Presentation Overview. Paper as a product. Future of paper. Market overview of Indian pulp and paper industry

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Elizabeth Sharp
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1 Market overview of Indian pulp and paper industry presented at the seminar organised by Automation Industry Association India by K S Kasi viswanathan Director( Operations) Seshasayee Paper & Boards Ltd, India Presentation Overview Introduction Demand Projections Paper Industry India Paper Industry Global Global competitiveness of Indian Paper Industry Automation Summing up 2 Paper as a product Introduction Paper is a noble product Paper promotes literacy and vice versa paper is easily disposable Shown steady growth despite advances in computer and information technology. In fact the paper industry has been benefited by IT revolution! 3 4 Future of paper Future of printing past communication forecasts Only half the time do people ever confine their reading to a single piece of paper (or single screen) Quick, flexible navigation Ability to read across multiple documents Ability to freely mark up a document while reading Ability to interweave reading and writing Usage of PCs will push up paper usage. Demand for Cut-Pack Paper is moving up sharply Digital Printing Paper will emerge strongest Radio has no future Lord Kelvin Mathematician and Physician Past president, The Royal Society 1997 The motion picture will supplant largely, if not entirely, the use of text books. Thomas Edison 1922 [TV] won t be able to hold on any market it captures after the first six months. People will soon get tired of staring at a plywood box every night. Thmyl F.Zamack Head 20th Century Fox 1949 There is no reason for any individual to have a computer in their home. Kenneth President, Digital equipment corp Source: Turku school of Eco. & Bus. Admn 5 6 1

2 Future of printing lessons from the past Create demand for tomorrow New media have not destroyed existing media radio did not destroy print or the recording industry television did not kill motion pictures cable did not swallow television New media and new technologies have forced existing media to change traditional ways of operating Source: Turku school of Eco. & Bus. Admn refocus on their audiences alter the products and services offered change business models 7 Create new customers Target customers. E.g. -Two wheelers for office going women - Luxury cars for high class business men Never loose an existing customer Demand for paper Become ecofriendly Create new products Replace other conventional products and introduce paper instead. e.g. - Paper cups for coffee, ice cream etc. - Paper plates in railways. - Paper bags instead of gunny or HDPE bags for packing. 8 Paperless society? No way Do not get worried about future demand for paper. As long as there is human life on this universe, there will be demand for paper. The market is there. It is a question of whether you are there and if yes, where you are. Indian market As we will see later, the demand growth for paper in India and Asia is faster than that of the world growth But Indian market is unique and interesting Small retail orders with high margin Large industrial orders with low margins Too many qualities and sizes One has to be small and nimble footed to survive! 9 10 Indian market Indian market The printing industry is growing faster than the paper industry Use high tech machineries, but are still small Good export conversion orders Demand high quality paper Need quick delivery Hence Indian paper mills should have the ability to take small orders Must ensure quick on time delivery Quality to meet printer s requirement Must be consistent in quality Still be cost competitive Environmentally compatible

BASIS WEIGHT CALIPER MOISTURE CONTENT FORMATION It is important to realise that

COATINGS BRIGHTNESS OPACITY SURFACE POROSITY STIFFNESS 14 What is needed today?

become very relevant Concentration should be on Quality of process and not on

3 BASIS WEIGHT CALIPER MOISTURE CONTENT FORMATION It is important to realise that there are too many variables and critical properties for paper CONDUCTIVITY COATINGS BRIGHTNESS OPACITY SURFACE POROSITY STIFFNESS 14 What is needed today? Quality Consistency in whatever we do With the opening up of economy, these have become very relevant Concentration should be on Quality of process and not on quality of end product Demand Projections 15 Paper demand growth - World Paper demand ( ) - World 6 5 Avg. Annual demand Growth % 's 30's 40's 50's 60's 70's 80's 90's 00's 10's Source: Metso Paper Is rate of growth declining? 17 Source: Metso Paper 18 3

4 Paper demand projections - World Paper demand projections - India Driving Forces: Growth in GDP and improvements in Standard of living Growth in the Export - oriented industries Demographic factors like population growth and increase in literacy levels Growth of Service Sector Growth of Packaging/Printing/Publishing industry Developments in Information Technology Government policies on Foreign Investments Environmental Considerations Year JP Consulting (Conservative) JP Consulting (Base) ICRA (Time Series) Industry Demand Growth of 5 to 6% is near certainty In Million Tons Economic indicators Paper Industry - India The average annual growth rate during the Ninth Five year plan ( ) was 5.4%, one of the highest among major economies in the world in recent years The Indian Economy has been resilient in the face of several shocks during the period (such as East Asian Crisis of , the recent Oil prices increase and the World Economic Slowdown ) The overall growth rate was achieved with the support of a growth rate of 5.7% in agriculture, 3.3% in industry and 6.5% in services. 22 Other Advantages Manufacturing Enterprises Stable Democracy Established Judicial System Large Domestic Market Growing Middle Class with enhanced purchasing power Govt.-Pursuing Policy of Liberalization and Globalization WTO membership Large pool of Science and Technology Trained Manpower Prior to Liberalization Lack of Competitive focus and strategic management Govt. Policy of industrial capacity licensing - big impediment to achieve economy of scale Reservation of items for exclusive manufacture by small scale sector Post Liberalization Technological transformation is taking place Greater global integration has put pressures on the Industry to become cost and quality competitive and become environmentally compatible

Paper Industry where are we? (1/3) Paper Industry where are we? (2/3) Capacity 6.

5 Paper Industry where are we? (1/3) Paper Industry where are we? (2/3) Capacity Million Tons Geographical spread Regional balance in consumption and production Source: ICRA Production Consumption Composition of the industry Million Tons Million Tons Wood based 35-40% Non wood based 60-65% 25 Source: ICRA Relatively smaller capacity mills Absence of capacity consolidation 98% of the mills have a capacity of less that 50,000 tpa Quality of assets Small plant sizes Unattractive returns Focus on regional markets 26 Paper Industry where are we? (3/3) Capacity Vs Production Paper and Paperboard industry extremely fragmented Large players contribute only 33% of output Newsprint production is concentrated 4 to 5 players account for 80% of the output Share of Grades Cultural % Industrial % Newsprint % Source: ICRA 27 Source: JP Consulting 28 Fragmented paper and paperboard industry Performance of major companies in volume terms Production of paper and paperboard in India share of major co's (% of production) 45% 40% 35% % % No. of Paper Mill in India over No. of Mills of Capacity tons/annum or more is less than 20 - Share of large mills falling (currently about 35%) years % 47% 42% 37% 32% Performance of major companies in value terms share of major co's (% of production) years 29 Source: CMIE '000 tons Large Mills Small Mills Domestic Production Share of the Large Mills is falling 30 5

6 Imports of paper and paperboard into India Fragmentation less in newsprint industry Performance of major companies in volume terms (newsprint) % % Source: CMIE 6 in value 5 terms 2.14% 3.01% % 3.01% 2.69% 4.44% % % 5.56% % % years in volume terms in value terms Though the imports have been around 2% in volume terms, there has been a significant increase in value terms 31 Source: ICRA % 80.00% 60.00% 40.00% 20.00% 0.00% years The domestic newsprint industry is much less fragmented than the paper and paper board industry. However, the industry is dominated by imports as revealed by the share of major domestic companies in the total consumption % % % 80.00% 60.00% 40.00% 20.00% 0.00% share of major co's (% of production) share of major co's (% of consumption) Performance of major companies in value terms (newsprint) years share of major co's (% of production) share of major co's (% of consumption) 32 Import duty on paper So what are the issues? Overall import duty for paper and board has declined from 140% in % in % in 2005 The first major issue is the need for a strong raw material base It is the key for future growth Major raw materials their usage worldwide and in India Wood - tropical hard woods / soft Woods, Agricultural residues like bagasse, straw, kenaf, etc., Secondary fibers - waste paper Usage Worldwide Waste Paper 39% Agro Residues 4% Usage in India Agro Residues 31% Wood 57% Wood 37% Raw materials for paper making a challenge While 57 % of paper produced world wide is from wood, only 14 % of wood felled is consumed by the paper industry! In India, for example, the paper industry consumes only 3 % of wood felled in the country! While forest cover in developed countries are stable & increasing, in developing countries deforestation is faster than afforestation For example, in India, forest cover (managed by Government) is declining. The industry s request for allotment of degraded land for plantation still under consideration Other options are Agro residues and waste paper. Waste Paper 32%

7 Raw materials for paper making a challenge Bagasse is perhaps the only agro rawmaterial based on which large paper mills can be established But with vagaries in monsoon and the way cogen of power from bagasse is catching up, establishing large mills based on bagasse is almost ruled out Absence proper collection system and alternate uses of waste paper also makes establishment of large mills based on waste paper really difficult Quality limitations are also to be kept in mind if we use agro or waste paper in large proportions Plantation based wood looks to be the only option for future large paper mills Raw materials - urgent issue Look at countries like Brazil and Indonesia. In India a 300 t/d mill is large. Even for this there will be more than one production line In Brazil a 3000 t/d pulp mill is under installation These countries have large Industrial plantations to grow fast growing pulping trees Other issues Other issues Large size mills (50,000 tpa and above) are reasonably modern and operate efficiently However, the size of paper machines still small - higher energy consumption,quality constraints JaakkoPoyry Consulting has recommended that future machines should be at least 50% of international size. This will help in affording better automation like QCS and DCS. 40 Other issues Other issues High speed machines of more than 1000 mpm are not many in India. More mills should go in for high speed machines as part of Technology Upgradation. Mills should also focus on fewer grades to be more efficient. Mills should enhance use of fillers and coating pigments as well as synthetic sizes. Mills should be in the Export Market which will improve the quality of paper and services. Large Indian Mills should move towards ECF Bleaching ECF light bleaching using chlorine dioxide followed by peroxide is recommended for large Indian mills. Use of Enzymes good potential Near 100% self-generation of power desirable in view of high cost of power from Grid. Cleaner production techniques are to be followed

8 Other issues Small mills use old machinery and outdated technology. Their modernization and incorporation of Chemical Recovery Systems extremely difficult. They are exposed to penal action under Environmental Laws. Or they have to switch over to waste paper based operation No green field mill during last twenty years and nothing in site either? 43 Capital Investments (1/2) Capital Investments (2/2) No major Greenfield, integrated pulp & paper mill since 1984 (TNPL: 90,000 tpa bagasse based newsprint and fine paper mill). Inhibiting factors appear to be: Absence of sustainable raw material base. Funding constraints A Greenfield integrated pulp and paper mill involves a financial outlay of Rs.750 to 800 crores (US $ 170 millions). Existing mills need urgent up gradation The mid 90 s saw the emergence of mill modernization and capacity expansion initiatives on a comprehensive scale, directed towards: Upgrading of technology in pulping, paper making, chemical recovery and co-generation operations. Cleaner production and readiness to meet emerging environmental legislations Enhancing quality of pulp and paper production, and Reducing variable costs of production as a measure to be more globally competitive. Capacity expansion to enable meaningful use of state-of-art technologies and attain better economies of scale, Future Investments? Investments required to sustain the creation of additional capacity of about 5 million tons would be US $ 8 billions in the next 10 years. This would open host of opportunities for international players to participate in India s growth. Hopefully Government of India would have permitted FDI in paper industry and created a favorable forest policy, by then. Paper Industry - Global 47 8

9 Growth of paper industry World Paper and board consumption was 15 million tonnes in 1950 and today it is nearly 325 million tonnes It accounts for nearly 3.5 % of world s production and 2 % of world s trade USA is the leading producer with over 100 million tonnes/annum, nearly 1/3 rd of world s paper production It is interesting to note that recent increase in capacity addition is mostly in Asian region Compounded annual growth rate ( ) 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 3.10% 6.50% 2.50% 4.40% 3.10% Africa Asia Australia Europe Latin America 2.10% North America 49 Source : Asia Paper Maker 50 Per capita consumption of paper India ranks 15 th among global paper producers Huge potential for Asian Countries with low per capita And large population today India Indonesia China Thailand Brazil Japan USA UK US China, People's Rep. Japan Canada Germany Finland France Korea, Rep of Sweden Indonesia Brazil Russia United Kingdom Taiwan India Mexico Thailand Australia South Africa Argentina Colombia Chile Venezuela Vietnam '000 tons Source : Asia Paper Maker 51 Source: P&B Capacity (2000) 52 Consumption of paper Asian Countries Country Production (Million tons) Consumption (million tons) Consumption per capita (kg) Japan China Korea Indonesia Taiwan India Thailand Malaysia Philippines Vietnam Hong Kong Singapore China s threat Growth of paper industry in China is mind boggling Fastest and the widest machines being commissioned in China almost every year Start up year Prod.Lakh t/year Speeds: m/min Wire width: 3.30 to m Price of market pulp dictated by China Plantation being given a big push Raw material - big question mark today Source: Metso Paper

Global competitiveness ( A comparison) Global competitiveness of Indian paper industry Parameter mills in Mills abroad India

comparison) Country production (t)/employee Japan 605 Usa 393 Canada 292 Indonesia 52 India 30 Global competitiveness -

competitiveness Cost of fuel (coal) Global competitiveness Personnel costs India has low cost coal.

10 Global competitiveness ( A comparison) Global competitiveness of Indian paper industry Parameter mills in Mills abroad India Steam (t/t) 13 7 Power(kwh/t) Water (cu m/t) Chemical Recovery(%) Global competitiveness ( A comparison) Country production (t)/employee Japan 605 Usa 393 Canada 292 Indonesia 52 India 30 Global competitiveness - Hardwood Tropical Hardwoods - Due to limited availability, price in India is high 57 Source: JP Consulting 58 Global competitiveness Cost of fuel (coal) Global competitiveness Personnel costs India has low cost coal. The ownership of Mines vests with the Government. India has a large pool of well educated and trained and power. Labour cost is low Source: JP Consulting 59 Source: JP Consulting 60 10

Global competitiveness Purchased power Global competitiveness Waste paper (OCC) In spite of low cost of fuel, power purchased from the grid is expensive for the industry.

Automation Indian mills are no where near mills abroad in terms of specific consumption figures Mills are small and too many qualities Hence too many stoppages and wash ups Need of the hour quality

11 Global competitiveness Purchased power Global competitiveness Waste paper (OCC) In spite of low cost of fuel, power purchased from the grid is expensive for the industry. Similar situation exists in China and Japan. Source: JP Consulting Automation why? Automation Indian mills are no where near mills abroad in terms of specific consumption figures Mills are small and too many qualities Hence too many stoppages and wash ups Need of the hour quality and consistency On time delivery Exports are going up and hence Indian mills have to necessarily come closer to Global standards Losses are high particularly in post manufacturing area 64 Automation why? Automation why? Thanks to poor raw material base,poor infrastructure and Govt policies, Foreign investers have not thought of India China threat is looming large We can be swept away by a psunami There is no way we can be complacent What is the solution? Pulp and paper industry is highly capital intensive In general, margins are low and hence efficiencies have to be high Good and reliable automation with better controls to ensure consistency in quality and delivery Automation can certainly help. It is not a solution for all the present problems of the industry. But can certainly improve our competitiveness. Do not look at Automation as an expenditure.it is an investment for future and also for long term survival

12 Automation New thinking Automation New Technologies Wireless technology - No cable or wire between level or flow transmitter to the monitor! Soft sensors to measure certain parameters which are not available in your present system, say the QCS. For example, you can accurately deduce strength properties of paper using data from soft scanner without going to laboratory! Scanning vs full sheet imaging. You can measure 100 % of the sheet all the time, like a web inspection system Web enabled product tracking - traces any and all data about the product from machine to winder to cutter to warehouse to customer! Today these are done using dedicated software. In future- web enabled software through the internet You only pay an access charge just as you pay for internet user time! Suppliers will offer web based value added on-line services. Like in computers or mobile phones, industrial automation will also become highly user friendly. Instead of controlling parameters, it will control the process and will give you what you want Summing up (1/4) Summing up You have to clear your way Paper is a noble product It is eco friendly if proper technology is adopted There need be no concern for demand for paper We have to create the demand Life will be difficult and demanding Indian economy - growing at over 5% per annum for the last several years. This growth is expected to be maintained and improved upon. Exports - expected to go up significantly. India has the largest technically skilledand English speaking workforce. 70 Summing up (2/4) Summing up (3/4) Import tariff will continue to come down - Globalization and WTO stipulations, Our drive on literacy, Our population and low per capita of today offer infinite potential Paper Industry - expected to grow at 5 7% per annum. The main constraint - lack of forest based raw materials. Govtmust enunciate a Forest Policy permitting planting of trees in waste lands and degraded lands by private sector. Indian mills are small.but have to become globally competitive Automation can be of great help. It will help in quality, consistency and on time delivery which are the need of the hour Needs to pay tremendous attention to technology up gradation, quality enhancement and on environmental/energy performance. India will shortly become a key player in this region The best of India is yet to come and that is true for Indian Paper Industry also

13 Thank you 13

GLOBALIZATION AND SOCIAL SUSTAINABILITY THE FORESTRY & WOOD INDUSTRY ON THE MOVE Tripartite meeting, Geneva, September 2001

GLOBALIZATION AND SOCIAL SUSTAINABILITY THE FORESTRY & WOOD INDUSTRY ON THE MOVE Tripartite meeting, Geneva, 17-21 September 2001 Peter Poschen & Mattias Lövgren Forestry and Wood Industries, ILO International