Raw Input. Paper prices under check

Central banks globally may be printing money to prop up their economies, but this isn’t helping paper demand. Paper usage, especially in developed countries, has been either stagnating or falling in recent few years. This downtrend is likely to continue and is expected to keep paper prices under check.

Ample supply The price of paper used in packaging has been stable in the last three years, at around $191 a tonne, according to data from IBISWorld. While prices are expected to increase by 3 per cent in 2015, abundant production could dampen prices. There are no bottlenecks in the supply of wood pulp, the main ingredient for paper. Globally, the US and China have been the main producers and exporters of paper, while others such as Indonesia are also ramping up wood and paper output.

The World Business Council for Sustainable Development estimates that China’s paper output will increase by 67 per cent between 2010 and 2025.

While availability has not been an issue, wood pulp prices have been inching up, from $600 per tonne in 2009 to $900 currently. Prices may remain at these levels in the next two years, estimates IBISWorld. The price factor, along with environmental issues, has led to higher usage of recycled paper. Its share dropped from 4 per cent to 1.7 per cent by 2013. But research firm RISI estimates the recycled segment will grow at 2.5 per cent annually in the coming decade.

Paper is freely traded globally. Prices in India are linked to the landed cost of imported paper with a small premium for faster delivery, due to local logistics, says AS Mehta, President, JK Paper.

Local input issues That said, the issues seen in the paper industry in India differ vastly from those in other paper manufacturing countries. For instance, wood availability is a huge bottleneck and wood is often imported. Also, while globally the mills are located within 50-100 km from the wood source, timber travels 300-400 km in India for papermaking, says BR Rao of the Federation of Paper Traders Associations of India.

Additionally, recycled fibre or waste paper is not adequately available, given the country’s low recycling rate of 20 per cent according to the Indian Paper Manufacturers Association.

The industry, therefore, uses agro-based raw material inputs, such as bagasse from sugarcane. “Prices and availability of agro-based inputs have been mostly stable, though there is some impact from sugarcane prices,” says Mehta. Paper mills also rely on social farming projects wherein wood from eucalyptus trees is sourced.

“Farmers take a call on whether it is profitable to plant these trees. When food prices were in an uptrend, the uptake of these projects was low. This, along with a disease that affected eucalyptus trees, led to wood prices doubling in the last two-and-a-half years,” notes Mehta.

Help from technology Paper mills are also upgrading their production technology to reduce operating costs. “In the past, many mills bought scrap machines, that were not very power efficient, from European countries ” says Rao.

With fuel accounting for 7-8 per cent of the total cost, these mills suffer. India has small-sized mills too and they arenow investing in technology to reduce power and water usage. Biomass that is obtained from pulping is used to generate power. Many of these new units produce more power than needed for the mill.

Increasing demand Globally, per capita paper consumption in developed countries — which peaked at over 250 kg per person — is likely to fall. However, Mehta says that Indian demand is likely to grow by 6-8 per cent annually.

The country’s paper usage of 9 kg per capita is among the lowest in the world; for reference, consumption in China is 71 kg per person, according to data from the Bureau of International Recycling, Brussels. Higher literacy, growth in packaged products, pick-up in the economy and increased use of sanitary paper products are expected to boost demand.

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