Paper demand to grow at 6.7% to 20 mn tonnes in FY20: Study

Buoyed by a strong economic growth and a robust demand for paper, domestic rating agency Care Ratings today said it expects the overall paper demand to grow at a compounded annual growth rate (CAGR) of 6.7 per cent to touch 20.7 million tonnes in FY20.

It noted that the domestic demand in the country grew from 9.3 million tonnes in FY08 to 17 million tonnes in FY17 at a CAGR of 6.9 per cent.

"The demand drivers and growth triggers have come from a combination of factors such as rising income levels, growing per capita expenditure, rapid urbanisation and a larger proportion of earning population which is expected to lead consumption and there is enormous potential for the paper industry in the country," it said.

Demand for packaging paper and board segment that caters to industries like FMCG, food and beverage, pharmaceutical, and textiles among others, is expected to grow at a CAGR of 8.9 per cent and reach 11.4 million tonnes in FY20 due to increased urbanisation, requirement of better quality packaging of FMCG products marketed through organised retail, and increasing preference for ready-to-eat foods.

Printing and writing segment demand is expected to grow at a CAGR of 4.2 per cent and reach 5.7 million tonnes in FY20 on the back of of an anticipated pick-up from the education sector with improving literacy rates and growing enrolment as well as increasing number of schools and colleges.

"Improving literacy rates, rising circulation and an increasing number of newspapers and magazines is expected to support growth in newsprint demand which is expected to reach 2.8 million tonnes in FY20," it said.

On the price front, it observed that tight markets, low Chinese pulp inventories, lack of supply coming to the market, and healthy demand are the primary factors that provide an upside to the prices in 2018.

"Waste paper prices, however, may fluctuate on account of volatility in international waste paper prices, healthy demand, and forex fluctuations. Additionally, the Chinese government has banned the import of several varieties of waste paper, which is the primary raw material for finished paper. Consequently, the production of finished paper is expected to be hampered in China. This in turn is expected to lead to some relief in raw material prices and improve realisations," it said.

It added that the profitability of the players is expected to be maintained in the medium-term on the back of eased out cost side pressures and improved realisations of the finished goods.