The demand for paper and paperboard has slowed down in India and globally. Trends point towards a clear structural shift in the industry with emerging economies and India and China driving the demand, and signs of stagnation in developed markets.
The global demand during 2011 was down 1 per cent as against 6 per cent growth in 2010. During 2011-12, the demand decelerated to around 6.5 per cent as against 7.1 per cent in the previous year, according to ITC.
While India’s population is about 7 per cent of the world’s population, it consumes barely 2 per cent of the global paper output with per capita consumption at only 9 kg against global average of 55 kg, 65 kg in China and 215 kg in Japan.
The increase in the consumption in emerging economies is due to lower consumption at the current levels and the potential for further upside in the years to come due to economic growth. Given the potential in a market such as India with a population of 1.2 billion and young workforce, manufacturers here see a much higher growth over the next few decades.
While the demand growth is clearly visible in India, the competition in the country is also increasing with the entry of global players and the possibility of further consolidation. This has potential to impact the overall profitability of players in the industry due to increasing competition.
The buyout of Andhra Paper Mills Ltd by the US major International Paper provided a clear signal for possible consolidation in the sector. According to ITC annual statement, the free trade agreements in the region have also begun to impact the profitability of the domestic players. This requires changes in the existing duty structures.
The domestic paper and paperboard industry is projected to grow at about 8 per cent a year aided by the growth of the value added product segment.
The growth of the paper industry is based on the growth of the overall economy, the potential in the semi-urban and rural markets and the growth in the packaging product business due to requirements in the expanding retail sector of the country.
Some of the initiatives of the Government in the education sector such as Sarva Siksha Abhiyan and Right to Education are expected to play a big role in the growth of the writing and printing paper segment. Some of the sectors such as copier and fine paper are quite buoyant.
Another area of growth seen by the industry players is in the décor and insulation segment due to market growth. ITC is the market leader in décor grades and is the largest manufacturer of cigarette tissue in the country.
One of the big challenges for further growth of the industry, by way of setting up of new manufacturing plants and expansion at existing plants, is based on Government clearances, including environmental, along with sustaining the supply of raw material for production.
Most of the paper industry players such as ITC and Andhra Paper Mills Ltd (now part of International Paper), have taken to social forestry in a big way engaging with local farm community. This has helped them meet the raw material requirement.
The Government is being urged to make amendments to Forest Act to permit industry to use degraded forest land for afforestation and thereafter use for raw material.
The paper industry is also seeking to lay special thrust on energy conservation, both by setting up renewable energy projects but also improving internal plant efficiencies.