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Kraft paper price rises despite lower demand for corrugated boxes

Kraft paper manufacturers are unwilling to cut prices, saying they are finding it difficult to source waste paper.

January 22, 2021 / 06:03 PM IST
Tamil Nadu Newsprint & Papers | Thiru R Ramaseshan resigned as Executive Director (Finance) & Chief Financial Officer of the company.

Tamil Nadu Newsprint & Papers | Thiru R Ramaseshan resigned as Executive Director (Finance) & Chief Financial Officer of the company.

The price of kraft paper, used in packaging, has increased by Rs 5-7 a kg in the last four weeks despite a low demand from corrugated box manufacturers who use it as their primary raw material.

Demand is low since it is a lean season for the manufacturers of corrugated boxes or cartons used in packaging. Kraft, which in German means strong paper, is quoting at Rs 28-30 kg against Rs 18-23 in early December. Before the coronavirus pandemic, the price was Rs 27 a kg.

The price depends on the BF, or bursting factor, which means the strength at which a bunch of papers bursts when hit with a hammer.

A paper industry expert said that manufacturers of kraft paper, made from waste paper, are unwilling to cut prices on the grounds that they are finding it difficult to source waste paper.

“The December-February period is one of change. Old cartons are changed since there is no place for the old design and companies shift to new packaging. New orders for the boxes begin in February,” the expert, who did not wish to be identified, said.

Corrugated boxes demand is also down since some goods manufacturers are adopting alternative packing methods. For example, cool drink manufacturers, who used to pack 12 two-litre bottles in a carton, are now using plastic trays, doing away with the corrugated boxes.

Demand for corrugated boxes has not picked up over the last two months since products manufactured by fast-moving consumer goods (FMCG) companies are piling up with movement being slack.

Besides this, the demand for corrugated boxes for pisciculture in Bengal is sharply lower since December-January is a lean period.

In view of this, corrugated box manufacturers are buying kraft paper on a hand-to-mouth basis. These manufacturers cannot seek a hike in the box prices from buyers like FMCG companies since they would have to bid and get orders on prices that prevailed earlier.

The manufacturers can hope to raise prices only when a new tender opens up.

Kraft paper manufacturers are holding up their prices as they have found takers in China, which has imported higher volume from India as it has banned imports of all wastes from January 1, 2021.

The kraft paper manufacturers face other constraints, too, in importing waste paper as its availability is lower, while freight rates are high besides ships and containers not being available.

“If you want the container to be available early, you need to pay a 10 percent surcharge. This has made imports of waste paper costlier and difficult,” the expert said.

Kraft paper manufacturing does not require bleaching and hence it is produced by small and medium enterprises. These manufacturers mix water with old papers and convert them into pulp before the kraft paper is made.

A kraft paper maker can be found in every locality making use of old and waste papers in the area. As waste paper freight is fixed on volume and not weight, it is a costly proposition for the manufacturers, forcing them to settle for locally available raw material.

Similarly, corrugated box making units spring around these kraft paper units to save higher freight costs.

For example in Vapi city in Gujarat, corrugated box manufacturers get kraft paper delivered locally by these small manufacturers.

The expert said the export of kraft paper to China could emerge as a threat for the availability of fibre for kraft paper makers and corrugated box manufacturers.

“A paper can normally be recycled five times. This means if 100 tonnes are exported, it takes away the potential availability of 500 tonnes of fibre for the paper industry,” the expert said.

As most of the small and medium manufacturers use old technology, they are able to recover only 65 percent of the fibre in old paper with the rest being washed away with water that is mixed with the old paper.

All these have resulted in kraft paper makers keeping their prices higher at current levels. But this does not mean that there would be a shortage of paper in the days to come, the expert said.

Since mid-November 2020, kraft paper prices have surged mainly on account of an import ban by China on all wastes, mainly paper, that came into force on January 1, 2021, and non-availability of containers.

China had stopped importing wastepaper from across the world well ahead of the ban. Chinese paper mills began importing kraft paper from India to use it as pulp or a fibre source to manufacture paper. This resulted in a shortage of kraft paper for corrugated box manufacturers in India.

(Subramani Ra Mancombu is a journalist based in Chennai who writes on commodities and agriculture)
Subramani Mancombu is a journalist based in Chennai who writes on commodities and agriculture
first published: Jan 22, 2021 05:53 pm

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