Price volatility has put the paper industry in a lot of uncharted waters

Price volatility has put the paper industry in a lot of uncharted waters

Post May or sometime in June the market should stabilize at some levels and it should continue thereafter actually

An Exclusive Interview of Mr. Hardik Patel, Director – Om Sree Papertek Pvt. Ltd.

March 2022 | The Pulp and Paper Times

Q: How do you review the current paper market scenario?

Currently, the paper market situation is going through a very turbulent time because of increase in energy cost i.e coal prices, vice versa. The electrical cost is also going up. In addition to that there is an acute shortage of waste paper due to international disturbances and of course the vessel not being shipped on time and not connecting on time. So this has put the industry in a lot of uncharted waters which we have never experienced. So right now the cost of the raw material has gone beyond 30- 40% of what we were seeing and the prices of the finished paper have also gone to 30- 40%. So this has created a bit of turbulence in the industry as such. So very uncharted waters right now. 

Q: Due to the acute problem of Imported OCC, how do the Indian paper mills is managing their day-to-day activities like raw material management and paper production? 

See in this condition those paper Mills will be able to survive who actually have a lot of discipline in terms of procuring the raw material. Those Mills who don't have discipline in procuring the OCC from Europe or the other grade from the other part of the world, if there is no discipline in procurement they actually will have a lot of trouble doing it because today if you are producing per se ‘X’ amount of tonnage in a month you need to run with an inventory of two ‘X’. So that is putting a burden on your working capital cycle on your capex everything. So if you are able to manage that kind of an inventory then only you'll be able to assure the deliveries. So there are a lot of Mills who are not able to do that and due to which a lot of Mills are not able to run full time. So we are cutting down on our productions to ensure that we have some OCC to at least finish the orders. This is creating a lot of market disruption actually. 

Q: There is a thought of us, that can all the paper mills form a collegiums / or induct a central nodal agency who will actually buy the imported OCC on behalf of paper mills with a negotiable price? Can the government help Indian Paper Mills in this regard?  

Definitely it is possible because if you see right now India is a fiber deficit country as you already told and the deficiency of the fiber that is that we are fulfilling by importing the waste paper or fiber from abroad. But what is happening is that out of that waste paper that we have got from abroad only 30% of it is again coming back to the cycle and 70% is going into landfills or it is being burnt. So what is happening is that per se, for example, the boxes that come into your house out of that, only 30% of the boxes actually end up coming to the paper industry and 70% actually going to the landfill or the Radiwala who takes it from you doesn't ensure that it comes back to us. So it goes into the landfill or it is burnt out. So that amount of fiber is lost. So at a central level, if a policy is formed for collection of the fiber or collection of fiber, all kinds of fiber, be it white grade or Brown grade, it will definitely help the entire paper industry and our dependency as such on the foreign market for the deficiency of OCC .

Q: Paper Mills are procuring OCC/Waste paper from Europe and USA, but exporting the finished paper to China. A large quantity of the paper is being exported to China and other countries. And, this is breaking the circular economy of paper because paper is not returning back into Indian waste paper collection cycle. How do you suggest strengthening the circular economy of Recovered Paper? 

The priority of the paper mill is always going to be the local customer only. At least for paper Mills who are inland bound like paper Mills who are in Uttar Pradesh or in down south that don't have Port. Our priority is always the local market, and on contrary to the market believes there is very less amount of paper that is now going to China. There was a time four years or three years down the line where a lot of paper used to go to China and that never used to come back to the system. But on contrary, if you look at the data now, very less amount of paper goes to the China and vice versa. What we are exporting, double the quantity of the fiber is what we are importing. So as such we are not draining the fiber. But fiber is being drained because of the practices that we have in our procurement channel or in the channel in which the waste paper comes back to the mill. 

So as I already told that export today is not a major factor in fiber deficiency. The major factor is our habits of ensuring that the fiber comes back to the system again that is what we need to improve and work on.

Q: Actually sir, nowadays the price of imported OCC is touching to $400 per metric ton because of EU’s ban. This BAN is expected to be lifted in April or May. what is your analysis for the next two months the price will go up or down and what should be the paper mills' strategy for procuring the OCC in the coming months?

Our projection for next one or two months is that there is going to be definitely a fiber shortage. Even if today, the EU ban lifted, it will take two months from whenever it is lifted for that OCC to come into the system. So at least if it is lifted today until the next two months of it, the turmoil is always going to be there and there is going to be pressure on the local OCC. But yes, once the European ban is lifted, definitely it will substitute some of the pressure which has on the Indian Oct and the market should stabilize. So for next two months we still assume that this market is going to be very volatile. The fluctuations in the market are going to be there. But post May or sometime in June the market should stabilize at some levels and it should continue there after actually. 

Q: how much finished paper price has been increased since the ban in effect and how much price may increase do you assume in the next three months?

With the ban being in effect, I think we have seen the finished paper prices almost have gone up by almost 50% to 60%. Finished paper prices have almost already gone and I think we have reached the peak beyond this. It is not viable for our end customers to sell the boxes and if they don't get an increase they will eventually we'll have to not run the shop because it is not viable for them to take any more losses. So I think we have reached a peak, maybe Rs. 1 or 2 from here it might go upward but not beyond that is what I understand.

Q: ICCMA just published an advertorial appealing to its end user to increase price by 35% to offset the price hike in raw material and conversion cost? How do you take it as a paper mill owner?

I think they have done the right thing because as long as they don't get an increase from the end customer they are not going to pay the paper mail. It is only for a certain amount of time that you can bear the burden. 35%, I am not really sure about the calculations of their calculations because there are a lot of raw materials that were involved. They talked about ink, starch, and waste paper also. But yes, until unless they don't get an increase, it is not viable for them to purchase paper at this price and keep serving them at the regular prices to the customer. So they should definitely get an increase so that the industry is benefited. Because at the end of the day if my customer is healthy then only I'm healthy if my customer is not healthy, then how can a paper mill be healthy as well?

Q: Any expansion plan in Om Sree Papertek Mill?

Looking at this situation we have put everything on hold. We want to just see the market where it goes because the metal prices have also shot up exponentially. So we want to see where the market goes for another six months and then take up some expansion plan. 

Q: Any new product you're going to launch?

Right now in craft we are looking at lighter GSM segment.

Q: What is the specification of the lighter GSM?

We want to make paper from 70 GSM to 110 GSM majorly catering, the fluting grade and paper bag market.
 

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