Paper firms resort to price cuts to maintain sales

Rising input costs and cheap imports from China put companies under pressure

Notwithstanding the rising input costs, leading paper companies have taken price cuts of up to five per cent in the quarter to maintain sales.

Currently, due to increase in imports of paper from China, many companies are facing a glut. To clear stock, they are left with only one option of taking a hit on margins and cut prices. Some are trying to avoid this but industry observers say things could worsen and for a couple of months, demand will remain subdued. Price cuts have been taken by JK Paper and TNPL, among others. The performance of companies is expected to be under pressure in the second quarter. The country’s biggest paper maker, Bilt, however, said no price cuts were taken by it in the quarter.

According to A K Ghosh, vice president (sales & marketing), the price cut has been sharper in coated paper, due to a sudden rise in imports from China. “The landed price of Chinese coated paper dropped by $110 a tonne between July and August and we had to correct our prices by Rs 3,000 a tonne last month. We heard that bookings have been done recently at a much lower rate of $730-740 a tonne for delivery at Mumbai. After including all charges, it can be sold at Rs 49,000-50,000 a tonne, compared to the domestic selling price of Rs 55,000,” he said. More cuts could happen.

Traders importing from China are learnt to have trimmed their orders for September, as they are expecting further price cuts.

In the uncoated segment, too, price cuts of Rs 1,500-2,500 a tonne were taken by companies. They are seeing slackened demand after an end to the notebook season in May-June. “The second quarter realisation is lower than the first for both coated and uncoated categories. At the same time, the cost of wood, chemical and diesel has gone up. Net realisation of JK Paper for coated paper has come down from Rs 48,000 in Q1 to Rs 45,700 a tonne, while for copier paper it has come down from Rs 46,800 to around Rs 46,000 a tonne,” said Ghosh.

A Velliangiri, deputy managing director of TNPL, said paper companies usually face lean demand between August and November. “This trend is being felt in the current year, too. There is price pressure and companies are adopting ways of discounting according to their individual strategy to sell. Having said that, the current year is certainly better than last year and demand should revive in December.”

Bilt group director (finance) B Hariharan said the company was seeing some improvement in margins. “We have not taken a cut in the quarter in any segment. Pulp prices are down from $650 a tonne in Q1 to $570 in Q2 and we are also getting 7,500 tonnes pulp every month from our Sabah (Malaysia) plant.”