Lockdown-hit paper demand unlikely to recover in Q1text_fields
Mumbai: The ongoing Covid-19 driven lockdown will see paper sales plunging as demand from packaging, education, corporates and the print media has come to a naught with over 80 per cent of the economy is on a standstill.
Stating that there is no recovery possible in the first half, a report says the impact will have be harder as the lockdown has been extended by more than two weeks till May 3. This is on top of the three-week shutdown that ends on Tuesday.
According to an India Ratings report, with an annual demand for 19 million tonne (4 per cent of global demand share), India is the fifth largest paper consumer, after China with 109 mt (21 per cent of global share) and the US with 70 mt or 17 per cent of global demand, and also warns of import threat hitting the domestic industry harder again.
Significantly, the report neither quantifies the demand plunge nor how much will be imports.
The report expects a demand recovery in the second quarter with resumption of education and corporate sectors, driving demand for writing and printing paper and a gradual normalisation of manufacturing and logistics, pushing packaging demand.
However, there is downside risks as the lockdown is extended to May 3 now. Besides, domestic paper producers have already been facing volume pressure from rising imports, which grew 18 per cent in the first 10 months of the FY20, significantly faster than domestic demand growth.
While logistical disruption can provide a breather, import threat continues with subdued pulp prices and the possibility of overseas manufactures pushing their inventory amid a weak global demand once normalcy returns, says the report without quantifying the demand loss or spike in imports.
The problem is the despite being eligible for exemption from the lockdown, more than 70 per cent of the industry have shuttered operations due to approval issues, lack of labour and raw material availability, logistics and demand disruption.
Plant closures, logistical disruptions to hit packaging demand in Q1 due to the suspension of operations for several industries, disruptions in production of essential commodities, inland transport and export shipments, the report says, adding the rising demand from e-commerce (for groceries) is not good enough to spike packaging demand at least for the next 30-45 days due to manpower shortage, supply chain issues.
Online sale of non-essential items, which form a big chunk of the total demand, would remain completely halted until the lockdown is lifted. Despite discretionary purchases remaining affected, the report expects growth in paper packaging demand from both industrial and e-commerce segments in the second quarter.
The packaging segment accounts for over 50 per cent of the total paper demand, followed by WPP (writing and printing paper) at 30 per cent.
Demand for WPP is hit by the closure of most educational institutions since the beginning of March and a gradual adoption of work from home.
Demand for newspapers has also declined, with many readers avoiding newspapers and housing societies banning the entry of vendors as precautionary measures while some magazines have temporarily suspended editions. With little scope of a recoup, the report expects newsprint demand to decline in FY21.
Demand for tissue papers has risen in the wake of increased hygiene concerns, leading to a 6.6 per cent monthly growth in the wholesale price index of tissue paper. However, the subsequent closure of eateries in March is likely to have a negative impact in the first quarter.
Warning of more pains for domestic paper manufacturers from imports, which account for 15-20 per cent of domestic demand and grew around 18 per cent till January of FY2020, the report says Chinese companies are likely to push the unsold inventory to the country, despite the fall in the rupee.
This coupled with a subdued demand environment and high stocks in the supply chain would weigh on paper prices for most of the grades.
All this will have pulp prices subdued in the near-term. Many Chinese producers have announced plans to cut production in April.