Paper prices up on buoyant demand

Increase due to rising cost of raw materials such as coal and furnace oil, but the market is absorbing it.

Riding on buoyant demand, paper companies such as Bilt, West Coast and JK Paper have increased prices of writing and printing paper by about three per cent from April. This is the first increase in the current financial year. In the last financial year, companies had increased prices thrice. The increase, they say, was due to high cost of raw materials such as coal and furnace oil.

“Cost of coal and furnace oil increased considerably and we had to pass it on. This increase brings us to a cost neutral situation. The market has been able to absorb this increase, since the demand is strong,” said K L Chandak, chief financial officer and executive director, West Coast Paper, which has annual writing and printing paper capacity of 260,000 tonnes.

Stocks of paper companies have seen renewed interest since last week after the world’s biggest producer, International Paper, acquired majority stake in 250,000-tonne Andhra Pradesh Paper, by paying a huge premium. Apart from valuation, market conditions are also favourable for companies.

A buoyant demand, backed by rising literacy and government focus on education, took the paper industry by surprise . Capacity additions that came into the market last year have already been absorbed. “The supply overhang has almost disappeared, though it was expected to last till 2012,” said V Kumaraswamy, chief financial officer of JK Paper, that has annual capacity of 250,000 tonnes. Kumaraswamy said the price has been increased by Rs 1,500 a tonne to Rs 46,000-48,000 a tonne. On an average mills consume 1.5 tonnes of coal to manufacture a tonne of paper. Coal India, the country’s biggest producer raised prices by 30 per cent from March 1, that has increased the cost by Rs 400-700 a tonne for various players, depending on the mill location.

India is one of the fastest growing paper markets, with the government thrust and budgetary allocation to education. The domestic paper industry is estimated to be around 10 million tonnes. Of this, the writing paper segment accounts for 3.8 million tonnes, packaging grade paper around 4.5 million tonnes, while the newsprint industry is about 1.7 million tonnes. The annual domestic per capita consumption of paper is only 9.2 kg, much lower compared to many developing economies. The per capita consumption in China and Indonesia is estimated at 42 kg and 23 kg, respectively. However, all segments of the industry are growing at eight-nine per cent yearly or above.

High paper prices are eating into box manufacturers’ margins. Prices of kraft paper, used for making corrugated boxes for packaging, have risen by 20 per cent from Rs 24 a kg to Rs 29 a kg since October. Also, the import duty on kraft paper is 10 per cent at present, which adds to the woes of the corrugated box manufacturers.“We have appealed to the government to remove the 10 per cent import duty on kraft paper, as the cumulative impact of these increases is 20 per cent,” said Kirit Modi, president of Indian Corrugated Case Manufactures Association.

(With inputs from Sharleen D’Souza in Mumbai)