Growing packaging board capacity in China and Indonesia will likely sustain price pressure over the next few months, says Mr. A S Mehta of JK Paper

Growing packaging board capacity in China and Indonesia will likely sustain price pressure over the next few months, says Mr. A S Mehta of JK Paper

Key Points of Interview:

-While many major wood-based paper mills in India have resorted to importing wood or chips amid the current wood crisis, we have limited imports and are dependent on local sources
-We optimize our best possible product mix to sustain business volumes while maximizing sales realization”
-With the new mill (BCTMP) in operation, our reliance on imports will decrease to ~ 40,000–50,000 MT of pulp annually. Besides, price volatility, this reduction in imports is expected to reduce forex exposure by over $50 million per year”
-The local manufacturers produce virgin paper, which is required for recycling at least 5-7 times and unless we have virgin paper what will be recycled?
In an exclusive interview with The Pulp and Paper Times, Mr. A. S. Mehta, President and Director of JK Paper Limited, shares his insights on several topics, including paper prices, demand forecasts, and the import and export of paper. He also discusses JK Paper’s future growth strategy, expansion, and product quality. Here is the full interview:

The Pulp and Paper Times | October 2024:

Q: Please provide a brief introduction to JK Paper Ltd.

JK Paper Ltd is one of the leading companies of JK Organization, a prominent business house of India founded over a century years ago. We are one of India's leading paper manufacturers, known for producing a wide range of quality paper products, including writing and printing papers, packaging boards, and coated papers. We produce paper products via “social farm forestry” without harming a single natural forest tree.

The company possess three state-of-the-art manufacturing units of Paper and Paperboards in India with our present installed capacity 7,61,000 million TPA, nine corrugated conversion units, two mono-carton units and one unit for label with combined capacity of 3,20,000 million TPA.

The company has a significant presence in the Indian paper industry and exports its products globally. We have a worldwide footprint with customers in over 60 countries covering USA, Middle East, Europe, South-East Asia, and Africa. In India, we provide services to our customers through an extensive distribution network with 4000+ touchpoints.

Q: JK Paper has achieved remarkable success, recording its highest-ever total sales of 7.94 Lac MT and a consolidated turnover exceeding INR 7,000 crore for the fiscal year 2023-24. What factors contributed to this impressive growth despite global uncertainties?

 Despite significant uncertainty in both global and domestic paper markets, JK Paper achieved record sales and turnover, driven by several factors:
 Strengthening customer relationships through engagement programs with packaging board converters, printers, publishers, jobbers, and stationers.
• Expanding reach to towns with populations under 100,000 through our retail channel initiative.
• Maintaining market leadership through product differentiation, high quality, and a customer-centric approach.
• Developing new products to meet evolving market demands and tap into emerging segments.

Also, until the third quarter of FY 2023-24, shipping costs were rising due to the ongoing Red Sea crisis and container shortages, which significantly affected import volumes from major manufacturers. The growing demand in the Indian market was subsequently benefitted to Indian manufacturers.

Q: Prices for various grades of paper, such as WPP, SBS, FBB, copier, duplex, and coated paper, have been rising since April due to the Red Sea crisis and increasing pulp costs. Do you believe the market is absorbing this steep hike in paper prices, especially with the availability of cheaper imported paper?

Global logistics costs & pulp costs have risen sharply, with some of the burden passed on to customers and the major portion of it are absorbed by OEMs. A slowdown in market demand in many developed countries across world has led major big manufacturers especially in China & Indonesia have started shifting their products to markets like India, where demand remains relatively stable & growing compared to many big nations across geographies. This has put pressure on domestic mills to lower their prices, as cheaper imports are gaining ground due to this disparity. It may pose a threat to the industry and some Mills may decide to shut the operation as they will become unviable.

Q: A significant challenge for a paper mill is protecting its margin, as raw materials, pulp, coal, and chemicals are price-sensitive, impacting profitability. How does JK Paper protect its margins, particularly in the pulp and raw material segments? What new initiatives has JK Paper undertaken to increase raw material availability?

As an organization, we have developed a long-term strategy for raw material procurement, with rising wood and pulp prices being a key challenge. We have been actively working with local farmers and investing substantial time and resources in our plantations department to reduce dependence on external states and expand plantation coverage. As a result, the company has achieved 140% plantation coverage of its own requirements. While many major wood-based paper mills in India have resorted to importing wood or chips amid the current wood crisis, we have limited imports and are dependent on local sources.  Additionally, we prioritize research and development to produce fast-growing clones and seedlings, which not only increases farmers' incomes but also helps us control wood prices by enhancing yields per acre.

Our imported pulp supply has been diversified by working with multiple suppliers from various regions around the world. This approach minimizes supply disruptions and mitigates risks from local issues. Our fuel supply agreements with a Coal India subsidiary near our manufacturing sites ensure a steady supply at competitive prices while keeping logistics costs low. We also establish long-term annual contracts for essential materials like coal, pulp, and chemicals to secure continuous supply. Our plants are strategically located in three regions of India, close to ports, which helps reduce logistics challenges for imported input materials. Additionally, we maintain strong relationships with all our suppliers, facilitating smoother operations during critical circumstances.

Q: Please provide an update on the latest developments at your company, including future expansion and modifications.

At JK paper, business excellence is always at priority level for efficient & effective processes for optimizing value chain management. Some of the major initiatives at the organization level include :
1) “BCTMP Pulp Mill” to reduce our dependency on imported pulp
2) Continuous Drive on Digitization to optimize our business processes
3) Developing clones having faster yield in Plantation Area.

Q: Oversupply in the market is likely to continue in FY25, as market growth is lower than the capacity being added by domestic and international mills. How will you protect your margins from these new capacities?

Our strong commitment to enhanced customer engagement allows us to stay ahead of the curve. This is further supported by extensive coverage through our channel partners, enabling us to reach even the smallest towns.

We streamline product costs without sacrificing quality, ensuring the strength of our brand image and recall. Additionally, we optimize our best possible product mix to sustain business volumes while maximizing sales realization.

Q: Please evaluate the pricing scenario for the WPP and packaging board segments over the next 4 to 6 months for our readers.

The market is highly volatile, with changes in the global landscape directly impacting the domestic market. Given the additional growing capacity in the packaging board segment especially in China and Indonesia, we anticipate continued price pressure over the next few months. In the writing and printing paper (WPP) sector, weak & lower global demand is leading to an influx of material into India where demand remains stable, creating further pricing pressure among domestic mills. However, the upcoming six months will coincide with the printing season, which is expected to bring some stability in both prices and demand.

Q: JK Paper’s Board has approved an INR 650 crore investment for the establishment of a Hardwood BCTMP plant at Unit CPM in Gujarat. Could you shed some light on the startup of this plant and how it will address price volatility, as well as reduce the company’s dependence on external sources for supply?

The BCTMP pulp mill is scheduled to start operations in the third quarter of FY 2025-26. Currently, at JK Paper, we are importing ~1.5 lakh tons of BCTMP pulp, which includes both hardwood and softwood varieties. With the new mill in operation, our reliance on imports will decrease to ~ 40,000–50,000 MT of pulp annually. Besides, price volatility, this reduction in imports is expected to reduce forex exposure by  over $50 million per year.

Q: The Indian government is aggressively promoting the use of hydrogen in industrial processes, which could reduce total CO2 emissions from paper production by 66%. What do you see as the energy future of the Indian paper industry? What recent initiatives has JK Paper undertaken to reduce energy consumption and optimize the production process? Please shed some light on new innovations in the energy field.

The energy future of the paper industry largely depends on the cost of hydrogen production. At JK Paper, “energy consumption reduction” is an ongoing effort, with the adoption of new technologies to optimize energy use. Key initiatives include:

a.Methanol recovery and firing to lower current energy consumption
b. Utilizing biomass energy for power generation, which currently accounts for about 60% of our energy mix
c. Continuous upgrades to energy-efficient equipment

Q: What is JK Paper’s projection for the overall growth of the Indian paper industry over the next five years?

Various segments of the Indian paper industry are projected to grow or decline at different rates in the coming years. Shifts in demand patterns, coupled with high volatility and evolving market behaviours, are influencing domestic paper consumption. These disruptions create opportunities, with first movers positioned to benefit the most. According to IPMA figures, the Writing & Printing (W&P) segment is expected to grow at a CAGR of 2.9%, while the Packaging Board segment is anticipated to grow at a CAGR of 7.2%.

Q: This might be a difficult question for you. According to FPTA’s past president, Mr. Aseem Bordia, every ton of finished paper imported into the country provides 5-7 times the fiber for remaking paper. He argues that the suggestion of providing protection (in terms of imposing safeguard, anti-dumping, and countervailing duties on imports) to domestic manufacturers is illogical and should not be considered. How do you respond to this claim?

In fact, what Mr Aseem Bordia, Past President of FPTA has said is misplaced and it seems that there is a vested interest in promoting import of paper which is totally against the interest of not only the domestic manufacturers but also the trade. The local manufacturers produce virgin paper, which is required for recycling atleast 5-7 times and unless we have virgin paper what will be recycled? In the longer run, if we become import dependent, we may suffer from volatility not only in pricing but also in availability, as the overseas player will act on transactional basis and take full advantage being opportunistic.  As is being seen from the last few years, every country is protecting their own manufacturing sector then why not India?

Q: Is there any message you would like to convey to the Indian paper industry?

With increasing imports from major manufacturers in Indonesia, China, and other countries, it is crucial to protect Indian paper mills through government support initiatives. The pressing need is to implement anti-dumping duties on paper and paperboard products to safeguard the domestic industry.
 

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