How the Paper Industry has been Affected by the 3 ‘C’ Factors

Packing box makers worst hit, demand ban on kraft paper exports

The Indian paper industry is going through one of its toughest phases in history with the novel coronavirus (Covid-19) pandemic affecting supply, compounded by non-availability of shipping containers and China importing huge quantities of kraft paper from India.

“Three factors are primarily behind the problems the paper industry is facing. The Covid-19 situation has resulted in waste paper supply shortage. The issue has been aggravated by non-availability of shipping containers. While India is starved of waste paper supply due to these factors, export of recycled pulp (made from waste paper and paper cuttings) to China is adding to the industry’s woes,” said Rajesh Sundrani, Executive Director of Chennai-based SBS Paper Recycling Ltd.

Sectors hit badly

The problems due to these three ‘C’ factors — Covid-19, container shortage and China — in the paper industry is currently such that the waste paper, paper mills, including kraft paper makers, and corrugated or packing box manufacturing sectors have been affected badly.

In particular, export of recycled pulp to China is now turning out to be a major worry, as it is resulting in the domestic industry, particularly packing box makers, facing shortage.

This has resulted in a demand for ban of export of kraft paper from India so that the domestic industries will not be starved of the key raw material, particularly to make packing boxes that are used in a range of industries, starting from white goods to electronics to fast-moving consumer goods and all e-commerce products.

“The situation is turning from bad to worse. While we are paying a higher price for our raw materials, we are not getting supplies on time. Most of the consumers are not aware of the situation and have not been passed on the entire burden we shoulder,” said Harish Madan, Vice-President, Indian Corrugated Case Manufacturers Association (ICCMA).

“The paper industry is facing a huge crisis, mainly since supply of its primary raw material — waste paper — has been affected due to the Covid-19 pandemic, particularly in the US and Europe. We get maximum raw materials from these destinations,” said Rajesh Modi, Director of Mumbai-based Laxmi Board and Paper Mills.

Waste paper’s key role

“Waste paper is recycled and it is the main raw material for the industry. But even domestic waste paper is not available for the industry. Imports of waste paper and cuttings have been affected by the second wave of the coronavirus pandemic in Europe after some signs of recovery late last year,” said Aksheev Agarwal, Business Head of Uttar Pradesh-based Paswara Papers Ltd.

Sundrani said waste paper imports meet nearly 70 per cent of the raw material demand for the country’s industry. “The Western world generates a lot of waste as its per capita paper consumption is higher at 350 kg, while our consumption is 20-30 kg a year,” he said.

In the developed world, people use paper tissues for almost anything but since movements have been restricted worldwide due to Covid-19, the usage has dropped.

Sundrani said waste paper generation had dropped 30 per cent, while Modi put the decline between 30 and 40 per cent. Domestic waste paper generation is also down by about 30 per cent this fiscal due to Covid-19 restrictions.

“There has been a major disruption in waste paper collection since the coronavirus pandemic set in and it has had a major impact on imports,” said Rajesh Bhugra, Chief Executive Officer of Rajasthan-based Supra Craft Packaging Pvt Ltd.

As a result of this shortage, waste paper prices have more than doubled currently, said Paswara Mills’ Agarwal.

“Though we have to sell at a higher price, our margins still remain at ₹200-300 a tonne,” said Sundarani.

The shortage could also have been caused by some of the European countries beginning to recycle waste paper, said Vinod Patel, Managing Partner of Chennai-based Suryaans Paper Mills.

Logistics hurdles

The issue of waste paper availability has been compounded by non-availability of shipping liners to bring them to Indian shores from destinations abroad.

“Container and shipping liner shortage has played a big role in the paper industry’s crisis. Waste paper is a low-priced item and 18-19 liners operate in this sector. Currently, only four to five liners are operating making the problems acute,” said Patel.

These liners carrying waste papers are held in far destinations such as Australia and New Zealand, he said.

Laxmi Mills’ Modi said that total shipping costs have increased from around $1,500 to $,5,000 and above. “On top of this, if we ask for 20 containers, we get barely 5-6. This has led to huge shortage,” he said.

According to Sorav Jhawar, Director of Kolkata-based East India Packaging Pvt Ltd, waste paper imports are already down by 20 per cent during the first 10 months of the fiscal compared with 2019-20.

All industry stakeholders say that though prices of raw materials have increased 60-70 per cent in a matter of six month, there has been a lack of regular supply.

“There is a huge challenge in raw material availability for corrugated box manufacturers,” said ICCMA’s Madan.

“The supply chain will be disrupted in a major way due to shortage of corrugated box supply,” said Sandeep Wadhwa, ICCMA President.

China’s double whammy

Two developments with regards to China have further complicated the issue in the Indian paper industry, particularly the corrugated case manufacturing sector.

One, China banned imports of old corrugated cases of boxes and waste paper from January 1. “It began cutting down waste paper imports since 2019 and from November last year all such imports stopped,” said SBS Paper Recycling’s Sundrani.

“Instead, the Chinese industry has begun importing recycled pulp. There is no restriction on import of recycled pulp,” he said.

That led to the consequent second problem of Beijing importing kraft paper from India that can be converted into pulp and used by the Chinese paper industry. But that, in turn, is leading to acute shortage of the material for the packing boxes makers.

“Some mills in India that can source raw materials from the Gulf are exporting mainly kraft paper to China,” said Laxmi Mills Modi.

“The export of recycled pulp to China paper industry is leading to shortage of supplies to corrugated box makers,” said Rishab Agarwal, Managing Director of Mumbai-based Riyo Parapack Pvt Ltd.

Zero to two mt

ICCMA’s Wadhwa said that at least 1.4-1.5 lakh tonnes of kraft paper are being exported to China every month. “Overall, such paper exports which were zero in 2018 could top two million tonnes (mt) this financial year,” he said.

“Apart from the nearly two mt shortage that Indian industry is facing due to lower imports, the exports of another two mt will lead to an overall shortage of at least four mt in raw materials,” Madan said.

“The problem with the exports to China is that once the waste paper has been converted into kraft paper and shipped out, it will not come back to India. Thus, we will keep on losing raw materials,” said Prashant Tikmani, Director of Chennai-based TGI Packaging Pvt Ltd.

East India Packaging’s Jhawar said that if the situation continues, it could end up totally killing the paper recycling industry.

Wadhwa said the situation could result in Indian consumers either having to pay a higher price for products or various sectors running out of packing boxes.

Madan expressed the fear that consumers affected by the shortage could look for alternatives that could lead to polluting ones such as plastics.

While China has banned imports of old corrugated cartons and waste paper to avoid pollution, it is importing recycled pulp and kraft paper from India, which is burdened with pollution when waste paper is converted to recycled pulp or kraft paper.

“Why should India pay for a decision that China has taken? Why should our country be polluted to serve another nation?” wondered Tikmani.

All the stakeholders see the situation continuing for another couple of months without any relief but wonder if the industry would have the strength to withstand the tough ride, particularly with the sharp rise in working capital costs.

“Make in India cannot be a reality with indigenous corrugated packaging industry being forced to the brink of closure,” said Super Craft’s Bhugra.

With vaccination gathering pace across the globe and the economy picking up with curbs on movement being lifted, the situation may return to normal probably in the last quarter of this year, stakeholders in the industry feel.