Corrugated box industry faces raw material crisis due to export of pulp to China

Corrugated box industry faces raw material crisis due to export of pulp to China

Summary

Indian manufacturers of corrugated boxes say raw material shortage in the domestic market due to increased exports of paper pulp to China is crippling operations.

Indian manufacturers of corrugated boxes say raw material shortage in the domestic market due to increased exports of paper pulp to China is crippling operations.

The price of kraft paper, the main raw material for the industry, has risen over the last few months. Manufacturers attribute it to increased exports of the commodity to China, which has switched to using pure paper fibre from this year.

On Wednesday, the South India Corrugated Box Manufacturers’ Association (SICBMA) urged the Centre to impose an immediate ban on the export of kraft paper in any form as "its supply has shrunk by over 50% in the local market in the recent months, hitting production and threatening to send hundreds of small and medium enterprises (SMEs) in Tamil Nadu and Puducherry packing".

Export of recycled kraft pulp rolls (RCP) to China has pushed up the price of kraft paper by almost 70% since August 2020, the association said.

Corrugated boxes, also known as carton boxes, are extensively used by companies in the pharma, FMCG, foods, automobiles and electrical appliances sectors for packaging. Although the demand for such boxes has steadily grown during the Covid-19 pandemic, their manufacturers have not been able to ensure steady supply owing to the shortage of raw material. This, coupled with an unprecedented price rise, has pushed some manufacturers to the brink of closure.

Manufacturers said the crisis can be attributed to the gap in the supply chain of domestic waste due to exports, and the gap in capacity utilisation of kraft production units, as almost 25% of domestic kraft manufacturing capacity is currently being used for exports.

"We have been struggling because there is a severe shortage of paper," said a member of the Indian Corrugated Case Manufacturers’ Association (ICCMA), on the condition of anonymity. "The main reason is the ban by the Chinese government on import of waste because it was polluting. India was never exporting paper to anyone in the world, because the paper quality and technology was not at par with the rest of the world. But because of this ban, China has become so hungry that it is ready to import anything."

The industry executive said that India is now exporting paper pulp to China. According to the executive, owing to the ban in China, India is importing waste paper, converting it into what is called 'purified waste', or what is technically called a 'roll', which is then exported to the Chinese paper mills.

"India has become like a laundry," another member of the ICCMA said. "Owing to mounting domestic and international pressure, the Chinese government had announced in 2018 that from January 1, 2021 they would completely ban import of waste, which is what led to the large-scale recycling of kraft paper that we see in India today. The junk is leftover in India and pure paper fibre is going to China. That is causing a huge shortage in our country for paper and the prices have skyrocketed..."

Kraft paper mills say the reduced availability is mainly on account of rising prices of imported and domestic waste paper on the supply side as a result of Covid-19-induced slowdown and disruptions.

According to ICCMA, Indian kraft paper mills exported 10.61 lakh tonnes in 2020 compared with 4.96 lakhs tonnes in 2019.

This export has triggered the outflow of domestic waste cuttings from the Indian market to manufacture pulp rolls for China which leaves behind a trail of pollution problems in the country.

It has also disrupted the domestic supply chain, creating a scarcity situation and pushing up prices of local waste to Rs 23/kg from Rs 10/kg in just a year.

"On the demand side, they are taking advantage of the lucrative opportunity to export kraft paper and recycled roll pulp to China to fill the supply gap, as mills there face the impact of an import ban of all solid waste, including waste paper, with effect from January 1, 2021 onwards," members of the ICCMA said.

The demand gap and attractive pricing in China is displacing the output of Indian kraft paper from the domestic market and driving up the prices of finished paper and recycled fibre.

Export of recycled pulp rolls by Indian kraft mills is expected to touch about 2 million tonnes this year, roughly 20% of the total domestic kraft paper production in India. This development, on the base of zero export prior to 2018, is a game-changer in supply-side dynamics, going forward, the ICCMA said.

The corrugated box industry employs over 600,000 people and is mainly concentrated in the MSME space. It consumes about 7.5 million MT per year of recycled kraft paper and produces 100% recyclable corrugated boxes with a turnover of Rs 27,000 crore.
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