Writing on the wall for paper industry

Reams of trouble And not many ways to get out Bloomberg

Digital technologies and rapidly falling demand are pushing paper companies to the brink

Till 1995, paper as a commodity was called white gold. But this gold has lost its sheen. In the 1960s, economists predicted that paper would face a shortage in India when its per capita consumption of about 2 kg catches up with the global average of around 35 kg.

To be fair, in 1973 the country witnessed an unprecedented paper boom. Financial institutions liberally doled out loans to all paper mills without looking into their viability. More than 320 mini paper mills and about a dozen big paper mills started operations since 1976 and after 1980 all these new mills started closing operations systematically.

Wrong forecast

Recently, Ballarpur Industries accounting for almost 35 per cent of the Indian paper market shut down citing financial constraints and adverse market conditions. Just a year ago Sirpur Paper Mills, a leading producer also shut its mill citing adverse market conditions.

Thus the pundits’ forecast turned out to be mere bluff, like the Malthusian theory of population which predicted famine for an increasing population in geometric progression. Robert Malthus did not figure technology in food production.

In the case of paper, computers and telecommunications greatly displaced the use of paper. A compact disc of 700 MB can store matter than can be printed in 60 reams of paper (double demy) of 60 gsm equivalent to one tonne of writing /printing paper.

This means, India’s 2 million tonnes of writing and printing paper production can be stored in some 1350 hard drives of 1 TB, which can be kept inside a small shop of 1,000 sq feet. One can understand the economics behind this. Also, one can think in terms of easy retrievability of data from computers, or discs, when compared to hard copy retrieval from paper board files.

Almost all government departments, regulatory bodies negotiable instruments, bank transfers, and so on have switched to electronic data keeping thanks to itseasy retrievability, accessibility, speed and safety. Therefore, there can be no speakable growth rate in paper in future.

In 1990s, the production of paper in the US in writing and printing grade was around 90 million tonnes which has dipped to around 60 million tonnes; it is continuing to decline.

The US government which used to be a leading consumer of paper is now storing data in metallic tapes and computers. This substitutes consumption of around 33 million tonnes of paper. This is the position for all governments worldwide.

Most of the demand prediction in India was based on the increase in the income levels of the lower and middle level income group. As this populace graduates towards the upper income level, a fresh demand would be created especially through education. This under normal circumstances was true especially for a country like India where 36.4 per cent of the population was living below-subsistence levels.

Electronic invasion

Income level did increase as predicted and a good percentage of our population graduated to upper income levels. But consumption of paper didn’t go up as expected. The electronic media invaded. Children are now using smartphones and computers for learning.

A greater section of the younger generation, including the eligible working population, has now turned to electronic medium. Thus the anticipated demand for paper did not materialise.

The book publishing industry too had been greatly affected; though the reading habit has greatly increased, readers now use laptops and mobile platforms for reading, which offers them great convenience in terms of bookmarking and revisiting passages.

In the office segment the effect is profound. All files are now stored on internet-based (cloud) applications from Google, Apple, etc.. Demat of shares and downloading of public limited company balance sheets in company websites, electronic telephone bills, e-ticketing, all have impacted paper consumption.

What vanished in the meantime was manifold paper, manila pink cover paper, duplicating paper, bond paper, ledger paper, account book paper, share application paper, policy bond paper and so on. Only copier grade paper mainly used in taking print outs from electronic printers is in use. That is in short a shift in consumption pattern that happened due to technology.

Also, a sea change has taken place in the way pulp is made. Added by advancement in chemical engineering in gumming fibres, most nations use ash content or saw dust in their pulp for very good quality paper thus substituting precious long fibre coniferous trees. Time magazine is printed in six-colours on paper using 35 per cent ash content on advanced printing machines.

The road ahead

In the paper manufacturing process, the advancement in high-speed machinery consuming optimum energy and controlled by electronic sensors, resulted in immense cost reduction for paper mills. Also, the latest technology would help them to conform to green emission/pollutions norms.

In about 15 years, consumption for writing and printing grade paper would have declined tremendously. As a standing reference, one can note that big photo film companies such as Kodak or Konica had to shut down their production of photo films when smartphones arrived.

There is no point in Indian paper manufacturers blaming cheaper imports. Countries such as China, Indonesia, Malaysia, which have stronger currencies and better technologies, export to India. A focus on further cost reduction by implementing latest technologies would be a better option rather than to expect price increase through demand growth. For example, the ability to make copier grade paper in 40 gsm instead of the present 70 gsm should be the focus. The existing paper mills would survive only if they try to improve their pulping and paper machine technology instead of blindly adding capacity. However, packing grade paper such as kraft and duplex board may witness steady marginal growth due to rejection of plastics.

The writer is the MD of Subramaniam Brothers

Published on October 31, 2016
This article is closed for comments.
Please Email the Editor