Negative margins in the paper industry likely to trigger price hikes; paper mills increase prices across all WPP grades

Negative margins in the paper industry likely to trigger price hikes; paper mills increase prices across all WPP grades

- While the demand remains steady, the margin having gone in negative space
- Paper mills have increased prices by Rs. 3 to Rs. 6 per kg in December across all WPP grades to ensure the sustainability of their operations and align with rising costs. 
The Pulp and Paper Times

In 2024, India's demand for printing and writing paper has shown robust growth as markets continue recovering from pandemic-induced lows. However, the industry faces challenges from regional overcapacity, with Asian producers increasing shipments to India and intensifying competition in export markets. The Indian Market did expand at a growth rate of approximately 3-4%. However, life has not been organic at multiple levels.

Bilt Graphic Paper Products limited (BGPPL) informed in its circular dated December 23 to all channel partners and dealers that in the past year, while we didn’t see any significant capacity additions in W&P grades. However, one of the outlier variable has been Wood, resulting in steep increase in the cost of raw materials. There is almost Nil margin for an integrated player at these Wood prices. Infact the margin is negative when we look at the marginal cost of Wood(Imported Chips). This is forcing some of the players to run Pulp Mills below the capacity.

“Firstly, prices experienced a decline of ~15% in Coated and ~ 20% in Uncoated from its peak this year, with a relatively sharper drop during the later half of the year, leading to commoditization of prices. Additionally, the Market share dynamics between Domestic and Imported products have undergone noticeable shifts, particularly when you zoom into the Product-Mix. We also observed that larger customers further consolidating their positions, especially among Uncoated WF converters. Furthermore, the scholastic sector, a significant consumer of Paper, experienced structural changes influenced by the New Education Policy (NEP),” BGPPL said in the circular. 

Talking to The Pulp and Paper Times, Ms. Beth Lis, VP-Asian Paper and Packaging, Fastmarkets (RISI) said, “I agree that oversupply will remain a dominant force in Asian markets in 2025. Demand prospects in many Asian markets in the first half of the year will remain dampened due to sluggishness in China’s economy as it continues to grapple with the headwinds from the ailing property market as well as cautious consumer spending.”

With the upcoming notebook, publishing season & tender orders, WPP segment expects a boost in demand, which may create upward pressure on prices. “We are planning to increase our price by Rs.1500 - Rs.2000/per mt by way of reduction in Trade Incentive. Increase will be applicable on despatch basis.” West Coast Paper Mill said in its circular.

BGPPL further said, While the demand remains steady, the margin having gone in negative space for the industry is certainly going to trigger a Price increase. The question is When and by How much.
Rating agency CRISIL has already predicted that operating margin of writing and printing (W&P) paper manufacturers is set to contract 400-500 basis points (bps) to 15-16% this fiscal — following a similar correction last fiscal from the unusually high level of fiscal 2023 — driven by costlier hardwood and softwood (key inputs to make pulp, the primary raw material) and softening realisations.

Paper mills have increased prices by Rs. 3 to Rs. 6 per kg in December across all WPP grades to ensure the sustainability of their operations and align with rising costs. 

“The increase in imports over the two years largely came from rising imports of uncoated woodfree paper from China and Indonesia, with some gains in coated grades as well. Our estimates show India’s net import share stabilizing in 2024. Exports have shown some resilience this year and imports continue to rise, but with growth in demand as well, the net import share has not changed,” Ms. Beth added.

“Further, revenue is projected to decline 2-3% this fiscal (on-year) — after a price-led decrease of 6-7% last fiscal — largely reined in by subdued realisations,”

“Operating margin is poised to recover 300-400 bps to 18-19% next fiscal, as increased plantations over the past two years will improve supply and, consequently, drive down domestic wood prices.” According to CRISIL.

“There will be a further increase in the price of our W&P Grades due to Rising Demand and Escalating Input Costs,” a paper mill said in its circular. 

“While demand is growing in India, other Asian markets like China are experiencing low demand and oversupply. This has led to higher import volumes at competitive prices, which pose challenges for the domestic WPP market. However, price corrections in market pulp and waste paper are promising and can support local producers,” Mr. Rajat Sarkar, Research Manager ( Asia Pacific) at Resourcewise told The Pulp and Paper Times exclusively 
 

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