Corrugation and label industry: hopes for post-pandemic demand

According to Manish Patel, managing director, South India Paper Mills, which also operates a printing and packaging division, the frequent and staggered lockdowns in various states have kept demand flat in each major region as demand in one state is fed by demand production in several by rotation. “After the lockdown in March 2020, there was a sharp revival in demand during the tail end of June 2020, but it was accompanied by a sharp increase in raw material cost for paper mills that mapped a global increase in prices of waste paper. The mills had no option but to pass on these increases.”

Box makers struggled to stay ahead of the prices of their primary raw material – kraft paper. From the bottom in December 2019, the increase in kraft paper prices, has been a staggering 15/- per kg (about 75%) till the end of July 2021 for the benchmark 18BF grade. “Box consumers have been slow to give increases, and the situation has been exacerbated by the huge increase in capacity of automatic plants in all regions of the country.

There is now a huge capacity overhang that is now chasing a flat demand, at best, and this is keeping prices of corrugated boxes depressingly unremunerative.” The e-commerce sector has undoubtedly grown from a small base, but its role in creating demand is still insignificant at around 4% for the corrugated box industry. This, before the pandemic, was about 3%, said Patel. “White goods sales suffered during the second wave and have only just begun to revive. This has had its effect on demand for corrugated. FMCG demand remains the major demand sector, but growth here has been nil.”

Besides the increase in kraft paper price (which is largely driven by a costpush from raw materials and energy), other inputs for box making such as starch and wages have also seen a sharp increase in recent times.

“All in all, prices are up, and working capital outlays have been significantly higher, but returns are under tremendous pressure and have significantly declined in 2021 thusfar,” concluded Patel.

The labels outlook
Anuj Bhargava, managing director of Kumar Labels, says that fewer orders, low payment, and extreme desperation have led to crazy competition. Bhargava adds that labels are down 30% as compared with 2020-21. This includes AlcoBev since restaurants and bars (on-premise sales) account for 27% of alcohol sales. Bhargava agrees that “at home” sales have improved, “but it’s not the same yet.” Plus, city-states like Delhi have a complex excise policy. Bhargava concludes, “Hence sales have taken a hit.”

The stress on the labels industry was not so evident during the height of the pandemic, but the impact is evident with the return of normalcy. People used their reserves during the lockdowns to cater to demand whatever there was. “Some segments like food and pharma grew, and others just stayed afloat. Now returning to pre-Covid levels with the adverse impact of increased raw material prices and additional fund requirements, the industry is going through many challenges,” says Har veer Sahni, director at Weldon Celloplast.

Coming to wrap around labels – consumption of beverages across the younger generations and usage of cosmetics had become a lifestyle reflecting products over the years. But abstaining from indulgence in these products for many months of the pandemic has surely brought in lifestyle changes. Consumers have got used to living without them and managing without their extensive usage.

“This will not stop the usage in future, but I feel, for the time being, it has stemmed the rate of growth in these segments. However, still on a positive note, once the total normalcy returns, this consumption will pick up when people start going out freely to party and celebrate, the growth may start registering a positive growth slowly and pick up the pace,” says Sahni, hopefully. 

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