The external and internal impact
According to Venkataraman, the Covid-19 outbreak is expected to weaken the global demand of commodities, disrupt supply chain, and lower commodity prices.
For instance, many of the engineering goods, merchandise export and so on, might be impacted by the global demand. “I think one of the main sectors that may escape this impact is pharma, which could actually do better than expected,” said Venkataraman.
He said the supply chain disruptions are already in place and the commodity prices will reduce due to the situational demand. Succinctly put, there'll be shocks globally across the world for whichever country overextended by debts.
In terms of internal impacts, reduced discretionary spending, factory shutdowns, and travel restrictions, were expected. “You're going to have consumers who are different in terms of behaviour. During the pandemic, people preferred staples in comparison to other goods. Thus, the consumer staples are expected to grow. Currently, there are shopping restrictions, resulting in slight contractions of demand, but consumer staples are expected to do very well,” said Venkataraman.
As per the growth estimates by rating agencies and financial institutions such as S&P Global Ratings, Fitch Ratings and IMF, the economy growth, which was pegged at 6% has reduced to just under 2%. “That is the prognosis for economic growth in financial year 2021 (April to March) where one quarter is disturbed and then you can expect some kind of demand and also the economy to revive through concerted efforts and measures undertaken by the government,” he added.
How India could emerge stronger
On a positive front, the low oil prices can help India mitigate the shock. The decrease in crude oil price can enable India to import and fill up the quantity as per its demand. The falling crude prices can help the country manage inflationary and fiscal pressure, said Venkataraman .
The Covid-19 outbreak is set to open up opportunities for India’s pharma industry. Venkataraman mentioned that there are six Indian companies that are working on a vaccine for Covid-19, and if one of them succeeds, it will be a major boost to the Indian pharma segment, and it will help boost the economy.
More importantly, as a number of countries are eying to move its businesses out of China due to the current scenarios, India can benefit from this new order. “India has a large economy with abundant labour and competitiveness. But this is an effect, which will benefit us maybe a year later. The investment has to come in, the transfer and the production, too, has to come, and then we might experience a consumption boom.”
Recycled paper and boards take bigger hit
"As paper, packaging and even the printing industry are regarded as essential services, they weren’t shut down. But the demand is going to be much affected," said Venkataraman. Social distancing and confinement norms will have its impact, too. The overall demand is expected to contract. Also, China is going to slip down quite in terms of its own export rate and demand.
“Over a period, there will be better balance between supply of inputs and the demand for paper. But as per the current quarter (April to June), it is disruptive, as all of us have been caught unaware. The current shortages will lead to a spike in prices,” he added.
According to Venkataraman, for certain products, pulp prices were always cyclical, which were on the climb even before January. But the commodity, which has been hit the hardest is recycled paper or paperboard as the total lockdown has affected the collection mechanism."
He added, “There is shortage of fibre as the local sources are not reaching the market and imported sources are hardly available. The impact on recycled boards is expected to stay for a longer time, more than just a quarter.”
However, a surplus can be expected due to the import drops in China. In terms of the graphics paper industry, the worse affected are the organisations with zero advertisements and educational institutions. But the packaging paper, board and labels are expected to grow.
At a glance: Impact on paper consumption
- The impact of the pandemic has resulted in severe disruption of paper across segments since Q4 2019-20 and is expected to continue through H1 2020-21.
- The total demand for paper in India during FY 2020-21 is expected to decline by 10-12%.
- Packaging paperboard is set to witness demand in ready-to-eat and ready-to-cook segments.
- In the corporate segment, demand for copier paper has taken a hit as offices, factories and institutions have been shut down, and work-from-home is likely to continue through H1 20-21
- In terms of imports of printing and writing paper, around 60% of demand for coated papers is imported and China accounts for a third of the imports. The supply disruptions have resulted in price increases of around 12-20%.
- The demand for tissue papers is expected to decline around 5% in FY 2020-21.
- The production of newsprints has declined sharply. The imports cater to 60% newsprint in India.
Impact on Indian paper industry
The cultural grades could witness some loss in demand during the April quarter, said Venkataraman. But the demand will ramp up during Q2 and is expected to hit near normal by September when the academic season commences.
Overall, the packaging boards will be in good shape with high growth, segments making up for the loss of cultural varieties. “We believe that board volumes for a year will be more than 90% of the national demand,” he said.
The demand for browns will be robust with eCommerce driving the incremental volumes when there could be a dip in the conventional B2B shipments. However, the industry may be impacted by supply side issues with challenges on recovered paper.
The newsprint consumption may be down by about 4-5%, which may further constrain waste paper availability for the duplex board industry when imports become tight.
Overall, the Indian industry is expected to stage a sharp recovery with well positioned leading mills. However, the small mills could face issues due to raw material shortages and working capital.
Growth opportunities for Indian print and packaging
PN Sridharr shed light on the opportunities that have risen due to the lockdown. According to Sridharr, door-to-door deliveries will boost the demand for corrugated boxes and branded packaging. The food service packaging will see emerging demand for overwraps. Meanwhile, in the pharma industry, new designs and formats are expected to be formed for healthcare products.
Furthermore, he pointed out that the shift to paper-based substrates for low barrier applications will see an upswing. And there will be emergence of new barrier coated products in flexible packaging.
Surprisingly, Sridharr pointed out the demand for books is also set to increase. “We conducted a survey in which we found out youth have read books at least for an hour daily during this lockdown period. Moreover, the fallout of screen fatigue and day long exposure due to work from home methods has prompted the need to read books,” said Sridharr.
Sridharr: We might seen an upswing in the demand for books
He said that printers and converters have four strategic areas to focus on: recovering revenue and re-energising customer relations; cost control measures; rebuilding operations and shopfloor practices; and preparing the new normal – digital and automation.
Continual of safety measures
Emphasising the need to maintain the fundamental laws of protection, Sridharr said, “Consider everybody around you as an asymptomatic carrier of Covid-19 and capable of infecting you. And you, too, can be an asymptomatic carrier of the virus and can infect others. So, train yourself, and neither get infected nor infect others”.
He advised all to follow the necessary guidelines, notifications and documents put forward by Food Safety and Standards Authority of India, Ministry of Health and Family Welfare, and the World Health Organisation.
ITC has also prepared three documents giving operational guidelines for offices, warehouses and manufacturing sites, which can be downloaded from its website.
New regulatory demands
- Focus on health and hygiene – brands may demand on packaging made on certified lines.
- Increased focus on sustainability and preference of eco-friendly and certified packaging.
- Brands may seek certifications for Covid-19 compliant operations.