Venkatagiri KS began the panel discussion with a personal experience. Recently, he visited his ancestral village, and was glad to see a copy of 15 August 1947 edition of The Hindu at his grandfather’s house. A historic day of the birth of independent India. Venkatagiri said, “When you physically see a paper document, it evokes enormous emotion.”

Venkatagiri touched upon a recent event, where education authorities in Sri Lanka postponed exams indefinitely due to an acute paper shortage. He then moved on to the opportunities in other sectors. He said, “I was speaking to a leading bottle manufacturer. He spoke about growth opportunities for the bottle sector. He said in terms of packaging material, we feel the opportunity for growth for the paper industry is much higher than that of glass and other materials.” And so, in lieu of what is transpiring in the paper and paperboard sector, the global players and tier 1 suppliers are increasingly adopting the China Plus One model. This model should be an advantage to our industry. Venkatagiri added, “There are huge opportunities for the future.”

Vadiraj Kulkarni: Improve wood yields and improve waste collection

Vadiraj Kulkarni

Vadiraj Kulkarni, the chief executive at ITC Paperboards and Specialty Papers Division, spoke about speciality papers, writing-printing paper, virgin paperboards as well as recycled boards. He said the two years of Covid have significantly changed a lot of things for various industries, including our paper and paperboard industry. “Especially the availability of raw materials for the virgin paperboard industry as well as the recycling industry,”

Kulkarni said. “We are globally more connected than earlier. So, our dependence on raw materials for both these segments is much higher than ever before. The virgin paper industry with integrated pulp mills is certainly benefiting ITC as far as the hardwood is concerned.”

He added that China is setting up complete hardwood mills and they want to completely stop softwood imports. So, that’s one opportunity. But Kulkarni added that along with the opportunity comes the challenge: “Where do you get the wood from?” India is a fibre-deficient country. So, how does one ensure supply throughout the year? He said, “Wood should be made available only if we are able to work with farmers and increase plantation coverage, and ensure that the farmer gets remunerative prices.”

He underscored the importance of the Indian paper industry creating pulpwood plantation in degraded forest land and non-forest government land near mills for pulpwood plantation to handle the wood fibre-deficient situation. He felt all the stakeholders should pursue this collectively. He said, in the next five to 10 years, if wood is not available, and if the paper mills do not promote plantations, there’s going to be a huge shortage of wood. He mentioned his recent study trip to Odisha and Chattisgarh from the point of view of “looking at the potential for plantations in the coming years.” He added that the wood yield is low. “As low as 15 tonnes per acre in four years,” he said.

Kulkarni highlighted the issues of recycled paper and recycled boards. He felt that one must not be dependent on the waste from other countries. He said instead of depending on Europe or government aid for duty cutdown, the industry must ensure that at least 75% wards in India are practising source segregation of paper and paperboard waste. He said, “India, despite being such a large country, which consumes so much paper, has such low rates of collection efficiency.” He felt the industry can work with agencies and schools on collection of all types of paper waste. He said, “We, in India, do not give importance to waste segregation and recovery.

Waste segregation mechanisms and collection by the end users under the SwachBharat Abhiyaan is the key to everything.” He asked, “What is that industry doing today? Not much!”

He added, “As we transition to net-zero-carbon energy usage, we need a robust transition towards new energy efficiencies and water consumption and renewable energy.”

Ashraf Nathani: Boost the image of the industry

Ashraf Nathani

Ashraf Nathani, the managing director of Mehali Papers suggested that the paper industry needs a paper-maker as a role model who lives and breathes sustainability, and how it contributes to the future. “This might infuse passion among millennials for the paper industry,” he said. “I think this is the key point. The image of the industry needs to be altered.”

The second point Nathani discussed was water conservation. He said we should reduce consumption of water by re-looking at water reuse, stormwater, desalination and water banking. He concurred with Kulkarni that

India needs to boost waste paper recovery and recycling. He added, “As compared to plastic waste, one rarely sees mono cartons or brown boxes as part of the litter in the cities. The system is reasonably efficient. Of course, the paper mills need to be much more involved and improve the collection mechanism.” But he disagreed with Kulkarni and said that procuring “waste paper from abroad will continue for another decade.”

Nathani also spoke of the decline of the newspaper industry. He mentioned the number of LWC machines that are “up for sale”. WhatPackaging? is aware of Stora Enso, which has sold its 3,10,000-tpa Sachsen newsprint mill in Germany. The new owners will convert it to make containerboard. Likewise, newsprint production has ceased at 2,50,000-tpa capacity in UPM Shotton. The new owner is converting the mill to produce cardboard.

Furthermore, UPM announced it will shut its Kaipola mill in Finland and decommission its three paper machines, an annual reduction of 4,50,000-tonnes of newsprint and 2,70,000-tonnes of graphic grades. It also put up a ‘for sale’ sign at the UK newsprint mill UPM Shotton. Even SCA says it will exit the publication papers market. Last year, SCA made its last reel of publication paper at its Ortviken paper mill (7,56,000-tpa) where three paper machines were shuttered and the site switched to the production of chemically pre-treated thermo-mechanical pulp (CTMP).

In terms of opportunities, Nathani said there is a lot of export potential, especially to the Middle Eastern countries. He felt, India can be a good hub for paper manufacturing, and “all of us should work hard to improve our quality.”

The second thing he underscored was the government’s ban on the use of single-use plastic. The point is, how can the paper industry and all its stakeholders take advantage of that situation? One needs to cater to the requirements of the eCommerce players. For example, good tear, size, grammage, finish and premium stock. Also, he requested paper mills to look beyond the Voith Group, Toscotec, Siemens and Valmet as drivers for the modernisation of their plants. He said, “If the mills can reduce their threading time by half a minute or one minute, it can be a game changer in terms of coal and electricity and water savings.”

Deepak Mittal: Pressure on the paper financials

Deepak Mittal

Next presenter was Deepak Mittal, the president of Federation of Paper Traders Association, an apex body of paper traders in the country with 36 member associations in India, representing 10,000 paper traders for more than seven decades. Mittal said, “Out of approximately 20-million tonnes that the industry produces, 75% of the paper is sold through the trade. It’s a very large percentage as compared to the overseas markets. The reason for this is the fragmented nature of the consumers of the paper and paperboard.”

Mittal said, “The friendly neighbourhood paper trader acts as a link between the manufacturer and end-customer. It provides a range of services such as business development, stocking financing, logistics, and more. All this at extremely low cost, wherein the margins in most cases are 1%-2%.” Mittal felt this should be a case-study of how the paper trade in India survives on low margins. He pointed out, “The international paper traders operate on healthy margins of 7%-10%, when it’s a stock and sale model, and 2.5% to 3% when it’s an indenting business.”

He added, “The rules of the paper industry in India are changing. We are no longer going to be in the traditional three- to five-year cycles. The cycle will become much shorter, and we may see an upcycle and down-cycle in the same year. He said, “This is the new normal for the paper industry in India.”

Besides mentioning that the single biggest challenge the paper trade encounters is “low margins”. Mittal added, the second biggest challenge the paper trade faces is the increase in the working capital. He said, “There has been a huge price increase to the tune of 30% to 70% depending on the product.

This, Mittal said, has put “enormous amounts of pressure on the paper trader, where the working capital has shot up.” Also, he added that due to the successive price increases, the inventory build-up at the trade level and at the consumer level has also increased. This, Mittal said, “has created additional working capital stress.”

Another big challenge of the trade, according to Mittal, could be the rising risk of NPAs and defaults of the customers. He pointed out, “Due to the scarcity of paper and paperboard, which may lead to non-availability of this product to some of the smaller and the weaker set of customers, the paper trade may not want to give leverage to a consumer or a business owner with a bad payment track record. This may lead to a lot of bad debts for the trade.” He cautioned that “this puts pressure on the paper financials”.

Mittal said, “The Indian paper industry is projected to grow at 6%-7% on a base of 20-million tonnes. This is 1.4 million tonnes every year. To guarantee this, the trade needs to invest close to Rs 2,000-crore every year. But if returns are not lucrative, then the trade may find it cumbersome to raise this growth capital. Mittal said, “If the prices of paper and paperboard remain elevated, then traders may not be able to pump in the required capital. So, this may see a wave of consolidation amongst the traders.” He predicted that “the extension of credit by the trade may come to a total halt in the coming months, and the tremors of this month shall be felt all over the country.”

Coming to the opportunities, Mittal said, “The demand for paper is shrinking all over the world. However, India is bullish on paper. Mittal said, “India, with more than 16% of the world’s population, has a share of 4.1% of the paper demand in India.” He mentioned that China, with the same population, is at 28% of the world demand (that is, seven times India’s size). Mittal said, this proves “the fact that there is so much to achieve”.

However, he added, “Worldwide, the demand for writing and printing paper is shrinking. India is probably the only market in the world where both the writing, printing and packaging grades are growing. The ban on single-use plastic is a big opportunity. In the next 10 to 15 years we will witness a shift towards plastic substitutions. Paper has proved to be an alternate substitute to plastic wherever moisture is not an issue. In recent years,

India has witnessed a boost in the use of paper in food packaging, eCommerce, paper cups, shopping bags, wrappers, and more.” This, Mitatal felt, is “the single largest multi-decade opportunity for the industry and trade, and all the stakeholders should work together.”

Mittal said, “The education sector in India has a long runway for growth and this segment is far from saturated.” Mittal said, “If we divide India into three categories. India One, which is 20 million people and constitutes the super-rich. India Two, 200 million people, which is the upper middle class and the middle class; and India Three, a billion people of the lower middle class and the below poverty line who are at the bottom of the pyramid.

Mittal said a lot of demand will come from India Three due to “education”. In addition, Mittal said, as India’s per capita income grows from USD 2,000 to USD 4,000, we will see a surge in the expenditure of education and health care. The education sector contributes to 60% of the writing and printing paper demand.

Mittal concluded, “India could become the printing hub of the world if we are able to provide the right quantum of paper in the right quality and at the right price. It seems like India’s decade as far as the paper market is concerned with a clear focus. India can be a genuine alternative to China.”

Sanjay Rajgarhia: Kraft paper woes

Sanjay Rajgarhia

Sanjay Rajgarhia, MD of Perfect Pack as well as the president of Indian Corrugated Case Manufacturers’ Association (ICCMA), said, “Unfortunately, as corrugated box manufacturers, we are at the receiving end of all the volatility and upheavals due to the fibre shortage and energy prices. The corrugated box industry consumes about 7.5 million tonnes of kraft paper of various grades. In spite of being critical partners of the supply chain, the coordination and cooperation and communication between the paper mills and the coordinators is poor.”

Rajgarhia added, “All of us are aware of the raw material shortages and input costs, but corrugators need price stability and price visibility, which we can quote to our customers. As you know, we have a three-month price contract, some corrugators even have a one-month price contract. However,

Rajgarhia added that “from the paper side there is no price visibility as to what the price is for the month of the quarter. And, you know, prices are increased on the basis of a WhatsApp message. Whereas corrugators are dealing with MNCS and have to seek clearance from the zonal levels, and head offices and regional offices.” He felt paper mills and coordinators should work together to have a win-win situation.

He mentioned how ICCMA has published an advertorial “as part of a media campaign”. He said the campaign is not against the paper mills. But the advertorial said that the brown box industry is in dire straits because of “the heavy losses due to relentless price increase in paper and conversion inputs.”

The crux of the problem is that kraft paper prices have gone up 100% YOY - and 30% in the last two months. And so, ICCMA has appealed to its customer-base to increase the price of the brown box by 35%. Rajgarhia said,

“The corrugated box industry in the country with more than 400 automatic corrugators and more than 10,000 semi-automatic units, mostly in the MSME sector is facing stress on account of the cost escalations and resultant supply dislocation over the past two years. The situation has aggravated in the last couple of weeks and has seen inputs crossing all-time highs.”

Rajgarhia underscored the importance of standardisation of quality and test reports. Rajgarhia said, “My corrugator was shut down for half an hour because the paper I got had a moisture content of 17%.” The technical parameters need to be followed by all,” he said.

Rajgarhia concluded, “The corrugated box is an eco-friendly industry that consumes about 7.5-million MT per year of recycled kraft paper and produces 100% recyclable corrugated boxes to constitute a market of Rs 40,000-crore. The industry employs a workforce of over seven lakhs and plays a key role in the Indian economy by enabling the smooth functioning of the supply chain for essential goods, which is particularly critical in these volatile times. We need close partnerships.”

Manish Patel: The industry needs to cope with demand

Manish Patel

Manish Patel, chairman and managing director, The South India Paper Mills said, “The size of the market is 85 lakh tonnes, and the capacities are 120 lakh tonnes in India.” Patel said, most of the fibre for the kraft paper is sourced domestically. So, as far as fibre shortages, the dynamics of pricing are concerned, it has a lot to do with this ratio of the installed capacity and the actual demand in the domestic market.

Patel said, “This is an over-supplied or over-capacity segment. It uses domestic fibre. But 25% of the total fibre deployed by this industry sector is imported. And that is mostly a top-off fibre; and for certain grades of paper imported recycled fibre is affordable.” He added, “There were mixed waste grades, which actually were imported a little while back and they benchmark the domestic fibre pricing, which is the same case in other recycle segments of this industry also.

Patel said, “I beg to differ on the colour, you know the recovery rate of old corrugated boxes and containers in India. It’s our estimate that is in excess of 90%. Saying that improving recovery rates is a way forward for this sector is not applicable.” Patel said. “You will never-ever see an old corrugated box in a garbage heap. You will see plastic, but you will see less grades of paper, including newsprint.”

He pointed out, “The question about fibre shortage and its current pricing is because of the pandemic. The pandemic has upset global supply chain dynamics plus the availability of the important component of fibre.” Patel said, “Mills demand fibre, and every mill owner wants to run his mill at 95% capacity. As a result, two things happen. Prices of incoming material have shot up. And the selling prices are depressed. Even though the converting industry is unhappy about the change in prices, this is more like a cost push; not that there’s a demand pull.” Patel reiterated that “there’s a cost push due to energy, which no one can get away from.”

The technical issues faced by the converting industry are odour, paper cracking, poor strength, high variability of moisture, and profiling of machines. This, Patel said, “calls for better equipment”. The converting industry was de-reserved in 2007. And it came away from the small sector. And so, the converting industry started investing in automatic lines or continuous converting lines, with an average capacity of 150 tonnes a day. Earlier, it was 400 tonnes a month before the de-reservation of the sector. And, therefore, the change in terms of the quality of paper that’s demanded with the equipment has seen a radical shift. Therefore, the paper industry needs to rise to that demand, both in terms of quality and cost.

Plus, new sectors that are emerging in terms of single-use plastic substitution. This is a great opportunity for people to make mail bag paper as well as eCommerce items and food delivery service requirements. Also, there are applications with bleached or unleash boards that can be created by the industry. Point is, there are a lot of opportunities. Currently, demand is high, but raw material (waste paper) prices and fuel cost is high, too. The kraft segment needs to evolve. In the next 12 months, we will see consolidation soon – mills that can produce a better product at a lower cost, and at the right scale. Again, that’s a bit of a controversy about the terms of operations, since the geography in which a corrugation line can operate a kraft mill should not exceed 500 kilometres from a logistics point of view. So, imports are the only solution for larger capacities. The corrugation converters will evolve in India.

Where do we stand now…

As Mittal pointed out, the rules of the game are changing. The pandemic has disrupted the traditional models of making and selling/buying paper in India. While demand is robust, many packaging converting business owners have warned that industries such as food and consumer goods could suffer disruption to their supply chains because of the growing shortage of paper.

One problem is, excess capacity is chasing too few tonnes. And so, the large cardboard box makers have hiked their prices by 20%-30%. Finat, which is presenting full-day seminar prior to PrintPack in May, have cautioned of continued supply disruptions because of shortages in paper types. A label producer who spoke to our team said that there is a label stock shortage. Labels are deployed in food, beverage, pharmaceutical, health, personal care, automotive, electronics and more.

Yet, unlike the Global North, India has opportunities for paper, both in printing-writing and packaging segments. Also, the industry stakeholder must take advantage of the opportunity afforded by the ban on single-use plastic. But is there paper stock – and more importantly is it available to the domestic market? We contacted many paper mills, but they declined to comment.

The paper mills will need to do better. The time is ripe. Brands are keen to move away from plastic especially in the packaging industry, plus there are the benefits from the boom in eCommerce and electronic items. The point is, there is a surge of new buyers who seek paper. And they want paper, now.