past observations, I feel, market trends will almost remain same or can very within the range of+_4/5%  till the end of the first week of August. It's my personal opinion.” Mr. Singhal said

While the readings have broadly come In line with expectations, the outlook remains clouded with uncertainties especially with escalating crude oil prices. Further, weak labor markets, limited ability on additional fiscal spends, reduced corporate margins due to rising input prices and weaker global demand remain a concern," said Upasna Bhardwaj, economist at Kotak Mahindra Bank, reported in leading daily.

Recovery in India’s domestic macros have been resilient to risks arising from global developments; however, supply-side challenges and inflation spikes, which could dampen consumption and investments in the economy, poses near term risk to India’s economic growth

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