The Hindu Business Line : Paper: What lies ahead?

THE year has started on a sombre note for the paper industry, and the mood is glum as they outline what the rest of the year holds. But most of the big mills have concluded 2003-04 on a positive note, better than what they can hope for in the current year.

Margins are under pressure with inputs and raw material scarce and costlier. The industry is contemplating hiking prices, but it is doubtful if the market will absorb the increase. Smaller mills are posing a threat to the larger ones.

The larger mills will have to concentrate on high end products such as branded products as the smaller mills eat into the low-end, particularly, cream wove segment.

Coal prices have nearly doubled in the last one year. Drought has affected sugarcane planting and bagasse, an important raw material, is scarce. Prices are on the increase and mills will have to go for imported pulp, which is also getting dearer. Prices of hardwood pulp range around $450-$480 a tonne and that of softwood pulp $575-$600, according to industry sources.

On the export front too margins will be under pressure as the Government has cut back export subsidy from eight per cent to four per cent and the rupee continues to appreciate. These could well offset any increase in prices, they say.

Water availability is a problem in the south, and the situation is getting worse. Tamil Nadu Newsprint and Papers Ltd shut down operations but the production loss of about 600 tonnes a day has not had any impact on prices in the market. The inventory levels are high, they say.

The larger mills appear to have taken a beating on marketing cream wove paper to the notebook converters, a major market that caters to educational institutions.

Notebook converters have upgraded technology, and notebook making has become faster. This has delayed the start of the season to about February instead of December. Added to this, some of the north-based mills, the B-grade mills as the industry calls them, have upgraded their quality of cream wove paper and have taken away a chunk of the market.

This has driven the larger mills such JK Paper and Ballarpur Industries to concentrate on the South. The south-based mills such as Seshasayee Paper and Boards Ltd, Tamil Nadu Newsprint and Papers Ltd, Andhra Pradesh Paper Mills and West Coast Paper are facing the heat.

Newsprint prices went up by about Rs 1,000 in April echoing the international trend. While the election demand could contribute to the increase, there is no long-term reason to sustain the increase, feel industry sources.

Mills are looking to some growth in the copier paper segment that has demonstrated a sustained growth of about 15 per cent, annually. But here again competition is heating up. While the mills could pull along in the first quarter, the second quarter will be dull, they say.

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