Paper Recycling Supplement - Emerging India

U.S. paper and paper board production has been shrinking. After peaking in 1999, domestic production is under pressure and declining. This is mainly the result of consolidation in the industry and many shutdowns.

U.S. consumption of recovered paper has been on the decline, as well. Here, again, after peaking in 1999 to almost 37 million tons, it had dropped to a little less than 34 million tons last year.

U.S. recovery of scrap paper, on the other hand, is on the rise. Ten years ago, the United States recovered 43 million tons of scrap paper, and last year that number reached 51 million tons.

U.S. exports of scrap paper are surely on the rise, as well. Ten years ago, the United States exported 8 million tons. Last year, that number skyrocketed to almost 16 million tons. Clearly, U.S. exports of scrap paper are on the rise. Future growth in our industry is surely overseas.

Let us look at the factors fueling growth in our export markets.

The migration of manufacturing to offshore locations has been the most pervasive trend witnessed throughout the United States in recent times. Entire industries have relocated their manufacturing operations from the United States to foreign countries. Such a fundamental shift has resulted in, among other things, the expansion of the packaging industry abroad.

As countries in Eastern Europe, Latin America and Asia bring down barriers to free trade, we are witnessing increased business development in these regions. Free flow of capital and resources is resulting in increased production and consumption of paper and paperboard in these markets.

With increased international trade, many emerging markets are seeing an increased affluence in their societies. Paper consumption in many ways has a direct correlation with this affluence. Per capita consumption of paper in many of the export markets has increased during the past 10 years. And the good news is that there is still room for more growth. For example, the per capita consumption of paper in India is currently at about 6.5 kilos, or 14.3 pounds, and is projected to grow to 8.5 kilos, or 18.7 pounds, by 2010. Compare this with the per capita consumption of paper here in the United States, which is currently more than 300 kilograms, or 660 pounds.

Now, let’s take a brief look at the Indian market.

With a population of 1 billion, India is drawing the attention of the world. Of these 1 billion people, more than 700 million are younger than 35. This group of people will surely have a long-term impact as consumers and contributors to the world economy in the upcoming years.

India’s GDP growth this year is estimated at 7.5 percent. It has been the second fastest growing economy in the world, the fastest being China.

There are more than 600 paper mills in India today. However, it is estimated that almost 150 of these mills are considered "sick," meaning inoperative.

The average size Indian paper mill can produce from 30 to 60 tons per day. Unlike many other markets, the Indian market is characterized by small mills. Whiile more than 300 mills in India are purchasing imported scrap paper, the country doesn’t have a single machine that has a capacity of even 500 tons per day.

Despite India’s recent growth, the Indian government has a long way to go in providing an efficient infrastructure. Notwithstanding the government’s current efforts, it will take considerable time before we see efficient power and transportation networks, which are the foundations of any successful industrial development of a country.

The Indian paper industry is forecasted to grow at about 7 percent per annum throughout the next few years. It is interesting to note that while the Indian paper industry is growing steadily, we have not heard of any significant commitment of resources by multinationals in our industry to set up shop in India. Nearly all growth will be "home-grown."

The current state of domestic recycling in India is miniscule and quite unorganized. So, with a limited supply of domestic scrap paper, the Indian mills look to imported scrap paper to supply their mills.

Where does the imported wastepaper come from? Indian mills first draw fiber from the closet region, the Middle East. The next stop is Europe, which has become a very regular supplier of secondary fiber to India, especially to the duplex and newsprint segments. Once they have exhausted local, regional or European sources, then Indian mills come to the United States for their fiber needs. U.S. scrap paper is the most expensive imported secondary fiber for Indian mills.

The Indian market is unique in that you can find a customer for almost every grade of scrap paper. To give you an example, last year, CellMark sold 48 grades of secondary fiber to India. If it is priced right, there is a user for any grade of scrap paper in India.

Unlike some other export markets that buy significant quantities of scrap paper, but in only a handful of grades, the wide network of small mills in India provides a unique opportunity to sell almost any grade.

Thus, given the fact that the Indian market will continue to grow, the real question is how best to access this market and what are a few of its unique challenges.

This is where you may decide to either sell directly to Indian mills or to use a marketing company to achieve.

Of course, my personal bias notwithstanding, I will now list a few of the challenges and why using a marketing company for India is a preferred option.