Paper prices likely to dip

Capacity expansion may disturb demand-supply equilibrium

There is likely to be a dip in the domestic prices of paper products in the current year as the expansion of capacity by some of the paper mills is expected to temporarily disturb the existing demand-supply equilibrium.

The paper mills, which have either completed or are nearing completion of their expansion projects include AP Paper Mills, West Coast Paper Mills and Tamil Nadu Newsprint. The three mills together bring an additional capacity of around 350,000 tonnes to the existing total paper production capacity of 10 million tonnes per annum (mta) in the country.

“As the supply exceeds demand, there could be a price war among the paper manufacturers if the managements of the mills that have expanded capacity do not maintain supply side discipline,” ITC Paperboards and Speciality Papers Division chief executive, Pradeep Dhoble, told Business Standard.

According to Dhoble, currently there is a balance between the domestic supply and demand for paper products, which both stand at around 10 mta. However, with additional capacity coming in shortly, the supply is set exceed the demand this year.

Dhoble said the additional capacity would be absorbed by the market in a year's time wiping out the demand-supply gap as the demand for paper was expected to grow by 9 per cent this year as against 6 per cent last year.

Even the temporary imbalance in the supply-demand, Dhoble said, could be avoided if the industry observed supply side discipline like restricting domestic supply and focusing more on exports like what ITC did when it completed its expansion project in 2008-09.

“If they export more, the domestic situation will not be disturbed,” he said adding the export market was currently buoyant. “I feel that they will maintain supply side discipline ensuring that the domestic prices remained firm,” he added.

Meanwhile, AP Paper Mills, part of the Kolkata-based LN Bangur group, has commenced commercial production from its new 67,000-tpa paper machine last week. The West Coast Paper Mills has also completed its expansion. programme has been completed increasing its installed capacity from 180,000 tpa to 320,000 tpa.

On the other hand, state government-owned Tamil Nadu Newsprint Limited plans to hike its capacity by 120,000 tonnes.