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Saturday, Dec 04, 2004

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Rising production costs — Paper cos mull further price hike

R. Balaji

Chennai , Dec. 3

PAPER manufacturers are hoping to increase prices further early next year as increasing costs of production erode margins. Raw material shortage and price increase have hit both the conventional wood pulp users and those dependent on non-conventional raw materials such as bagasse.

Paper prices across the board, including newsprint and printing and writing paper, have been buoyant in the current year.

Though this has not helped profits, at least it has helped partially offset the increase in raw material prices, which have contributed to an increase of Rs 2,500 - 3,500 a tonne in cost of production over the last one year. Paper prices have gone up by about Rs 1,000 a tonne with the mills increasing prices in May and September, say manufacturers.

One relief has been that there has been a steady demand in the market - domestic and export - which has supported the hike in prices.

Newsprint prices have also been buoyant with prices ranging around Rs 24,000 a tonne. While this has benefited mills that are exclusively into newsprint manufacturing and the smaller mills, the prices are not attractive to the larger mills concentrating on printing and writing paper.

The two bagasse-based mills in Tamil Nadu, Tamil Nadu Newsprint and Papers Ltd and Seshasayee Papers and Boards Ltd, have faced the adverse impact of drought in the last three years as sugarcane area came down considerably. It may be recalled that sugarcane output dropped by nearly 50 per cent in Tamil Nadu resulting in a serious drop in bagasse availability.

But some relief may be expected now with the sugar mills starting to crush sugarcane for the current season. Though sugarcane acreage is still lower than normal, at least some bagasse arrivals may be expected, say industry sources.

According to Mr N. Gopalaratnam, Chairman and Managing Director, Seshasayee Paper and Boards Ltd, the bagasse position would improve in September 2005 when the sugar season starts since sugarcane planting is progressing well now. Till then raw material will have to be sourced from outside the State, in-house wood pulp generation pushed up.

Exports have also grown steadily with mills targeting over 15 - 20 per cent of their production to the export market, he said.

Another silver lining has been the cut-size paper segment represented by the A4 size copier paper and printing paper. The domestic market has been steadily increasing by about 15 per cent in the last few years and the trend is expected to hold for at least another couple of years, he said.

According to one manufacturer, with the calendar and diary season over for them, the copier and cut size segment is showing some activity in an otherwise slow season. It is during the last quarter of the financial year that most institutional segments and Government departments start stocking up stationery.

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