Commodities

Paper industry crisis leaves corrugated box makers in a quandary

Subramani Ra Mancombu | Updated on: Mar 04, 2022
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Hit by shortage of raw materials and their costs doubling since Covid  

The crisis in the paper industry, which is facing raw material shortage and rising input costs, has affected the corrugated box or brown box manufacturers, who play a key role in the supply chain. The boxes are used in packing anything from electronics to e-commerce to farm produce to FMCG items that are used in daily life.   

“Prices of kraft paper, which is used for manufacturing corrugated boxes have doubled — a record — in the last two years. In the last few months itself, prices have gone up by 25 per cent,” said Sanjay Rajgarhia, President, Indian Corrugated Case Manufacturing Association (ICCMA).

Erratic supplies

Kraft paper prices have risen as the European Union has banned exports of waste cuttings, a relatively cheaper raw material. Post-Covid, import of input materials have been affected as the logistics issue has worsened, said Kirit Modi, President Emeritus, ICCMA.

Rajgarhia said erratic supplies have compounded the problems of soaring waste paper prices, soaring input costs, mainly fuel and starch. “There are little signs of the trend reversing in the immediate future,” he said.

“Our conversion costs have skyrocketed with the cost of starch rising by 35 per cent, besides steel pins and stitching wires. Even ink prices have surged,” said Harish Madan, Vice President, ICCMA. 

“Never have we faced such a situation and what’s scarier is that the worst is yet to come,” said Chennai-based Vikash Goyal, a leading box manufacturer.

According to a trade observer, prices of even chemicals such as caustic soda have almost doubled in the last few months, making things difficult for the entire sector.

SMEs in dire straits

With a majority of the corrugated box manufacturers being small and medium entrepreneurs, a good number of them could shut their businesses, said Rajgarhia.

The corrugated box industry in the country comprises 400-odd automatic manufacturers and over 10,000 semi-automatic units, primarily micro, small and medium enterprises. It employs over seven lakh that could have a bearing on the economy if some of the units are shut.

Corrugated boxes, which play a vital role in the domestic supply chain and exports, are made from kraft paper which is manufactured from waste paper and cuttings besides recycled brown boxes.

China’s waste import ban

According to a senior industry analyst, China’s decision to ban imports of wastes, including waste paper, has been one of the factors behind the raw material problems for the corrugated box sector.

“The ban has resulted in China importing kraft paper that is now used as a fibre to produce paper,” said the analyst.

Though exports of kraft paper are lower this fiscal compared with the previous one, India has become a net exporter of paper, excluding newsprint, for the first time in 70 years, he said.

The observer said the export of kraft paper denies the domestic paper industry paper in the future since whatever is exported will stay in China. “For every one kg of paper exported, we will lose at least 4-5 kg of paper supply. Had this been in the country, we could have recycled it a few times,” he said.

Freight costs soar

A waste paper importer said prices of hiring a container to bring paper have surged to $3,600 per 40 feet container, double the usual amount of $1,600-1,800. “Waste paper is not a high-value item for us to afford such huge freight costs. In the case of pulp importers, they are able to pay the costs since it is a high-value product,” said the importer.

Prices of waste paper and cuttings were quoted below $100 a tonne before the Covid pandemic set in. They are currently ruling at $400.

Besides increasing costs, sources for wastepaper imports are drying up. While Europe is not allowing exports of waste paper, importers have stopped looking at regions such as Australia since freight charges cost an unviable $8,000 per 40 feet container. 

Need for a hike

“Box makers will need at least a 25 per cent hike to remain viable,” said Rajgarhia.

Last week, the Kerala Corrugated Box Manufacturers Association said its members have decided to raise the price of brown boxes as kraft paper prices have increased. The price of kraft paper has been raised by ₹8,000 a tonne over the last couple of months.

Published on March 04, 2022
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