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Possible opportunities in the Paper industry

With its vast consumer base and bulging middle class, India is on its way to exponential consumption growth even in areas seeing declining demand in other major economies. One such example is the writing and printing paper industry. Being the only major economy with growing W&P paper demand, this piece focuses on opportunities in the space.

Paper demand growth

India is a developing country and the government is taking steps to formalise the economy at a rate that was never seen before. A developing nation only progresses when the residents are getting educated and an economy only formalises when recordkeeping practices are up to the mark. A common link found between these two goals is paper. Specifically, Writing and Printing Paper. Statistics reveal that per capita consumption of paper in India is 15kgs which is way behind the global average of 57kgs. Countries like USA and Japan consume beyond 220kg per capita of paper. The demand of Writing and Printing paper for 2019-20 was 55 lakh tonnes and is increasing by 2-3 lakh tonnes per annum. As mentioned earlier, the long-term vision of the nation is rolling out government policies providing education for all which will increase the userbase for writing and printing paper. The policies that aim on formalising the economy will again lead to addition in the demand of paper.

The government made a historic move when they created the National Education Policy 2020. The implementation of this policy will give a rise to the existing demand of textbooks by 30-50% as it incorporates the use of new and revised textbooks. Earlier 30% of textbooks were reused which will not be a case from now on.

During the recent years we have also seen the Aatmanirbhar Bharat movement which focuses on self-sustainability and with this mission in mind, the government is focused on reducing imports hence we can expect the government to favor domestic players in it's procurement, especially the State textbook boards. After Covid-19, a lot of print houses and businesses are coming to India and shifting from China thus helping W&P paper demand.


The production capacity of writing and printing paper is approximately 7 million tonnes in India. This obviously wasn’t utilised 100% in the Covid situation. All the production, export, import and even consumption numbers dropped. So, to get a proper view, we must consider data back from the year 2019. According to these past numbers, approximate imports of Writing and Printing paper is 0.5 million tonnes and hence it is very logical to consider a 1 million ton of export of WPP annually.

The industry is witnessing increasing imports especially from ASEAN countries because of India's free trade agreements which allow them to dump duty free in India. These countries also have a major cost advantage over domestic players because of abundant cheap wood resources. The domestic players have been urging the Govt to consider imposing duties on these imports as countries like China are using the FTAs to channel their exports through these countries and dump in India.

Raw materials & cost structure.

To understand the supply of paper products we first need to understand the raw materials used in manufacturing of paper. The major raw materials used here are pulp & Sodium Hydroxide ( Caustic soda ).

In majority of the countries that produce paper on a good scale, supply of Sodium Hydroxide has never been an issue in terms of supply or even prices. The reason for this is that supply is in abundance. Why? To understand this let’s first look at the manufacturing process of Sodium Hydroxide. Electrolysis of Sodium Chloride (Common Salt) results in Sodium Hydroxide solution, Hydrogen gas at cathode and chlorine gas at anode. Chlorine here is treated as the main product in most of the countries as chlorine has a lot of applications in pharma, agrochemical, PVC (Pipes) industries and also water treatment plants and NaOH is treated as a by-product. Production of more and more chlorine results in more and more NaOH and hence quantities not even demanded are created. In India the case was reverse till date. NaOH was the main product and Chlorine a by-product. Also, we saw times where Chlorine was sold at Rs –12000 a ton. i.e., the manufacturer would give you Rs. 12000 and the ton of chlorine you ‘bought’ when you make a deal. Non allowance of export of liquid chlorine through maritime route is also a major factor contributing to the then negative pricing. This is now changing as a lot of pharma, agrochemical, PVC industries are growing in India making the nation a chemical hub. The shift of the mentioned industries is a major reason for the plunge in demand of NaOH and either closure or reduced operation of several chlor-alkali plants in the US and China .As a result, the demand growth of Chlorine is on a much higher side at around 7% / annum than that of sodium hydroxide at 4%. Hence our situation in regards to the supply of NaOH will be that like other first world countries, which is, we will not be worrying about the supplies or the prices of NaOH in the long term.

Another interesting and probably the most important ingredient is pulp. Paper prices have a direct correlation with pulp prices and an increase in the cost of manufacturing of pulp would necessarily be passed on to the price of paper. Pulp is produced in three ways. These are from

  • Recycled fibre (waste paper)

  • Wood

  • Agro based waste like wheat straws, sarkanda and baggase.

In the international market, we are price takers of pulp as imports are a necessary source of our supply of raw materials. This is because of the fact that pulp prices are determined by supply and demand of pulp and waste paper availability. In the industry as a whole, 71% of the pulp is produced from recycled fibre or waste paper. India is reliant on significant imports of waste paper and pulp to fulfill demand, 2019-20 saw waste paper imports of about 65 lakh tonnes.

The covid times saw a sharp plunge in generation of waste paper and when the markets opened up, a vast gap was witnessed between the supply and demand of waste paper. Also, in 2020 China banned the import of waste paper resulting in heavy imports before the ban hence rocketing waste paper prices . After the ban, China started importing pulp and finished paper products which led to further increase in international pulp and paper prices. Adding to the situation, the Indian government has started enforcing strict norms regarding the import of waste paper allowing only 1% contamination in imported waste paper which again negatively impacts recycled paper players. All of these factors resulted in soaring wastepaper and pulp prices in the international market, hence increasing the input costs of Indian recycled fibre players.

To discuss the manufacturers that produce pulp from wood, the annual demand is somewhere between 11-13 Million tonnes of wood pulp whereas the supply is between 8-10 Million tonnes. The difference between these is usually fulfilled by imports, prices of which are again determined by the international market. These quantities and economics demonstrate non-ability to support growth of the industry.

Coming to agro based paper manufacturers, the above-mentioned problems are of no concern to them as they are relatively insulated from international market forces affecting their input costs. This is because of the fact that the raw material they use is literally farm waste. Supply of agro waste like wheat straw, sarkanda etc is stable in fertile belts of Punjab and U.P. Additionally, strike down on stubble burning by state governments further add supply side comfort for the manufacturers. The only barrier to produce agro based pulp is the location of the manufacturing facility. Companies like Satia Industries and Shreyans Industries are located in the fertile belt of Punjab where these agro residues are abundant. Thus, the agro based pulp prices have no correlation with international pulp prices as the raw materials are locally and very easily obtained. These factors provide a cushion to agro based players and insulate them from international market volatility.

In the current scenario, agro based players are in a relatively sweet spot as their input costs are not rising like their counterparts but are enjoying higher realizations per ton caused by price volatility in the international markets.

With stable and growing demand in the domestic market and no significant upcoming capacity addition by the industry as a whole, writing and printing paper manufacturers may be having significant tailwinds for good times ahead as limited capacity keeps the realisations buoyant. Sustained realisations north of Rs. 55,000/ton are healthy for the industry as seen in the past. With growth of around 3 lakh tonnes per annum, the domestic industry can fulfill demand and keep comfortable realisations for the medium to long term. Favorable government policies like restrictions on duty-free imports can be a cherry on the cake.

Agro based players such as Satia and Shreyans industries ltd. are worthy to look at considering their geography, product offering and value proposition.

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