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India's Paper Sector Capacity Expansion Hit by Pulp Wood Shortage

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According to the Hindu BusinessLine (India), the Indian paper industry is ready for the next round of capacity expansion, except for raw material scarcity. Pulpwood shortage impacts competitiveness, according to Saurabh Bangur, president, Indian Paper Mills Association.

Bangur told BusinessLine the industry sees expansion potential in tissue paper and packaging boards.

In the past round of investments between 2006 and 2015, paper mills in India had added more than 3 million metric tons of annual production capacity in printing and writing paper at an investment of about $5 billion.

The expansion, which took total production capacity to 12 million metric tons, has been absorbed by the market. The total annual domestic demand for paper, including newsprint, is about 15 million metric tons, according to industry estimates.

Tissue paper demand is estimated at a little more than 100,000 metric tpy, but growing at nearly 17%, while packaging board demand is estimated at 7.5 million metric tons and growing at 9.4%.

Printing and writing paper demand is estimated at about 4.6 million metric tpy and growing at about 5% per year. The overall demand is growing at about 6% per year, and as of now, there is no greenfield or brownfield expansions in the pipeline, though a few, including West Coast Paper of which Bangur is the vice-chairman, are mulling plans, he said.

Paper from ASEAN countries is produced from raw wood available at about $40 each metric ton, compared with mills here sourcing raw material at $110. There is a 2 million metric ton shortage of pulpwood against an annual demand of about 11 million metric tons.

IPMA estimates in the past five years shows india's imports of paper and boards have grown at a CAGR of 16% to more than 7,014 crore in 2015-16 (1.11 metric tons), from 3,411 crore in 2010-11 (0.54 metric tons). The association has been pushing the government for a policy to allow access to degraded forest land for paper mills to raise pulpwood plantations.

Land can be with state-run forest corporations with plantations raised by the industry. This could be a revenue sharing model, Bangur felt. Mills are also partnering with farmers to raise farm forests. Other than this, options are limited.

A couple of mills have attempted to raise plantations overseas in Southeast Asia, but this model is yet to be proved. It is capital-intensive and not for everyone, Bangur said.

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