Indian paper industry has experienced a surge in imports in FY 22-23, with the uncoated writing & printing segment recording an increase of 102 percent over FY 21-22. Paper Mart grapples with the issue under the guidance of industry leaders, both manufacturers and traders, to understand the main drivers of the surge and the future actions of the industry to mitigate such circumstances in the future.

Mr. Aseem M. Bordia, President of FPTA & Chief Executive Officer of Laxmilal & Company

Key Takeaways of the Import Increase Trend

• The Indian Paper Manufacturers have exported a huge quantity in multifold of various products. The exports in FY20-21 and FY21-22 were to the tune of 2,194 and 2,857 thousand tonnes as compared to imports of 1,747 and 1,752 thousand tonnes.
• The net figure for imports of paper and paperboards is only 1,146 thousand tonnes as 606 thousand tonnes is the newsprint segment, which is regulated by separate norms of the Government of India and does not form part of the open trade.
• As per the statistics of the Ministry of Commerce & Industry, Government of India, and shared by the Indian Pulp & Paper Technical Association (IPPTA), the exports of paper and paperboard in the FY21-22 were to the tune of 3.53 million tonnes as against imports of 2.18 million tonnes. The Department of Promotion of Industry & Internal Trade (DPIIT) annual reports for FY22-2023 also publishes the same, thereby providing authenticity to the data.

Drivers of the Trend

• Due to material exports in the last FY, there was a shortage of material, and the rates per tonne skyrocketed more than double in just a year from FY21-22 to FY22-23. The availability of material was an issue that hampered the businesses of various Indian industries of the Make in India project.
• In FY22-23, the exports of paper and paperboards, including newsprint, were to the tune of 2.46 million tonnes as against imports of 2.52 million tonnes. Imports of newsprint being 0.62 million tonnes the net figure of imports for paper and paperboards comes to 1.90 million tonnes, much below the exports of 2.46 million tonnes. One needs to compare apples with apples only and not oranges.
• Comparatively, all the commodities rates were on the higher side across the globe due to various factors and due to the easing of Covid-19 restrictions, and demands were at an all-time high for all the products which factored into high inflations. So, the imports are to ease off or to get competitive rates of various raw materials. All the Commodities and the exchange rates have been at an all-time high compared to FY21-22 to FY22-23.
• In 2021-22, there were restrictions on imported copier paper due to BIS certifications being mandatory for the suppliers of imported copiers. As we have short supplies of copier paper in India to the required demands, BIS registrations were completed by foreign suppliers in FY22-23 so there was a marginal increase of imports from FY21-22.

Future Action Plan of the Indian Industry

The biggest concern for the Indian paper industry is the raw material shortage or wood-fiber deficiency. This presents a major constraint to the manufacturing capability and capacity of Indian pulp and paper mills.

Over 90 percent of our wood demand is met through industry-driven agro or farm forestry (1.2 million hectares) and the rest through government and other sources. The current demand for pulpable wood by the paper industry is about 11 MTPA, while domestic availability is only 9 MTPA. The demand is projected to grow to 15 MTPA by FY24-25.

Furthermore, our wastepaper collection and recovery mechanism is not strong and is largely concentrated in the unorganized sector. Our recovery rate is only 38 percent.

We at FPTA representing over 6000 paper traders from across India do support our respected Prime Minister’s vision for Atmarnirbhar Bharat and Make in India programme. We firmly believe that Indian paper manufacturers are much more capable to compete across the world with global paper mills in all ways with a positive mindset for a brighter future. The paper consumption in India is just 15 kilograms per person per annum, which is very low compared to China which is at 55 kilograms of consumption per person per annum.

We have similar structures of paper mills, raw material suppliers, and pulp as compared with the manufacturers from China, South Korea, and other developing nations like ours. Our industry has a bright future and we intend to perform our part to the best of our abilities to do the distribution of paper across the globe.

Mr. Deepak Mittal, Partner of Mittal Trading Company

Key Takeaways of the Import Increase Trend

• The imports of paper and paperboard in 2022-23 have gone up to INR 11,500 crores in market value, leading to a 47 percent jump.
• The Indian market size in FY17 was 14 million tonnes, while in FY23 it has grown to around 21 million tonnes, which is a 50 percent jump. During FY17-FY20, the import volumes were around 1.5-1.6 MTPA, excluding the newsprint segment. During FY20-21 and 21-22, the import volumes were around 1.1 MTPA. In FY23, the imports figure is around 1.3 MTPA, excluding the newsprint segment.
• The prices in the first half of FY23, April to September, were substantially higher. Post-September there has been a sharp correction in the prices of pulp, and also paper, in international markets. The price of pulp in the first half of FY23 was around USD 900, and today, the pulp prices are at around USD 500.
• Traditionally, the paper industry cycle used to span 3-5 years, but post Covid-19, the cycles have become much shorter and sharp. We are likely to see one upcycle and one downcycle in the same year.
• The phased re-opening of schools and colleges after Covid-19 has reached completion in 2022-23 and has surged the demand from the scholastic sector for writing and printing grades.
• Observing the Indian paper market construct, the overall market size is 21 million tonnes, wherein 2.5 million tonnes is newsprint, which is mostly imported with very little domestic supply; 5 million tonnes is writing and printing segment; and about 12-13 million tonnes is the packaging, that is kraft and duplex; and about half a million tonnes of specialty paper. In the packaging grades, we have got significant overcapacity for the next 4-5 years. This is not the same for the writing-printing segment.
• Excluding newsprint, there are primarily three grades get imported into India constituting nearly 90-95 percent share; one is coated papers, the second is uncoated writing and printing paper, and the third is kraft paper. The uncoated writing and printing segment amounts to nearly 20 percent of total writing and printing imports. The high-strength kraft paper import volume is about 2.75-3 lakh TPA.
• In FY20-21 and FY21-22, the Indian industry has for the first time post-independence recorded a surplus trade, with exports being more than imports.

Drivers of the Trend

• The numbers and jumps are coming on the very low base of 2020-21 and 2021-22, which were COVID-19 years. During the pandemic, the demand for paper and paperboard has shrunk quite significantly. Since the base year values are very low, the values of 2022-23 look more elevated than they actually are.
• In terms of market volume, the jump is only 14 percent. Considering the market size and volume against the pre-Covid-19 years, the change is not significant or concerning.
• In the writing-printing segment, the domestic supply falls short of demand in India.
• There is a dearth of manufacturing capabilities within the country for high-strength kraft paper in high BF grades, as the fiber required is not available in the country.
• The coated paper manufacturing capacity in India is only 3-3.5 lakh tonnes, whereas the demand is around 8.5 lakh tons, and it has grown in one or two years.
• The commissioning of two new pulp mills, namely Arauco and UPM pulp mills. The two mills have a combined capacity of about 4 million TPA, however, post-commissioning of these two pulp mills, the global pulp demand has actually shrunk by 3.5 percent due to some recessionary trends in the western countries, mainly the US (16%) and Europe (27%).
• The sharp industry cycles are due to the narrowing of the demand and supply gap.

Impact on the Indian Industry

The demand is going to be very strong over the next decade as the Indian market will grow from about 21 million tonnes to about 40-45 million tonnes, at a CAGR of at least 6-7 percent. The CAGR could be higher as well as India is a preferred China-Plus-One strategy choice of the world. The CAGR may even increase as there is a lot of plastic substitution happening with the single-use plastic ban. The substitution will create an additional demand of 2-3 lakh TPA, which is additional growth of around 1.5-2 percent.

The growth in the next decade will be driven by various aspects, as India has started focusing on manufacturing in addition to services.

Furthermore, the global demand for uncoated writing and printing paper is shrinking, but in India, it continues to grow, albeit at a slower pace than the packaging grade. It is because in Tier 2, Tier 3, and Tier 4 cities education is still not quite permeated and the scholastic demand contributes to nearly 60-65 percent demand of the writing and printing segment. Summarily, India is probably the only country in the world where demand for writing, printing, and packaging rates will continue to grow.

In order to cater to the growth in the writing and printing segment we need to add capacities, which will take another 3-4 years for them to become fully operational. So demand for all the 3 import grades will continue to grow at a high pace. Thus, the surplus trade trend will change in favor of imports.

Lastly, the low pulp prices will not last for long.

Future Action Plan of the Indian Industry

• The Indian industry needs to work on the writing-printing market segment, both coated and uncoated. For example, in the coated papers the demand is around 8-9 lakh tons, while domestic capacity is only 3.5 lakh TPA. Similarly in the uncoated writing and printing papers segment, our imports amount to 5-6 lakh TPA. In order to cap the imports, a significant investments needs to be made by the industry to create the capacity and become self-sufficient.
• The industry needs to lobby with the government for a very supportive policy to spur investments, more schemes, and PLI incentives. One of the impediments to adding capacity within India is fiber deficiency, wherein the government can be approached to allot the degraded forest land. The allotted lands could be utilized for plantations, which will become the supply source for the wood which is required so severely.
• The sharp movement in prices is not healthy, however, if there is not adequate capacity creation, these cycles will continue to be quite sharp. The sharp industry cycle is a global phenomenon, so we will have to learn to live with it and learn how to stay ahead of the curve. We will have to study the cycles very carefully and diligently to overcome this volatility.
• Indian market constitutes only about 4.5 percent of the world market, which is about 420 million tonnes, with a population share of 16 percent. Meanwhile, China’s population size is similar to ours, but their market share is nearly 28 percent, over six times of India. We have a long way to go to overtake China as an alternative market. There will be some short-term pains, but we will have to endure them and focus on the long-term picture, which is very strong and rosy.

Also Read: Sainsons Paper Industries to Add 70-80 TPD Paper Machine & 100 TPD Waste-Paper Pulp Street

A.Venkat Annamalai, Business Partner of Jeyam & Company

Key Takeaways & Drivers of the Import Increase Trend

India’s overall growth story had its own impact on the paper industry too. With GDP levels at about 7 percent, the buoyancy was reflected in the performance of the Indian paper industry. There was an upswing in prices of all grades of paper and paper boards due to strong demand from all sectors. With not much additions to capacity (especially in wood free grades made out of virgin fibers), the demand for writing & printing grades remaining strong, the prices of virgin grade writing & printing grades sustained through out FY 2022-23. Whereas prices of all recycled grades (writing & printing and packaging), started softening since the beginning of 2023.

The paper prices internationally too were quite strong with many European mills shutting down capacities due to steep increase in power costs. Countries with large manufacturing capacities like China and Indonesia covered their production with high value markets and hence not much of quantities from overseas were available for the Indian markets. As a consequence of this trend, Indian industry used this opportunity to increase their overseas sales leaving the domestic markets with longer lead times in getting their orders serviced.

Now with the softening of international demand, the quantities available for the Indian markets from China and Indonesia have considerably increased. Furthermore, international pulp prices have moderated considerably which has aided the drop in prices of finished paper. In this background, we are currently witnessing a surge in imports of woodfree grades in large volumes. This trend is likely to continue as there is a slow down in demand internationally and there seems to be no immediate upward correction in pulp prices. Further, the Indian industry did not make price corrections at the appropriate time which made the imported woodfree grades attractive for an Indian convertor/market.

Imports of photo copy papers were disrupted initially due to definitive anti dumping duty and subsequently by the mandatory BIS certification for importing this grade of paper. Now that many overseas brands have acquired the BIS certification, there seems to be a reasonably good flow of imported photo copy paper in the Indian markets.
The surge in imports of writing & printing grades are likely to continue for Q2 of the current financial year. The trend in imports of writing & printing grades beyond Q2 depends on its demand by the educational sector (especially the various State Governments), for the upcoming academic year.

Impact of this Trend in the Indian Industry

We can expect the following reactions from the industry:

• Indian industry sooner or later will have to take a cue on the international prices to remain competitive.
• Profitability of the Indian industry will get impacted in comparison to the profits earned by them during the previous FY.
• Order to supply turn around time is likely to be reduced which will benefit the customer in terms of inventory holding/planning.
• Reluctance of customers to hold stocks, on the pretext of erosion of value, may further impact the demand.
• The quantum jump in exports by the Indian industry (which could be one of the factors of short supplies/longer lead times) is likely to reduce due to the falling international prices of finished paper. This will eventually result in Indian industry catering to more of domestic requirements.

Future Action Plan of the Indian Industry

To mitigate adversarial impact of imports on the Indian industry, following steps need to be taken:

• The industry must remain cost competitive.
• We need to continue to invest in the best of technologies.
• Present a community effort by consolidating through mergers and acquisitions.
• Optimize on gsm and sizes for better productivity.
• Maintaining optimum supplies to the domestic markets, and not prioritize exports over domestic demand.
• Servicing domestic markets within a reasonable lead time for repeatability in relations across the supply chain.

Mr. Bhavesh Gala, Managing Director of Infinity Industries Private Limited

Key Takeaways of Import Increase Trend

During the last two financial years, the market was regaining its normalcy post-Covid-19 in India and across the world so there is a jump back in the imports from Covid-19 years’ demand. When the market was getting to normalcy the Indian paper industry was exporting a good volume of paper and paperboard from India, which in turn became another reason for increased imports due to the short supply of paper and paperboards in India. The rates in Indian Market were touching at a never seen, or will not be seen, all-time high, which again forced imports.

Additionally, post-Covid-19, the global world market started looking for China + 1 supplier in India for all the manufacturing products which supported the demand for paper and paperboards locally too quickly and boomed Make in India. The per tonne value increased but the quantity in comparison is much lower.

However, in comparison, the present imports are still lower than the imports from pre-Covid-19 times.

Drivers of the Trend & Impact on the Indian Industry

• Make in India boost due to China + 1 supplier factors in all industries.
• Short supplies of paper and paperboard in India compared to demands.
• Frequent increase in rates in the Indian Market
• Export mismatch than the required domestic consumption.
• There shall be no significant impact on the domestic industry, as the imports will only happen to products that are short in production in India for consumption, or if our domestic rates are much higher than the imported rates.

Future Action Plan of the Indian Industry

Indian paper manufacturers are no less than the world’s paper manufacturers. The following few steps, however, must be taken:

• The industry should gear up for future consumption in India by setting up the required capacity with proper planning.
  A focus on paper and paperboard production in India, like in China 30 years back.
• Focus on the advantages of India and our leadership position in the present scenario and focus on Global and Act Local strategy.
• Should always be ready for competition in commercial, quality, and quantity.

Source: https://papermart.in/a-surge-in-paper-imports-dwindling-the-indian-paper-industry/