How Has The Lockdown Impacted The Declining Demand Of Paper In FY21?

The impact of Covid-19 lockdown has highly impacted the paper industry in two segments. The first analysis on the rise in the domestic demand and the import scale in relevance to position and pricing structure. The second focus is on the result of domestic paper prices and the profitability acquired by the paper companies.

Conducting the two-segment assessment, India Rating and Research (Ind-Ra), has seen a sheer decline in the demand for paper in FY21. Whether it is for education, corporates, media or packaging, the extension of lockdown has highly disrupted the industrial processing and chain supply for a longer period.

Will there be a recovery in demand?

• Assumptions by Ind-Ra might assess the need for paper in 2QFY20, mainly in the writing and printing paper, education and corporate sectors.
• As the situation will be coming back to pace, manufacturing and logistics will be increasing their functionality.
• On the other hand, domestic paper producers have been facing issues from the rise in imports which rose to 18 percent YoY in 10MFY20.

How is the supply affected?

• Due to the extension of the lockdown, most parts of the paper industry have got suspension in its production. They are waiting for the government approval for labour, raw material availability, logistics and demand disruption.
• While some companies like West Coast Paper Mills Limited (‘IND AA-’/Stable) and Trident Limited (‘IND A1+’) are currently operational but partly.

How is the logistics and packaging demand in 1QFY21 impacted?

Suspension of many industries and their import and export processing have largely hit in 1QFY21.

E-Commerce demand has risen to fame suddenly in 4QFY20. Though the industry still may remain affected more to nearly 1.5 months due shortage in manpower, logistics and supply chain.

Sale of the non-essential item is halted while some are open only to the Green and Orange Zones of the country. Speaking of paper packaging demand on both sides, there is a possibility of growth. The total segment has accounted for more than 50% of the total paper demand with WPP at 30 percent.

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The demand for WPP and Newsprint

WPP demand has fallen due to the closure of educational institutions since March. Professional institutions are making way through a digital platform in the form of online classes. As per Ind-Ra analysis, WPP might hit worse in 1QFY21.

Newspaper demand has declined as people are sticking to the digital platform again. And that could result in the fall in FY21.

On the other hand, tissue paper demand has risen to safety and safe hygiene concerns. Though closure of eateries has impacted the sales in 1QFY21.

Global Pulp Prices Also Have An Impact

As per the analysis, COVID-19 pandemic has impacted the global paper demand mainly on supply chain and paper prices. This might remain subdued for a longer-term. Several Chinese products may even cut production due to lessened demand.

Fewer Chinese pulp suppliers have initiated the increase in the price of nearly USD30/mt in April 2020 to meet the losses in different segments of the paper processing. Weaker demand in key countries like China, the US and Europe will gradually degrade the pulp prices in FY21.

Global pulp price has declined to nearly 5% QoQ in 4Q19. It is nearly 25% lessened after a year of the declining need in graphic papers in major parts of Europe and the US through higher inventories.

Will there be a recovery?

Recovery may only take place in 2H20 only when pulp inventories are processed moderately on the limited capacity additions and planning for supply cuts.

Global pulp shipments have been declined by 5% mom to nearly 3.8 million tonnes in February in 2020. Pulp inventories at the Chinese ports enhanced while the European ports started deteriorating in February 2020 due to the long strike of Finnish pulp and paper producers.

Mainly the Chinese domestic recovered paper collection has been recovering now since March 2020. In the other segments of the industry and the increasing pace of lockdown resulted in the lower RCP collections. With the decline in the global demand and Chinese imports, the sustainability of the pricing structure of the paper products has been degrading quite a bit.