Fall in input costs may benefit paper units

A sharp drop in the prices of inputs like pulp, coal and chemicals from their last year’s peak will help domestic paper companies like Bilt, JK Paper and West Coast Paper earn better margins this year.

“The drop in input prices, particularly that of pulp, will have a positive impact on our performance. While the price of imported pulp has come down from a peak of $780 a tonne to $400 a tonne, we have not seen any correction in the price of coated paper. Moreover, the domestic demand continues to remain strong despite the slowdown,” said B Hariharan, director (finance), Bilt, the country’s largest paper producer.

High price of imported pulp and coal in 2008-09 affected profitability of paper firms. The average coal prices last year stood at Rs 2,344 a tonne. This has now softened to Rs 1,998 a tonne. However, though input prices have started to cool off and are much lower than their last year’s peak, paper prices are stable and are expected to remain so for a while.

The average price realisations for coated paper last year were about Rs 42,000-43,000 a tonne while the present prices are in the range of Rs 41,000-42,000 a tonne. Similarly, the average realisation for uncoated paper last year was around Rs 42,500 a tonne while the current realisation is Rs 43,000 a tonne.

“The input prices, including that of several chemicals and imported pulp, have now softened and this should help the company post better results in the coming quarters. The outlook on finished products looks stable. Overall, the industry should be earning better margins this year,” said Harsh Pati Singhania, managing director, JK Paper.

While domestic demand for paper remains buoyant given the government spending on education through schemes like Sarva Shiksha Abhiyan, the industry is concerned about cheaper imports, especially of coated paper.

We need to be vigilant to ensure there is no dumping of paper from Indonesia and China,” said Hariharan. The industry has made representations to the government seeking safeguard duties on imports. However, there has been no further development.