Supply side discipline required to hold priceline

02 June 2010

The domestic price of paper products in the year 2010 is expected to take a plunge, as a result of additional capacity announced by some of the paper mills.

The paper mills likely to add to the dynamics of equilibrium of paper product demand-supply are - The Andhra Pradesh Paper Mills (APPM), WestCoast Paper Mills (WCPM) and Tamil Nadu Newsprint (TNPL). Together, thesethree mills will add around 3.5-lac tonnes to the existing total paper production capacity of 1-cr metric tons annually (mta).

Pradeep Dhoble, past president, IPMA and chief executive at paperboards and speciality papers division, ITC said: "The fresh stock of supply could exceed demands. This can lead to a price war among the paper manufacturers.

The managements of the mills with enhanced capacity have to be cautious to maintain supply side discipline."The paper industry can offshoot a temporary supply-demand imbalance by handling the supply side. The companies can resort to measures like restraint on domestic supply with a focus on exports, which is currently buoyant. ITC had taken a similar step, when we completed our expansion project in the year 2008-09.

The current domestic demand-supply situation for paper products is balanced around 1-cr mta. The additional capacity is likely to be absorbed by the market in about year's time, wiping out the demand-supply gap, as the demandfor paper was expected to grow by 9% in the current year2010 as against 6%in the year 2009, added Dhoble.

APPM, part of the Kolkata-based LN Bangur group, has commenced commercial production from its new 67,000-tpa paper machine in May 2010. The WCPM has also completed its expansion increasing its installed capacity from 1.8-lacto 3.2-lac tpa. State government-owned TNPL has plans to hike its capacity by 1.2-lac tpa.

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