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Paper Industry

Yash Papers gives a nice insight in to the Paper Industry in its Annual Report.Global paper industry

The global paper and paperboard industry is dominated by North America, Europe andAsia. Global paper and paperboard production stood at around 380 million tons in 2008, theUS leading with over 100 million tons and accounting for nearly a third of theworld’s production. With a large number of paper production capacities shutting downin North America and growing capacity creation in Asia (especially China), the latteraccounts for over a third of global paper production, while Europe and North Americaaccount for about 30% and 25% respectively. Interestingly, even as per capita paperconsumption in the US is 300 kg, it is 35 kg in Asia, implying excellent growth prospects.

Global paper and paperboard production by region

Global paper and paperboard production by grade

(Source: ForesSTAT, FAO)

Paper demand is unevenly distributed as 72% of the world’s paper is consumed by 22% ofthe world’s population – in the US, Europe and Japan (Source: wrm.org.uy). Theworld demand for the material is expected to grow by around 3% annually, reaching anestimated 490 million tons by 2020, with significant growth coming out of Asia and EasternEurope (Source: pulpandpaper.net).

Asia dominates the demand for paper and paperboard; consumption increased at a CAGR of7% across 2003-08 (Source: Paperage.com). China is now the world’s second-largesthousehold paper consuming nation (Source: Chinadaily.cn).

Indian paper industry

The Rs. 25,000-crore Indian paper industry accounts for about 1.6% of the world’spaper and paperboard production even though the country accounts for nearly 16% of theglobal population. The Indian paper industry’s market size has been estimated at Rs.321 billion, growing at a CAGR of 10.5% from around Rs. 195 billion in 2003-04 to Rs. 321billion in 2008-09. In 2009-10, the country produced 9.18 million tons of paper, growingat an average 6-7% compared with 2% growth in developed countries (Source: Assocham). Thepaper industry growth is forecast at 8.4% annually, touching 11.5 million tons in 2011-12and 15 million tons by 2015 (Source: Business Line, 7 May, 2010).

In India, paperboard accounts for nearly 47.3% of the total market size, followed bywriting and printing paper (29.6%), newsprint (19.5%) and speciality paper (3.6%)according to CRISIL Research.

India is among the world’s fastest growing paper markets; an increase inconsumption by one kg per capita can potentially increase annual paper demand by a milliontons. India’s paper production is forecasted to grow at a CAGR of 8.4% whileconsumption is pegged at a CAGR of 9% till 2012-13 on account of a growing demand fortissue paper, tea bags, filter paper, light weight online coated paper and medical gradecoated paper (Source: Business Line, 7 May, 2010).

Positive macro triggers

Low per capita consumption: India’s per capita paper consumption grew 10.6% in2009-10 (from 8.3 kg in 2008-09 to 9.18 kg) compared with 42 kg in China and 350 kg indeveloped countries (Source: Assocham), implying a large scope for correction.

Export opportunity: A number of European and US paper mills are shutting down owing toovercapacity and cost issues, an attractive export opportunity for Indian paper mills.Besides, Indian paper manufacturers, utilising agriculture-based raw material, possess asustainable growth opportunity on account of growing environment consciousness.

Packaging industry: The Rs. 77,570-crore Indian packaging industry (as on April 2010)grew around 15% year-on-year (Source: Indianpackagingshow.com). The paperboardmarket size was about Rs. 120 billion in 2009; demand grew at a 3.4% CAGR from 3.7 milliontons in 2004 to 4.4 million tons in 2009 (Source: CRISIL Research), riding a growth in thepharmaceutical, cigarettes, textile, FMCG, consumer durable and retail segments.

Changing lifestyles: With improving domestic living standards, demand for specialitypaper (tissue paper, fine art paper, business card paper and greeting card paper) isexpected to increase at around 8% CAGR

Paper type Uses Varieties Demand drivers
Writing and printing paper Writing, printing, stationery Creamwove, maplitho, paperboard, copier and coated paper Population growth, level of literacy, public and private spending on education, level of business activity, increasing presence of modern retail formats and growth in the printing industry
Paperboard Industrial purpose Kraft paper, recycled board and virgin board Growth in the packaging industry, industrial production and development in packaging technology and substitution by other materials
Speciality paper Tissue paper, fine art paper, paper for specialised industrial usages such as steel mill kraft, insulation grades, etc Duplex, grey and white board and MG posters Consumption of this paper variety is linked to the standard of living as well as per capita income
Newsprint paper Printing of newspapers and magazines Glazed and standard paper Growing economy, growing circulation and readership

Demand and supply: Domestic paper demand grew steadily at a CAGR of 6.5% – from6.8 million tons in 2003 to 9.3 million tons in 2009 (Source: CRISIL Research).With rising economic growth, share of the paperboard segment in total demand hasincreased. The paperboard segment accounts for around 47% of demand, while the writing andprinting, newsprint and speciality paper segment accounts for nearly 30%, 20% and 3%respectively. It is expected that by 2014, paperboard demand will grow at a 7% CAGR due toa healthy growth in industrial production and recovery in the consumer goods sector.Demand for writing and printing paper is expected to grow 6.5% CAGR, driven by thegovernment’s thrust on education and overall economic growth.

Estimated paper demand

Paper demand statistics 2005 2006 2007 2008 2009E 2010E 2011E
Per capita consumption (Kg) 7 7.3 7.8 8.3 9.18 9.4 10
Growth (%) in per capita consumption   4.20% 6.80% 6.40% 10.60% 3.20% 6.30%
Indian population (mn) 1,096 1,114 1,131 1,147 1,164 1,182 1,199
Growth (%)   1.60% 1.50% 1.40% 1.40% 1.50% 1.50%
Total paper demand (mn MT) 7.7 8.1 8.8 9.5 10.2 10.2 12
Growth (%)   5.80% 7.80% 8.10% 8.10% 8.10% 8.10%

Source: Census 2001, National Sample Survey Organisation, IPMA, Karvy estimates

Production: The Indian paper industry is fragmented; the top five producers accountingfor around 20-22% of the total Indian paper capacity. In 2009, the annual operatingcapacity was 9.1 million tons and annual production was 7.4 million tons, and withcurrently undertaken expansions, another 15 lac tons is expected to be added by 2012 (Source:CRISIL Research).

             

(In 000’ tons)

  2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 CAGR1 (%)
Capacity 7,290 7,502 7,632 8,052 8,502 9,102 4.5
Production 5,530 5,870 6,277 6,660 7,066 7,458 6.2
Capacity utilisation 75.9 78.2 82.2 82.7 83.1 81.9  
Demand 5,452 5,793.4 6,170.4 6,579.5 7,040.8 7,488.5 6.6
Imports 172 195 314 377 469.4 572.6 27.2
Exports 250 275 421 458.1 494.7 531.3 16.3

1

CAGR for the period 2003-04 to 2008-09

(Source: CRISIL Research, Industry)

Consumption: As paper consumption is linked to economic development, India has emergedas one of the world’s fastest growing paper markets. Per capita consumption increasedfrom 8.3 kg during 2008-09 to 9.18 kg in 2009-10, a growth of 10.6% (Source: Assocham),even though this is low compared with Japan’s 250 kg, Korea’s 170 kg,China’s 45 kg, world average per capita consumption of 56 kg and Asian average of 46kg.

Price: Raw materials and power constitutes the major cost, accounting for around 55-60%of the total costs. The paper industry faces a demand-supply mismatch, resulting in pricerise. The cost of pulp has been rising after the global slump, reaching an all time highof USD 974 per ton as on 2009 (Source: CMIE). Moreover, an earthquake in Chilerecently disrupted pulp supplies of about three million tones, resulting in an increase inprice of pulp globally.

Further, the US government withdrew a subsidy of USD 125-150 per ton for the treatmentof black liquor (generated during pulp manufacturing), which is a harmful effluent andby-product of kraft paper manufacture. The withdrawal of the subsidy discouraged wood usefor pulp manufacture, boosting the demand for its alternative – waste paper.

As per CRISIL estimates, the domestic prices of paper are expected to increase over2010-11 and 2011-12. The manufacturers are increasing capacity significantly, adding about1.5 to 2 million tons between 2008 and 2012, most of which are in the writing and printingsegment. Paperboard prices are likely to increase by 10-12%, owing to lower capacityadditions and higher demand growth.

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