A few days ago, a Mumbai-based corrugated box maker offered to pay the full amount in advance for the kraft paper he required. But the kraft paper manufacturer refused to accept the advance, saying he would price his supply as per market rates prevailing on the day of dispatch.

The kraft paper maker told the box maker that he was not sure about the next day’s raw material availability and its prices were rising on a daily basis. 

A garment trader in Kolkata sought cardboards of nearly 10 tonnes, but the supplier came forward to give him only four tonnes. The latter said he wouldn’t guarantee the supply of the rest immediately and prices would be based on the rate of the raw materials on the day of dispatch. 

Unseen in 4 decades

These are two examples of how the Indian paper industry is going through a crisis, something not seen in the last four decades. “Indian paper industry faced a crisis in 1974, but this seems to be worse than that,” says a veteran industry analyst.

“Raw material for the paper is just not available in India. Be it import of pulp or paper, the delivery takes 4-6 months resulting in scarcity. This is all set to disrupt the packaging line,” said Kirit Modi, President Emeritus, Indian Corrugated Case Manufacturing Association (ICCMA).

“We had never imagined a situation that would be too difficult to manage like this. Prices of pulp and wastepaper have increased sharply since the onset of the Covid pandemic,” said Sanjay Rajgarhia, President, ICCMA.

Mills curb operations

“The situation is getting worse by the day. This has resulted in paper mills cutting their operations to 2-3 days a week,” said Rajesh Sundrani, Executive Director of Chennai-based SBS Paper Recycling Ltd.

“Be it large, medium or small mills, they hardly work for 15-20 days a month due to raw materials shortage,” said Vinod Patel, Managing Partner of Chennai-based Suryaans Paper Mills.

The Indian paper industry is currently being crushed by the non-availability of waste cuttings or waste paper, high prices for pulp, fibres and newsprint, container problems, including rising freight rates, increasing coal, chemicals and other inputs rates, and, finally, the Russian invasion of Ukraine. 

Centre imposes 2.5% duty 

“The US and Europe are our main sources of wastepaper. Some Chinese units have set up mills in the US to source raw materials for their paper mills back home since China has banned the import of wastes, including paper, from January 2021,” said a Kolkata-based trader on the condition of anonymity.

“From February 1, the US waste paper rates have been increased to $400 from $300 a tonne. Despite being ready to pay the hike, we are not getting supplies. In addition, the Russia-Ukraine crisis has added fuel to the fire, while the Indian government has imposed 2.5 per cent basic customs duty on waste paper imports,” said Patel, listing out the woes.

“The total fibre availability is an issue for the paper industry. Imports have increased to three million tonnes now and the Centre has tried to take advantage by imposing the import duty in the Budget this year,” said a paper industry analyst, not wishing to be identified. 

The raw material shortage has resulted in domestic waste paper prices rising to ₹28 a kg from ₹20. 

Shrinking sources

Things turned worse in December due to container shortage and international liners have increased their prices. “The charge to bring waste papers in a 40 feet container has been raised to $3,600 from $2,800. Earlier, it was below $1,600-1,800. Our sources of imports are also shrinking. We are now confined to the US and West Asia,” said Sundrani. 

Waste paper sources such as Australia were the first to be left out due to high shipping costs. Currently, the container charge is $8,000 against the normal of around $2,000 from Down Under. 

A Kolkata-based trader said the supply of softwood for pulp production was affected during the pandemic as many units shut down in Europe. 

Patel said Europe had suddenly banned exports of waste paper. “When the Indian government took up the issue, the European Union blamed it on a clerical error. But the ban still continues,” said Sundrani.

“The next EC meeting is scheduled in April. If what the EC contends is right, then it will take another two months before things are set right,” said Patel. 

Pulp exporters backing out

ICCMA’s Modi said unbleached pulp prices have increased to over $900 and bleached pulp to around $1,300 a tonne, a sharp hike that paper mills have found tough to handle. The hike has resulted in softwood prices increasing. 

 According to Canadian government data, north bleached softwood kraft pulp (Europe) was priced at $1,300 a tonne in early February. With the global economy recovering from the Covid pandemic, demand for pulp, paper and their products are likely to rise.

A Kolkata-based trader said some pulp exporters were even backing out of contracts, aggravating their problems. 

Deepak Mittal, President, Federation of Paper Traders Association of India, said supply of old newsprint has dropped 35 per cent as its collection declined due to the Covid pandemic. “The problem in collecting waste paper has led to a huge shortage affecting Kraft, Duplex and other such papers,” he said.

“Even A grade mills that depend on pulps have been affected and it is tough to predict what the cost will be tomorrow,” he said. 

Coal availability

Paper mills are also faced with the problem of coal supply. With the Centre according priority to power plants for coal, paper mills have not been able to get the raw material supply. 

“Coal prices have also been impacted by Indonesia’s decision to curb exports,” said ICCMA’s Modi. 

Mittal said one tonne of coal is required to produce a tonne of paper. “The price of coal has increased from ₹6 a kg to ₹15-17 now,” he said. The Russia-Ukraine crisis has further pushed up coal prices with rates of energy sector commodities skyrocketing. Benchmark Newcastle coal prices zoomed to $400 a tonne on Wednesday, up over 60 per cent in the past week as the International Energy Agency said the situation in the market is tight.

According to Rajgarhia, prices of other raw materials such as corn starch and steel pins have also increased. Paper mills have no control over the prices, said Mittal. 

Impact of Russia interest hike

In a statement releasing its December quarter results, Seshasayee Paper and Boards Ltd said its benefits from improved sales volumes have been “partly negated” by a significant increase in energy costs, mainly on account of exorbitant price increases for coal, rise in prices of key input materials such as wood, chemicals, etc, hike in logistics costs.

A paper industry analyst said the Ukraine-Russia crisis will affect even the supply of newsprint from the Kremlin to India, where there are some buyers. While supplies could be affected, newsprint prices, particularly from Russia, could go up significantly as the Putin administration has raised the interest rate to 20 per cent. 

“Indian buyers get newsprint on six months credit. Since the interest rate has gone up, sellers will factor in the increase in interest rates,” the analyst said. 

‘Passing phase’

Despite these problems, Indian mills continue to export, including kraft paper that is important for making corrugated or brown boxes used in packing goods from electronics to e-commerce to farm produce to FMCG items used in daily life. 

ICCMA’s Rajgarhia said exports are lower this fiscal compared with last year. Seshasayee Paper said during April-December 2021 it had a better order flow from the export market. 

Though some in the industry, mainly corporates, feel this is a “passing phase”, others say the sector will have to survive “today before thinking about tomorrow”.