The paper and printing industry in India had successfully withstood the recessionary pressures till now. However, this might change soon. Given the mounting recessionary pressures, the sector may not be able to remain immune to the ongoing economic crisis for long.
The threat posed by cheaper imports has put the domestic paper industry under tremendous pressure to cut down on prices. Moreover, the demand slump in the domestic market has also become a cause of concern for small and mid-sized paper manufacturing units.
Cheaper imports a threat
SMEs, which account for a major share in the writing and printing paper industry, recorded a double-digit topline growth and posted healthy net profits during the last financial year. However, increasing imports of low-cost paper products from countries like China and Indonesia have made it unlikely for small-scale paper manufacturing units to sustain their revenue growth.
As Gurbir Singh, Director, Hemkunt Paper Mills Ltd, says, “Dumping of low-priced paper from other countries has put our profits at stake. In wake of the continuous pressure from cheaper imports, we might be required to cut our prices to remain competitive.”
During last year, the Indian paper market witnessed a five-fold jump in the monthly import of coated paper. The total import of this paper rose to 10,000 tonnes in 2008 from 2,000 tonnes in the previous year.
The imported coated paper is 15% cheaper than the ones manufactured by the Indian paper units. Due to the higher prices, paper manufacturers are losing their competitive edge in the market.
Falling export orders affecting paper SMEs
Besides the onslaught of cheaper imports, small paper units are also witnessing reduced demand for paper in the international market. Declining outsourcing orders in publishing as well as dwindling demand from software and e-ticketing business have cast a shadow over the prospects of the sector in the coming quarters.
Lower international prices have compelled Indian paper units to review their pricing policies. Global paper prices dropped down to $750 a tonne a few months back from a high of $1,000 a tonne, thereby compelling domestic paper units to slash their prices. But most small paper manufacturers are not in a position to reduce prices, since any further price correction would imply a complete erosion of their bottom line.
As Jagdish Kothari, CEO, Ajanta Impex, says, “Any drop in the global paper prices will simultaneously put us under pressure to cut back prices on the domestic front. However, most of the manufacturing units are in no position to make further price-cuts since they operate on paper-thin margins.”
To abate the rising pressure on the price front, the paper manufacturing industry has sought safeguard duties on imports from the government to shield small players from the adverse affect of cheaper imports.
Moreover, given the volatile market situation that paper sector is currently witnessing, it is advisable that paper manufacturing companies tread cautiously.