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Cheap imports hurting domestic paper industry

Date 20-Aug-2015
Subject Cheap imports hurting domestic paper industry

Profit margins of most paper producers continued to remain under pressure in the first quarter of the current financial year due to sustained rise in imports from China and ASEAN (Association of South East Asian Nation).

ITC's paper segment reported 7% decline in profit before interest and tax (PBIT) at Rs 254.44 crore for June quarter 2015 as against Rs 274.90 crore in the corresponding quarter last year. Similarly, Ballarpur Industries reported a net loss of Rs 1.99 crore for June quarter this year as compared to Rs 0.42 crore profit earned in the same quarter the previous year.

Domestic paper manufacturers have been unable to raise prices to compensate for higher raw materials costs due to cheap imports.

“The industry has invested over $4-5 billion in the last decade and is currently in a consolidation phase. It has the potential to contribute significantly to the ‘Make in India’ campaign," said Yogesh Agarwal, Managing Director & Chief Executive Officer, BILT Paper B V.

The industry has been asking the government to check cheap imports by imposing safeguard duty or special additional duty especially against ASEAN players, he added.

Data compiled by the apex industry body - Indian Paper Manufacturers Association (IPMA) - showed total paper and paperboard (excluding newsprint) imports worth Rs 7,222 crore in 2014-15 as compared to Rs 5,987 crore in the previous year. Of that, imports from China stood at Rs 1,293 crore in FY15 versus Rs 1,188 crore in the previous year. 

In the last five year, total paper imports from China almost doubled from the level of Rs 677 crore in 2010-11.

Similarly, paper and paperboard (excluding newsprint) imports from ASEAN almost quadrupled in five years to Rs 589 crore in 2010-15 as against Rs 159 crore in 2010-11.

“India is the fastest growing paper market in the world, with growth exceeding 5-6%. Indian demographics, focus on literacy and government spending on education are all fuelling this demand growth. While India remains a great market opportunity, it has also caught the attention and attracted competition from around the world especially from ASEAN region, where the basic customs duty on paper is ‘nil’ under the Indo-ASEAN Free Trade Agreement (FTA). In the last four years, imports of paper and paperboards (excluding newsprint) into India have grown at a compounded annual growth rate (CAGR) of 21% and from ASEAN region at a CAGR of 39% in value terms,” said Agarwal.

To tap growing demand, large scale investments are planned in the country’s paper industry, which has an estimated current turnover of Rs 50,000 crore.

“Organised paper industry in India has invested heavily in technology upgradation and creating new capacities so as to achieve economies of scale and compete internationally. In the last five years alone, paper industry has invested to the tune of Rs 25,000 crore. However, capacity utilisation and capital productivity are at an all-time low as cheaper imports are increasingly capturing a greater share of the growing domestic market,” said Sanjay Singh, President, IPMA.

In many cases, the paper is being imported at a cost which is lower than the production cost in India. Raw material costs have risen sharply in India in recent years. For instance, wood prices in the country have doubled in the last two years. Currently, wood prices in India range between $175-200 a tonne against average price of $100 a tonne in other Asian countries.

“China being a non-market economy and with various subsidies enable manufacturers to export at much lower prices – practically on variable cost basis. Since, they are able to realise better prices in domestic market, they afford cross-subsidies of their exports at lower prices. They have set up huge capacities and overall utilisation stands between 75-80%, it makes business sense to increase production and sales even at marginal cost basis,” said A S Mehta, President, JK Paper Ltd.

According to IPMA, a further investment of Rs 90,000 crore is required by 2026 to meet the projected domestic demand of paper and paperboard in the country. However, the industry is dis-incentivised to invest further as the return on investment has not been encouraging in the recent times.

According to projections, consumption of paper will grow to about 40 million tonne in 2026 from about 14 million tonne currently. 

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