Softening pulp prices may help paper companies continue good show

Paper companies such as BILT and JK Paper, which reported high growth in profits during the April-June quarter, would continue to perform well in the current quarter as well on softening pulp prices.

“Pulp prices had peaked to $840 a tonne during the first quarter. However, in the past two weeks they have come down to $700. We expect them to fall further. The complete impact of this decline will be seen in the next quarter,” said B Hariharan, group director (finance) at BILT, the country’s biggest paper producer. Pulp is the main input for paper.

During the previous financial year, pulp prices were going up but companies were unable to pass on the full increase to buyers. However, most companies took two-three price increases in the first quarter of the current financial year. BILT, for instance, raised prices by 8-10 per cent or Rs 4,500 a tonne on both coated and uncoated paper.

Industry officials said that global pulp production had shrunk during the first half of the calenday year due to an earthquake in Chile which is a major pulp producer. However, pulp production is coming back on stream in Chile. While some softening has been seen in coated paper following the dip in pulp prices, the price of uncoated paper is stable.

“There is some import pressure in coated paper where the gap between domestic and landed price of imported variety is small. So, some more price correction could take place. However, there is scope for increase in the copier variety of uncoated paper since the domestic price is lower,” said V Kumaraswamy, chief financial officer of JK Paper. Both BILT and JK Paper reported sharp increase in profit during the quarter ended June 30. While BILT’s consolidated profit moved up 86 per cent to Rs 83 crore, JK Paper saw its profit up 44 per cent to Rs 29.11 crore. Profits of other leading players like Tamil Nadu Newsprint and Papers and Seshasayee Paper also saw an increase.

In India, paper demand has been buoyant due to a reviving domestic economy and government’s focus on education. Various segments of the writing and printing paper such as copier and coated are growing well over double digits, said Kumaraswamy.

However, a capacity addition of around 300,000 tonnes is expected in the current year from West Coast Paper and Tamil Nadu Newsprint and Papers. The industry may have to find export market till the domestic market is able to absorb this new production.