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www.transgraph.com
A presentation by TransGraph Consulting
Long term outlook on Paper and Long term outlook on Paper and Long term outlook on Paper and Long term outlook on Paper and PaperboardsPaperboardsPaperboardsPaperboards
Aug 2012Aug 2012Aug 2012Aug 2012
ContentsContentsContentsContents
• Economic overview – GDP trends and relation with paper industry
• Historical paper production trends – India and Global
• Indian paper production and consumption cycles
• Paper and paperboard supply-demand balance – Global
• Indian paper and paperboard industry
– Raw material segmentation
– Indian paper industry in global perspective
– Indian paper and paperboard scenario
– Indian supply-demand balance and trends – Kraft Paper and Duplex Board
– Indian waste paper scenario
• Supply-demand analysis – Paper and Paperboard
• Supply-demand analysis – Kraft Paper
• Supply-demand analysis – Duplex board
• Growth Drivers of Indian paper and paper board industry
• Summary price outlook for 2011
GDP GDP GDP GDP –––– Current & Forward lookingCurrent & Forward lookingCurrent & Forward lookingCurrent & Forward looking
� High unemployment and inflation continues to pester global and regional Economic growth.
� Industrial production cycle shall largely be depended on the upcoming stimulus measures at
matured nations and monetary policy measures at India and China.
2.80
-0.60
4.70
3.00
2.50
-1
0
1
2
3
4
5
2008 2009 2010 2011E 2012P
Global GDP Growth and Projections
-5.3
4.4
-0.9
1.7
-2.5
3.0
1.8 1.8
-3.9
1.9 1.6
-0.5
8.710.4
9.28.2
5.7
9.9
7.4 7.0
-8
-6
-4
-2
0
2
4
6
8
10
12
2009 2010 2011E 2012P
GDP Growth - Trend and Projection (IMF)
Japan USA EU China India
GDP a critical factor for paper industry GDP a critical factor for paper industry GDP a critical factor for paper industry GDP a critical factor for paper industry ---- GlobalGlobalGlobalGlobal
� Industrial sector performance being a critical driver of economic growth across the
globe, better performance by the sector prompting companies to push up their
advertising expenses leading to higher demand for newsprint and other categories
paper.
� Slowdown in global GDP growth in 2012 shall weigh down on the demand for Paper.
-1
0
1
2
3
4
5
6
-2
0
2
4
6
8
2000 2002 2004 2006 2008 2010 2012p
GDP Growth Vs. growth in Paper demand - Global
Consumption growth (%) GDP growth (%)
GDP a critical factor for paper industry GDP a critical factor for paper industry GDP a critical factor for paper industry GDP a critical factor for paper industry ---- IndiaIndiaIndiaIndia
� Close linkages with economic growth as higher industrial output leads to increased
demand for industrial paper for packaging, increased marketing spend benefits the
newsprint and value-added segments, and increased education and office activities
increase demand for writing and printing paper
� Going forward, Indian GDP expectation to grow at around 7.5 percent (against earlier
expectation of over 8.5 percent growth) in 2012-13 signals of a demand to remain
steady.
2
3
4
5
6
7
8
9
10
0
2
4
6
8
10
12
14
16
2002-03 2004-05 2006-07 2008-09 2010-11e 2012-13p
GDP Growth Vs. growth in Paper demand - India
Consumption growth (%)
GDP growth (%)
Historical production trends Historical production trends Historical production trends Historical production trends ---- IndiaIndiaIndiaIndia
� Analyzing the production trend since 1961 gives a clear indication of an average turnaround
period of four years being prevalent in the market troughs.
� With the trough likely to have placed during 2009, the same augurs well for the coming years
in terms of the output growth
Historical production trends Historical production trends Historical production trends Historical production trends –––– India vs GlobalIndia vs GlobalIndia vs GlobalIndia vs Global
� Historically global and Indian production tend to move inline barring the year (1975-81)
-15
-10
-5
0
5
10
15
-10
-5
0
5
10
15
20
25
30
35
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012p
Historical production trend - Indian Vs. Global
Indian Paper production - Annual change (%)
Global Paper production - Annual change (%)
Indian production and consumption cyclesIndian production and consumption cyclesIndian production and consumption cyclesIndian production and consumption cycles
� Similar trends in production and consumption growth indicates the demand driven
nature of the industry
� With trough being placed in demand growth during 2000-01, 2005-06 and 2009-10, the
same indicates a possible growth rate of over 9 percent in 2012-13.
� Increase in demand from Panmasala and Gutkha packaging to keep imports of poster
and chromo paper higher
-6
0
6
12
18
2002-03 2004-05 2006-07 2008-09 2010-11e 2012-13p
Indian Paper Production and Consumption Cycle
Demand growth (%)
Production growth (%)
Paper and paperboard supplyPaper and paperboard supplyPaper and paperboard supplyPaper and paperboard supply----demand balance demand balance demand balance demand balance ---- GlobalGlobalGlobalGlobal
Paper and paperboardPaper and paperboardPaper and paperboardPaper and paperboard 2009200920092009 2010 2010 2010 2010 2011 e2011 e2011 e2011 e 2012 p2012 p2012 p2012 p
Production 378.27 391.02 401.05 416.79
Imports 126.67 131.82 137.81 143.71
Exports 127.44 131.65 138.18 144.84
Apparent consumption 377.50 391.19 400.68 410.50
Production growth - 0.50 3.37 2.57 3.92
Consumption growth - 1.26 3.63 2.43 2.36
Recovered paperRecovered paperRecovered paperRecovered paper 2009200920092009 2010 2010 2010 2010 2011 e2011 e2011 e2011 e 2012 p2012 p2012 p2012 p
Production 187.10 192.58 198.77 205.45
Imports 49.33 51.85 55.34 59.04
Exports 48.48 51.33 55.62 60.13
Apparent consumption 187.95 193.10 198.50 204.36
Production growth 3.02 2.93 3.21 3.36
Consumption 2.82 2.74 2.79 2.95
� Paper and paperboard consumption to
grow at mixed pace during 2012, with
global economy fairing well in certain
pockets.
� Despite closure of many small and old
mills across Europe and North
America, Paper and paperboard
production in 2012 is expected to grow
at around 3.4 percent, mainly driven
by growth in Asian production.
� Rising environmental concerns over
use of wood chips further supports of
more use of recovered paper in the
developing nations.
� Tightening availability of virgin pulp
due to rising environment concerns
over deforestation shall further support
use of recovered paper.
Indian paper and paperboard industryIndian paper and paperboard industryIndian paper and paperboard industryIndian paper and paperboard industry
Indian Paper Industry
Strong economic growth Low per capita consumption
Printing IndustryIncreased government focus on
education
� Strong Consumer Demand for Packaged goods fueling high growth in Industrial grades of
Paper & Boards largely led by growing disposable incomes & Lifestyle changes.
� With per capita consumption in the region being very lower the same provides higher
growth potentiality of paper in the region.
� Increase of 1 kg in per capita consumption could lead to increase in demand by 1
million tons of paper.
� Higher growth potential of printing industry in the region to fuel the demand for paper
over the long term
Raw material segmentationRaw material segmentationRaw material segmentationRaw material segmentation
� Industrial paper demand continues to be the leading demand segment for paper in the
country, with packaging alone accounting for over 24 percent of total demand
� Encouraging trend in demand for non-branded packaging coupled with higher emphasis on
education to keep overall demand for paper on firm tone
� Usage of Recycled paper as raw materials increasing at the cost of declining availability of
agro-based raw materials as more of them being utilized by the their parent industries into
power production
� However, with government initiatives and enhanced technology agro-based raw materials
usage can get a boost over the long run as it requires only 50 percent of chemical
compared to wood
Raw Material Scenario
2010 2006
Indian Paper Industry in Global PerspectiveIndian Paper Industry in Global PerspectiveIndian Paper Industry in Global PerspectiveIndian Paper Industry in Global Perspective
� Indian per capita consumption currently at 9.85 kg per annum against the Asian average
of 45 kg and Chinese average of 68 kg, signaling of strong growth prospects
� Strong growth expected in Indian economy over 8.2 percent during 2011 and over 9
percent in 2012 to support demand
� Strong consumer demand for packaged goods and upstream paper products to keep
fueling high growth in industrial grades of paper & boards
� Strong growth in printing industry and increasing focus of government towards education
keep demand for paper in the future on encouraging note
0
10
20
30
40
50
60
70
80
2009 2010e 2011p 2012p
Per Capita Consumption (in Kg)
India China Asia World
Indian Paper and Paper Board ScenarioIndian Paper and Paper Board ScenarioIndian Paper and Paper Board ScenarioIndian Paper and Paper Board Scenario
� Projection of over 80 percent literacy rate by next financial year to keep demand for
paper and paperboard on encouraging note
� Declining poverty and rising per capita income with more of population entering into
middle class segment to further support demand for paper
� Paper imports to keep rising with Indian government signing Trade agreements with least
developing countries, non-least developed countries, ASEAN etc, which permit import of
Paper into India at concessional/ nil import duty
0.0
0.2
0.4
0.6
0.8
1.0
1.2
2007-08 2008-09 2009-10 2010-11e 2011-12p 2012-13p
Indian paper and paperboard trade
Imports (MTPA) Exports (MTPA)Source: CPPRI, DIPP
4
6
8
10
12
14
16
4
6
8
10
12
2007-08 2008-09 2009-10 2010-11e 2011-12p 2012-13p
Indian paper and paperboard consumption
Demand (MTPA) Demand growth (%)Source: CPPRI, DIPP
Indian SupplyIndian SupplyIndian SupplyIndian Supply----demand balance and trendsdemand balance and trendsdemand balance and trendsdemand balance and trends
Kraft PaperKraft PaperKraft PaperKraft Paper 2010201020102010----11111111 2011201120112011----12e12e12e12e 2012201220122012----13p13p13p13p
Demand 2761 2950 3210
Import 156 180 196
Export 0 0 0
Production 2605 2770 3014
All units in million tons
Duplex BoardDuplex BoardDuplex BoardDuplex Board 2010201020102010----11111111 2011201120112011----12e12e12e12e 2012201220122012----13p13p13p13p
Demand 1506 1620 1775
Import 71 80 85
Export 0 0 0
Production 1435 1540 1690
All units in million tons
� No major capacity addition expected in 2011 and likely to encourage imports
� Kraft paper and duplex board demand is expected to grow by over 8.8 and 9.5 percent
respectively during the year (2012-13) – Growth in economy boosting the growth in
exports of various products leading to higher demand for packaging materials
� Further, most of the new capacity in 2010 and 2011 being added for non-industrial grade
paper (mainly news print), this could tighten the availability of industrial papers
Indian waste paper scenarioIndian waste paper scenarioIndian waste paper scenarioIndian waste paper scenario
� Indian recycled paper consumption is expected to grow at healthy rate of over 12 percent
with improving recovery rates to keep domestic supplies higher
� With fiber content in Indian recovered paper being very low the same shall keep
encouraging imports of recovered paper for the purpose of mixing with Indian recovered
paper.
� Indian government announcing reduction in custom duty on waste paper from 5 percent to
2.5 percent shall further encourage imports of waste paper
� Lower rate of recovery (24 percent) keeps prospects on bright note
45
50
55
60
65
70
0.0
1.0
2.0
3.0
4.0
5.0
2008 2009 2010e 2011p 2012p
Indian recycled paper demand supply trend
Production (mn tons) Consumption (mn tons)
Imports (mn tons) Imports as % of demand
Source: FAO, TransGraph
RegionRegionRegionRegion DemandDemandDemandDemand SupplySupplySupplySupply
GlobalGlobalGlobalGlobal
� Globally demand for Paper andPaperboard is likely to keep its growthpace intact
�Writing and printing paper demand to beon slower side with many firms in westgoing paperless.
� Robust demand for paper by Chinesehousehold would to keep Asian demand onhigh note.
� Packaging and container board to be themajor demand segment
� Rising concern for environment withmany firms discouraging use of paper toimpede demand growth
� Economic downturn witnessed during 2008-09resulted in closure of large number of paper mills inwestern region with the mills unable to absorb hugelosses incurred due to demand destruction
�With global economy mainly Asia and US givingsignals of revival and the same expected to startshowing better results moving into 2012, the sameshall prompt some of the companies to increasetheir runs and may lead to reopening of few closedplants
� Limited availability of virgin pulp to prompt millsto put up capacities based on Agro-residues andwaste papers
IndiaIndiaIndiaIndia
�Strong emphasis on literacy, increase inper-capita income and increasing use ofphotocopiers and printers shall keepdemand on high note in the region.
�High economic growth propelling demandfor consumer goods, thus stimulatingdemand for packaging paper
�Increased use into packaging of PanMasala and Gutkha
� Obsolescence of technology and shortage of rawmaterial being a major hindrance at supply side
� Lack of government initiatives to provide wasteland for plantation
�With capacity utilization in the region reaching to93 percent, new capacity needs to be added tocater the growing demand
Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis ---- Paper and paperboardPaper and paperboardPaper and paperboardPaper and paperboard
RegionRegionRegionRegion DemandDemandDemandDemand SupplySupplySupplySupply
GlobalGlobalGlobalGlobal
� Persistent concern over economicrecovery and monetary tightening stepstaken by Chinese Govt. to impact demand.
� Revival in industrial production across theworld and increase in global trade standscrucial for incremental demand.
� Increasing use of packaged goods tofurther boost demand sentiments
� Closure of many small mills in Europe andNorth America to limit the global supply in thecoming year
�While startup in South America and Asia add tothe supply basket, not much of it is for industrialpaper, which shall hinder the supply growth ofpackaging papers
�With global economy giving signals of revival,the same would prompt some of the companiesto increase their runs and may lead to reopeningof few closed plants
IndiaIndiaIndiaIndia
�Expectation of robust performance byIndian industrial sector to propel demand forduplex boards
�Higher export growth and rising demandfor high quality packaging to keep Indianmarket in tandem
� Increased global trade to spill-over ontothe Indian export scenario and enhancedexports (of products) to fare well for Indiandemand scenario
� Obsolescence of technology and shortage ofraw material being a major hindrance at supplyside
� Lack of government initiatives to provide wasteland for plantation
� Not much new capacity coming on-stream forKraft paper– A long term issues yet to be tackled
Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis ---- Kraft paperKraft paperKraft paperKraft paper
RegionRegionRegionRegion DemandDemandDemandDemand SupplySupplySupplySupply
GlobalGlobalGlobalGlobal
� Persistent concern over economicrecovery and monetary tightening stepstaken by Chinese Govt. to impact demand
�Revival in industrial production acrossthe world and increase in global tradestands crucial for incremental demand.
� Current signals of improving industrialoutput and trade in certain pocketsprovide encouraging scenario forindustrial papers in the coming year
� Capacity closure in Europe and NorthAmerica to limit the global supply in the comingyear
�With global economy giving signals ofrevival, the same would prompt some of thecompanies to increase their runs and may leadto reopening of few closed plants
IndiaIndiaIndiaIndia
� Better quality packaging of FMCG,rising health care spends and over-the-counter medicines and increasingpreference for ready-to-eat foods are thekey demand drivers for paperboard
�Growing number of Export - orientedindustries
� Strong demographic factors likepopulation growth and increase in literacylevels
� Obsolescence of technology and shortage ofraw material being a major hindrance at supplyside.
�Government ignoring industry demand forinterest subsidy under Technology UpgradationFund (TUF) Scheme
�Not much new capacity coming on-stream forDuplex board – A long term issues yet to betackled
Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis ---- Duplex boardDuplex boardDuplex boardDuplex board
Indian Industry UpdatesIndian Industry UpdatesIndian Industry UpdatesIndian Industry Updates
� The Indian government has again ignored the industry demand for allocation of Rs 400
crore as interest subsidy under Technology Upgradation Fund (TUF) Scheme
� Delhi-based JK Paper has planned to expand its annual capacity by 150 thousand tons to
400 thousand tons by 2012 end with a planned investment of INR 1500 crore
� Ballarpur Industries Limited (BILT) is planning to start the new PM 2 machine which is
expected to set new standards for graphic coated paper. With this installation production
capacity for wood-free coated paper at the Bhigwan location can now be increased from
the previous 125 Ktpa to 315 Ktpa in H2, 2011
� During 2010-11, BILT incorporated 3 subsidiaries in the Netherlands and 1 subsidiary in
Malaysia. Over the next 5 years, BILT plans to invest INR 35-40 billion to double its
overall production capacity to around 2 MTPA.
� BILT’s strategy is to operate in low-cost economies such as India and Malaysia, which
also have strong domestic demand. It is also looking at improving the distribution network
by foraying into the retail business (office supply and stationery retail), while moving up
the value chain by shifting the production mix towards higher value products. This will
enable the company to improve revenues.
� Rising fuel and chemical cost may impact the profitability of paper producers
� Sustenance of economic growth momentum would manifest itself in a favorable domestic
demand scenario for paper sector during 2011 and 2012
� Perception of Chinese producers looking at India more seriously as an alternative market
after US imposing high anti-dumping duty on several varieties of Chinese paper being
imported to the US shall be a big challenge for Indian paper producers as imports from
China and Indonesia are comparatively cheaper.
� Meanwhile keeping such a scenario in picture industry for a long, has been lobbying the
government for stricter protective measures and the imposition of “anti dumping duties”.
� Major issues confronting India’s pulp and paper industry are high cost of production
caused by inadequate availability and high cost of raw materials, power cost and
concentration of mills in one particular area, non-availability of good-quality fibre,
uneconomical plant size, technological obsolescence and environmental challenges
� Some of the big companies like BILT has encouraged farm forestry to attain self
sufficiency in procuring raw material. However, availability of sufficient land remains a
major hurdle for the other players
Contd.Contd.Contd.Contd.
Industry perspectives Industry perspectives Industry perspectives Industry perspectives –––– An overviewAn overviewAn overviewAn overview
Wood
Agro fibre
Recycled fibre
Raw Material
�Revision of Forest Policy so that
plantation can be increased.
�Degraded forest lands should be
identified by state govt. and be
offered to industry on long leases
of plantations.
�FDI in plantation programme (with
no change in land use)
�Public –private partnerships
�Equal subsidy be made available
to paper industry at par with
energy subsidy of Bagasse
�Funds for technology
development
�Allow duty free imports of waste
paper
�Encourage voluntary agreements
to increase paper recovery
�Cooperation with farmers and
State Forest Dept.
�Search for foreign partners.
�Public –private partnerships
�Restructuring needed due to
quality and environmental reasons
�Develop pulping and papermaking
technology based on non-wood
fibre.
� Long term contract with
printing/converting waste
�Global sourcing, foreign partners
�Sorting of imported mixed waste
�Fibre fractionation to separate
long fibres
Government Industry
Finance
Energy Policy
Environmental Policy
�Allow duty free imports of new
and second hand
machinery/equipment for
technology upgradation.
�Better availability and quality of
coal.
�More uniform energy policy by
states
�Uniform policy as regards to non-
biodegradable materials.
�Eco labeling scheme based on
sustainable raw material base
(wood/waste paper /agro) and
environmental friendly processes.
�Better access to international
financing
�Seek for foreign partners
�Cogeneration in pulp & paper mills
�Bigger mills and modernization to
meet environmental standards.
�Actively participate development of
Eco label schemes so that
industry’s can be taken into
consideration.
Government Industry
Industry perspectives Contd..Industry perspectives Contd..Industry perspectives Contd..Industry perspectives Contd..
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Disclaimer: The analysis and forecast presented aspart of our service are done with utmost sincerity andwith proper care, keeping in view the financialimplications of the clients. However, TransGraphConsulting or its analysts are not responsible for any ofthe financial/trade decisions and subsequentimplications of its clients or of the members of thepublic.