post-liberalisation decline in the effective protection
rate for the domestic paper industry has resulted in domestic
prices being linked to international demand-supply dynamics,
according to Crisil in its latest publication of Crisil
international paper prices till 1995-96 had enabled domestic
manufacturers to increase domestic prices and maintain
profitability. International paper prices started declining
from 1997 and remained low in 1998 which, coupled with
low import duty for newsprint, led to large-scale imports
of writing and printing paper in the guise of newsprint.
This resulted in lower realisations for domestic players
in 1997 and 1998 besides affecting offtake.
pressure on domestic realisations, coupled with increasing
raw material (due to limited availability) and power costs
(due to dependence on grid power), had an adverse impact
on the profitability of major players and also led to
the closure of a number of smaller capacities.
imports resulted in the share of the top 10 domestic players
in the paper and board market declining to 29 per cent
in 1997-98 from 31 per cent in 1996-97. Though the four
leading newsprint companies account for 83 per cent of
production, they accounted for only 28 per cent of domestic
sales due to cheaper imports entering the Indian market.
In its publication Crisil says it expects the writing
and printing paper segment to grow at a higher rate in
the medium term compared to the past CAGR of 7.1 per cent,
because of higher per capita incomes, literacy levels
and lower diversion of newsprint to this segment.
industrial paper segment is expected to register a growth
of around 9 per cent and emerge as the largest sector
in the medium term due to steady end-user growth especially
from the consumer durables industry. The newsprint segment
is expected to witness a slowdown in demand compared to
the past due to lower diversion to the writing and printing
paper segment. Overall, Crisil envisages the paper demand
to grow at around 8 per cent until 2002.
expects the demand-supply gap in the case of writing and
printing paper to narrow in the medium term due to higher
demand and relatively low capacity additions. While industrial
paper demand is expected to continue to exceed capacity
over the medium term, Crisil expects that the existing
players will increase operating rates to meet demand.
the unorganised sector is also expected to become operational
increasingly and contribute to supplies when prices improve
significantly. Despite the lack of capacity additions
in the newsprint segment, Crisil expects operating rates
to remain low due to cheap imports from Russia and Korea
following low tariff barriers.
In the 1998-99 and 1999-2000 budgets, the import duty
on writing and printing paper was increased moderately
and, coupled with the depreciation of the rupee, the effective
protection rate increased, enabling domestic players to
raise prices moderately and improve profitability. International
prices have currently begun to firm up in line with pulp
prices and hence Crisil expects that domestic writing
and printing paper prices will rise further.
paper prices have remained low in 1997-98 and 1998-99
due to increased competition following the commissioning
of new capacities. This trend is expected to continue
in the short term with the larger players attempting to
further increase market share by matching the unorganised
sector on price. Over the medium term, Crisil expects
that consolidation of capacities and increasing demand
for value added boards will lead to a moderate increase
prices recovered marginally in 1998-99 due to stricter
implementation of the end-user criterion in case of imports,
and steady international prices. However, due to dumping
of low-priced Korean and Russian newsprint in global markets,
including India, domestic players have been forced to
take lower realisations in 1999-2000. Crisil expects this
scenario to continue in the short term.
Domestic availability of raw material is expected to be
sufficient to meet current production levels but future
capacities would have to be increasingly based on imported
pulp, non-conventional raw materials and waste paper.
The operating margins of players in the writing and printing
paper segment is expected to improve in the short to medium
term due to higher volumes and realisations while the
margins of industrial paper producers are likely to be
maintained in the short term despite larger volumes.
However, the margins
of newsprint producers would continue to remain under
pressure from low priced Korean and Russian imports. According
to Crisil, low cost of production, economic size, presence
in the value added product segments, captive generation
facilities and well established distribution networks
would be crucial for profitability in the paper industry.
of reports on paper