Up for the Challenge

While the headlines and the discussions are dominated by China, there are many emerging markets out there that offer attractive growth opportunities, and India is certainly one of them.

India’s paper and board production capacity has expanded during the 10 year span from 2004 to 2014 by nearly doubling from 6 million tons to a projected 12 million tons. The expansion is occurring in the wood-free grades, which is the printing and writing sector, and in the containerboard and kraft grades. Newsprint is definitely growing, albeit at a slower pace than grades in those other sectors.

Some of the announced near-term mill expansion programs in India from 2010 through 2012 are dominated by printing and writing grades, the kraft and containerboard area and one newsprint program that is on pace. This is on the heels of a pretty tremendous expansion that we saw in 2009 and 2010.

BALANCED SUPPLY
Total recovered paper consumption in the Indian market…shows a pretty good balance between what is imported and what is collected locally. Imports into India typically come from the U.S., Europe and the Gulf region, and a little [comes] from Australia.

Even though locally recovered paper in India is projected to nearly triple from 1.5 million metric tons in 2004 to approximately 4.5 million metric tons in 2014, the recovery rate really hovers in the 30 to 35 percent range. That recovery rate is really low by Western standards. We’ve seen 60, 70 [and even] 80 percent recovery rates in the more developed economies of the world.

This [disparity] is really reflective of the lack of an organized infrastructure and collection process in India. We are very interested in how this may present an opportunity in the local Indian market to get more fiber to meet their growing demands.

Exported volumes from the United States and Europe to India are basically neck-and-neck in terms of absolute volumes, but there is a difference in the grade mix between the two countries. The United States is predominantly the kraft [and] OCC (old corrugated containers) grades, mixed paper and a little bit of news, and Europe is more of the news and the white, or wood-free, grades.

A FRAGMENTED MARKET
What differentiates India from the rest of the Asian market? It is very highly fragmented. There are hundreds and hundreds of small to medium-sized mills. These mills order in quantities of 200 metric tons to 500 metric tons each. These are not 10,000 metric ton orders from big, behemoth mills. The mills are predominantly privately owned, so they are either family run or run by private investors.

For the economic decision making process, these mills consider what their demand is, what their input cost is and what their output is. If it doesn’t add up, they will shut the mill down.

Customers value consistency of quality. If this is one of the biggest factors that we have identified, understanding what your customer truly needs and what they are looking to produce, then matching that up with the proper specification on the supply grade really gives you an opportunity to build long-term relationships with customers, which creates repeat business on a long-term, predictable basis. [Proper specifications are] key, because if you don’t get it right, you are never going to get anywhere with these relationships and you are going to get frustrated easily.

Logistic services are an important factor, as well, because of the hundreds and hundreds of mills [in India]. They are dispersed geographically all over the Indian market, so you could have inland freight rates that are more than the ocean freight rates to get [the recovered fiber] there to begin with.

Managing the costs, managing those arrival times, managing the quantities [and] managing the weights requires a pretty sizable infrastructure [and] a pretty precise execution strategy in order to meet your customer’s needs. 

Michael Belus is director of international trading for GP Harmon, a Georgia Pacific company. GP Harmon is based in Jericho, N.Y., with European offices in the Netherlands and England and a joint venture office in Mumbai, India.