Crisil forecasts moderate recovery in prices

04 October 1999

The 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 Insight.

High 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.

The 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.

Higher 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.

Future scenario
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.

The 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.