Paper mills are looking to keep their heads in Different Verticals, and Traders will have to adapt

Paper mills are looking to keep their heads in Different Verticals and Traders will have to adapt

                     

"Paper mills are looking to keep their heads in Different Verticals, and Traders will have to adapt"

Cash is the King & King is not seen! | It is estimated that approximate 2.00 Million tonnes of OCC Pulp, Fluting Paper & different RCP grades have been exported from August 2020 until February 2021

Market analyses and views are personnel in the below article. The article is written by Mr. Dipesh Laddha, Director, Kalpataru Papers LLP for The Pulp and Paper Times

27th August 2021 | The Pulp and Paper Times: 

Q1: How do you think the first & second wave had their impact on the paper industry?

As we emerge from the second blow of the pandemic, we are witnessing the knocked down economy & its severe impact on the Paper Industry in the real sense. Compared to March 2020, the Paper Industry endorsed the erratic & unpredictable result of demand & supply. By July 2020, the end of the first lockdown, everyone was surprised to see the billowing need of the Paper & Board across all the segments and its prices skyrocketing. While the domestic Industry was enjoying the jet-speed price rise of all the Paper Grades, India did a record-breaking export in Kraft Paper Grades & OCC Pulp Board to China & the Asian region. It also recognized Paper Mills manufacturing Kraft Paper / Fluting Medium Paper in India as one of the key producers after the USA, which is predominantly the primary source for China. It is estimated that approximate 2.00 Million tonnes of OCC Pulp, Fluting Paper & different RCP grades have been exported from August 2020 until February 2021. However, this created a massive shortage in the availability for the domestic Packaging industry of Corrugation Boxes & Recycled Packaging Grade, putting them at the risk of survival. The shortage of raw material also doubled the national average prices of the Duplex Board, Kraft Paper, Newsprint paper & White Paper Grades (Recycled waste-based). 

                     

By February 2021 – China, being the largest exporter of goods across the Globe, saw a sharp decline in its exports, which eventually reduced its demand for Raw materials from India. It was also because of the increasing Shipping Freight, which was not making the exports viable from India. Consequently, it had a cascading impact on the Paper segment produced out of domestic & Imported Waste Paper. Fluting Paper, OCC Pulp which had a predominance in the exports, crumbled down, forcing the mills to focus on the domestic market. By then, India had already slipped into the second wave of Covid 19 as the lockdowns were implemented & eventually putting the business at a halt. This jolt left the majority of the mills & traders with huge inventories on hand. At the same time, the Industry could run barely at 20 to 30 % capacity adding to the monetary losses to the system. The export contracts did not renew after March 2021; the currency was becoming more robust, which reduced the viability of the export and, on top of it, the scarcity of raw material availability & collection. 

This roller coaster ride has not spared anyone in the trade fraternity and is still inflicting the damage. The cost of the Inventory held is of the higher cost. The investment is made in anticipation of the bullish market after the 1st lockdown has backfired miserably. The National Average price of Paper has gone up by 40 %, which indicates the need for more investment & lack of liquidity, which is the most brutal impact seen in the Paper Industry. The small-size Paper Mills units have reduced the credit period provided to their dealers, or they have turned on the advance payment only. At the same time, the trader is extending the credit to the end-user. In short, the trader will have to infuse more capital due to price increase, pay early to the mills & to compulsory extend credit to the end-user. All these factors are breaking the back of Paper Mills & Trader. 

For now, it's written loud & clear on the board; Cash is the King & King is not seen!

Q: Paper mills are considering closing down the mills. Do you think it's the right decision?

Yes – Running a mill in the current scenario is attracting more losses than producing the non-moving stocks. The biggest challenge for the small units, which are entirely dependent on the domestic waste collection or imported Recycled waste, is the availability of such raw material. Only some specific segments like the Virgin Packaging Board, Kraft liner Board, and Virgin Wood free Paper produced by large manufacturers seem to have consistent demand. They will sustain as the market demands such products as the consumer believes in more value for Money buying the premium products. The price gap between a Recycled Paper & the Virgin Uncoated Wood free or, say, White Back Board & the Folding Box Board has narrowed down so much that the end-user is now willing to spend on the better quality of the products. Hence, this will have a very adverse impact on a large part of manufacturers in India, till the entire cycle of the raw material domestic collection to the consumer demand is not back on the table, which will surely take more time to come back so, it is advisable to curb the production. 

Q: What is the actual reason for the declining demand for finished Paper in the market?

After the second wave, we can see lots of panic in the Paper Industry. Retail consumers are not ready to spend & the wholesaler/distributor is running short of investment or sitting on the higher cost of Inventory. It would be incorrect to claim that all the finished products are running in low demand. The Virgin Grades of Packing Board, Kraft Liners, and Kraft Paper for Paper Bags - such products are doing exceptionally well. The segment of Packaging grades used for Pharmaceuticals or Food Packaging is more bullish than luxury packaging. 

Q: what do you suggest to paper mills in this challenging period? Any strategy? 

The only strategy, which will work with all, is to Innovate & Adapt. We see the large Paper mills producing Wood Free & Packaging Board are not coming in the small volume segment of Oil & Grease Proof Paper, which did not have many producers in India. Therefore, the mills are looking to keep their heads in different verticals, and traders will have to adapt. 

Published at : Jul 10, 2022 01:45 PM (IST)

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