The paper industry’s anticipation: a reasonably safe journey through the recession
We can truly acknowledge the New Year if we can acknowledge how are economy, and our lives changed in 2008. For our first issue of 2009, we talked to people who have been in, and run the industry at its vanguards. They have seen it through major changes, and cyclical fluctuations. Here are their views on the economic recession, and how it is going to affect the paper industry.
Mr. Harsh Pati Singhania,
M.D., JK Paper Ltd.
The Indian economy is seeing a significant slowdown and this is expected to continue in 2009 as a fall out from global recession. Demand f o r Paper and Paperboard is linked to overall economic growth and hence Indian paper industry would be affected by the slowdown, however, the impact on paper industry will be much lower than say in Automobiles, Cement etc.
Categories like packaging board could feel the effect to some extent. Its demand depends on the end-user industries performance; for example slowdown in FMCG, Pharma exports etc. In writing/printing paper the impact is likely to be less mainly because India’s low per capita consumption vis-à-vis other countries (8 kg vs. around 50 for China). In addition, rising income and aspirations, explosive growth in infotainment (knowledge + entertainment combined) and thrust on education (literacy) provide huge opportunities for growth of Indian Paper industry.
Domestic prices are under pressure given India’s falling import tariff, and significant decline in global pulp and paper prices. Indian mills are facing import threat particularly in coated paper. Major players have passed on the benefit of excise duty reduction to the consumers to contain the impact of global melt down despite cost push from rising energy, transport and wage cost etc.
Mr. Pradeep Dhobale,
C.E., ITC PSPD
I don’t agree with the word ‘recession’. Even with conser- vatives estimates India will grow this year at 7%. The liquidity crunch, loss of exports in textile, pharmaceuticals, printed material and overall cost-cutting measures by organizations have certainly affected paper industry. Some mills have taken downtimes and others running on day-to day order coverage. The economy revival package announced by the government, though positive as a signal, needs to be augmented further. Nothing short of increase in customs duty will help in protecting lakhs of jobs, (most of which are in agriculture), which depend on this industry. Huge inventory pile-ups in China are bound to impact India. Safeguard duty upto 10% is warranted at this stage.
There is an active dialogue happening between the industry and the government and I am quite hopeful that we will come out of this downturn with the government’s support.
Mr. B.M. Khanna,
CMD, Khanna Paper Mills Ltd.
The strong fundamentals of the country have helped the Indian paper industry to a moderate growth though it is not fully insulated from the global recession. The growth of pulp and paper in India is in line with the projected GDP rate of 7.5% in the next financial year, which is around1%below the earlier projection of 8.5 – 9%.
Our industry is broad based in India and self reliant in various segment. The Indian paper industry produces 8.3 million tons of paper and boards out of which 94% is consumed indigenously and 4% exported to various part of the world. To meet the projected demand of 15 million tons by 2015 many mills have gone on to undertake expansions and modernization. The reduction of CENVAT to4%by the government should further fuel growth. The cut in production capacities, or even closure of many mills abroad may not be the scene in India as our paper industry has the inherent strength to withstand pressure due to our strong fundamentals.
Mr. Anil Kumar,
E.D. & CEO, Shreyans Industries Ltd.
Indian paper industry is basically a domestic demand driven industry. Therefore the impact of present recession on this industry may not be as severe as compared to many other industries (which are basically export oriented). However, as far as packaging grade papers are concerned, the slowdown would be significant because of corresponding fall in production in other manufacturing sectors, which use paper for packaging purposes.
In cultural varieties also there is a slowdown in demand of made up stationery and other items from US and European markets. The major worry for Indian paper industry is impact of cheaper paper (and in some cases below cost prices import of paper) from South-East Asia and China who have surplus capacities as these countries were dependent upon export of paper to US and Europe. A close watch will have to be kept by the safeguard authority to put brakes on such dumping imports as soon as these take place. The government will also be well advised to keep up the expenditure on education and other related sectors so that demand of paper is maintained.
Mr. N.K. Jain,
Director (Sales), Metso Paper India Pvt Ltd
Like any other commodity, paper too goes through a cyclical trend depending upon the demand- supply scene in the international markets. There is no. demand for any industry, (including the Pulp and Paper Industry) linked to the global economy in terms of pricing. The prices in the domestic market are inextricably linked with the paper price movements internationally. There is a crisis of confidence and liquidity crunch in the Indian market.
India is already experiencing the effect on the growth of export due to the appreciation of the Rupee against US Dollar. This year it is expected that the volume of the exports would be lower .This deceleration of exports will affect the growth in investment. But on the other side, the paper industry in India looks extremely positive due to its demand for upstream market of paper and paper products (due to lowest per capita consumption). Indian economy will grow around 6 -6.5 % and paper consumption will grow around 6%.
According to the World Bank, the Indian economy is expected to grow at a 5.8% in 2009, as compared to 6.3% in 2008. But according to the IMF, advanced economies will experience almost a 1%reduction in the world GDP in 2009. According to forecasts, world economic growth in the next two to three years will heavily depend on Asian economies.
I think whenever psychological factors exaggerate an issue, the industry will find some people who try to assess a situation for what it really is. A CEO has suggested that one need not put their plans on hold as the time is conducive for investment. This is the right time for investment as everything would be priced right. It is also ‘bad’ to start in ‘good’ time; the reverse is always rewarding and satisfying. The slowdown, for a brief time, would keep start-ups on their toes and industry will have to address issues of concern, in an endeavor to facilitate their business, but once the rate of the slowdown lowers, they would be able to maintain that cost, which in turn, would help them win better margins and bigger volumes. There are certain advantages that the start-up culture will experience after the end of this slowdown.
Indian companies have to artistically invest their resources in productive activities instead of parking them in treasuries.
Mr. P.S. Patwari
E.D. Emami Paper Mills Ltd.
The recession will affect the paper industry, but nobody can predict the quantum of the effect the recession will bring. Governments across the globe are repositing, by giving packages to all industries. Due to this collective effort, the impact of the economic recession may be reduced from long term to medium term.
Mr. S.K. Khare
E.D., Sirpur Paper Mills Ltd.
The current economic recession being a global phenomenon its impact will be felt not only from within the country but also from outside. In the Indian context, there is huge potential for the paper industry due to growing demand from the education sector. To a large extent, this sector will remain unaffected from recession. However, the same cannot be said about other segments particularly industrial paper such as Kraft, packing, board and office stationery. Nevertheless, it is expected that recession impact will not be as bad vis-à-vis other sectors. Large paper mills will be able to protect margin with cost-cutting measures which will give long term benefits. As of now, there is no significant threat of dumping from other countries, but the same cannot be said if the global recession gets deeper.
Mr. Madhukar Mishra
M.D., Star Papers Ltd.
A recession typically signifies reduction in demand. This is not yet being felt in India. A significant part of paper demand, particularly in segments like exercise notebooks, school books etc. is recession-proof just like other necessities of life. However, due to recession in developed countries, global prices of Pulp and Paper have reduced. This may have an impact on Paper/Paper Product exports from India.
As of now, nobody is predicting an economic recession in India. We are only talking about lesser rates of growth. To the extent GDP growth slackens, growth of paper demand would follow suit. The effect will be similar in all industries which have a cost structure based on local inputs.
Mr. Sudhir Kumar
M.D., The Mysore Paper Mills Ltd.
Mysore Paper Mills Limited is a manufacturer of both Newsprint and Writing & Printing Paper. While the current recession in the economy has already taken its toll on newspaper publishers and subsequently the Newsprint manufacturing sector, we don’t foresee any substantive adverse impact on the demand for writing & printing paper. On the other hand, since India is most likely to sail comfortably through the recession, we expect a growth in the writing & printing paper sector, and thus will try to augment our capacity for manufacture in this sector to meet the likely increase in demand.
Mr. Ved Krishna
M.D., Yash Papers Ltd.
Recession is a time for great learning and leveling. We tend to expand without much thought towards market growth and choose products without any global competitive edge. Our plans for raw material are unclear. ROI’s in our industry are also not focused upon.
Times such as these provide us the opportunity to sort out the basics of our businesses and become more competitive. We shall need to innovate and improve on our understanding. We shall have to think about differentiation, speed and action for survival. These shall be challenging times but I am sure the industry is robust enough to tide it over.
Mr. Ranajoy Chowdhury
Paper demand is growing at a healthy rate of 8% per annum due to changes in socioeconomic sectors. India is slowly becoming a hub of global publishing and printing industry, which needs high quality papers to suit high speed converters and printing machines. So demand for paper would go on increasing in times to come, immaterial of the recessionary trends. India’s per capita consumption of paper is around 8 kg, which is one of the lowest in the world. With the expected increase in literacy rate, an increase in the per capita consumption of paper is expected. In view of the industry’s strategic role for the society and also for the overall industrial growth it is imperative it generates continuous growth. The demand for upstream market of paper products, like, tissue paper, tea bags, filter paper, light weight online coated paper, medical grade coated paper, etc., is growing.