Weak rupee takes its toll on Gujarat paper mills, cost of imported raw material up

A sharp fall in the value of the rupee against the US dollar in recent weeks has turned profit-making paper mills into loss-makers. The cost of raw material imports for paper producers in Gujarat has gone up by 10 per cent in the past one month.

This has put pressure on the margins of the paper mills, who are now thinking of passing on the increased cost burden to their customers.

The rupee was ruling at Rs 53.66 to a dollar on May 1, while it closed at Rs 60.24 against the dollar on July 5. In the past two months the rupee was fallen by Rs 6.58 to a dollar.

"We have to import raw materials - mainly waste paper - from America, Europe and the Gulf countries. Due to the rupee depreciation against the dollar, our import cost has increased by 10 per cent and this may rise to 12 per cent if the situation does not change," said Vijay Madnaik, president of the Gujarat Paper Mills Association.

More than 50 per cent of waste paper, which is the paper industry's main raw material, comes from abroad. Gujarat imports about 1.2 million tonnes of waste paper every year.

At the time of purchase, waste paper imports used to cost Rs 16,000-18,000 per tonne, including port handling and transportation charges. But now, with the rupee having weakened against the dollar, waste paper costs Rs 18,000-20,000 per tonne.

"As this is the slack period for us, we cannot pass on our cost to the clients. We are losing almost 5-7 per cent due to higher import costs," said Kirit Patel, president of the Morbi Paper Mills Association.

According to Patel and Madnaik, both small and large paper mills are suffering from higher import costs. Recently, Vapi-based paper mills had increased their price by Rs 1 per kg on June 19, but Morbi and Saurashtra-based paper mills did not increase prices.

On the price factor, Vijay Madnaik said, "We have already increased the price but it is not possible to increase the paper price further as it is not certain that our buyers will accept it. At present, we are studying the scenario and then we will consider whether to hike paper prices."

Gujarat has about 90 paper mills. Of these 23 mills are located in the Saurashtra area - mainly in Morbi - while Vapi is the biggest centre for paper mills in the state.