Tough times loom ahead for paper mills in Gujarat. More than 20 out of 100 paper mills in the state have shut down in six months, according to the Gujarat Paper Mills Association (GPMA). Dented by the seriousness of the matter, the GMPA members hosted a meeting last week to find out a possible solution to deal with current challenges.

“We plan to meet Finance Minister Kanu Desai. We will demand a power subsidy. The government reduced the duty drawback from 4.22% to 2.03%. We will request reinstatement among other requests,” GPMA president Sunil Agrawal said.

In a press note which was issued, the GPMA president Sunil Agrawal said. The mills are presently running with 4 lakh metric tonnes production capacity against the demand of 3 lakh metric tonnes.

The GPMA press note said, "A single paper mill provides direct employment to 300 people and indirect employment to 1,000 people. The production of a mill per day is 150 tonnes. The paper produced by these mills is deployed for packaging materials."

In the last two months, four mills have shut down in Vapi. In Gujarat, paper mills are located in Vapi and Morbi. Of the 100 paper mills, 20 were in Vapi GIDC in the Valsad district.

These developments have impacted paper exports. Two years ago, the exports of paper mills of Gujarat and Maharashtra (150 mills) were 1.50 lakh tonnes per annum, which has reduced to 30,000 tons. The export destinations were China, the Middle East, etc."  

Sunil Agrawal said, "Presently, the paper mills are running with 50-60% cut-off production, in a bid to control over production. In the last six months around 20 paper mills in Gujarat (Morbi, Ahmedabad, Surat, Vapi, etc.) have been shut down,” Agrawal said.

Agrawal added, "The reason behind the present situation is the overproduction and downfall in the exports. Apart from this more mills have entered the market in the last couple of years and even they are struggling for survival. Around 50% of raw materials used in these mills are imported from the USA, UK, and Gulf countries, and they are in the form of corrugated boxes.”

According to Agrawal, the current paper price is Rs. 22 to Rs. 23 per kg and they are facing a loss of Rs 3 per kg. “In our mills, 50 per cent of raw materials used are locally available, while 50% we import. The raw materials cost is Rs 13 per kg (local availability) and Rs 17 per kg for imported ones,” he said.

PrintWeek's view: Grim news. A paper industry consultant who spoke to us said, "Paper business is a cyclical one. And everyone goes on an expansion spree during the boom period. Unfortunately, this bullishness lasts for a couple of years. Then by the time they build additional capacity, the market has crashed. Sometimes, this creates a situation of surplus capacity. Then the whole domino effect starts. This translates into low orders, therefore negative cash flow. This is supplemented by the additional interest payment of expansion loans, then creditors get affected, so they stop the flow of raw materials. At the same time bankers tighten the financial noose. That's how the top management succumbs. Usually this is due to lack of experience to handle adverse scenarios. This could explain the recent spate of shutdowns."