The paper conundrum - The Noel D'Cunha Sunday Column

By 07 Sep 2018

Is there a crisis looming? Will the shrinking margins cause havoc? Or is there an opportunity for the industry?

In this Sunday Column, the PrintWeek India team shares a few tips from the print community to the paper traders, so that unitedly they can boost the animal spirits

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A storm of global events has resulted in long lead times for most of the paper grades – with mills resorting to an allocation for the first time in over a decade.

Printers and paper buyers have been warned to plan for the rest of the year.

The combination of factors affecting the supply of graphical papers, packaging boards, boards of disposables and tissue and hygiene products - increasing demand for pulp for other markets, which has pushed prices up to almost USD 1,200 a tonne. A year ago it was USD 700-750.

As well as pulp prices, other rising input costs for papermakers include chemicals and fillers as well as the exchange rates.

A total of 54 paper companies announced their Q1FY19 results posted a combined net profit of Rs 2.24-billion against net loss of Rs 3.46-billion in the year-ago quarter. Net sales of 54 companies increased 19% from Rs 56.62-billion to Rs 67.49-billion during the quarter.

International Paper APPM, Ruchira Papers, Nath Pulp & Papers, West Coast Paper, Emami Paper, Tamil Nadu Newsprint and Seshasayee Paper Boards have rallied in the range of 25% to 50% in the past one month.

PrintWeek India takeaway: Paper mills are producing at a mid-90% run rate, which is full.

Internationally, especially in Europe, the paper manufacturers have shut down paper machines in the face of declining demand, or converted lines to make other higher-value products, such as carton board.

Besides, there has been a surge in demand from China, where many small recycled paperboard mills have been closed down due to tighter environmental regulations. This has resulted in at least one European papermaker switching some of its tonnage that would have been sold in Europe to the Chinese market.

Some European paper is also currently being exported to North America due to fluctuations in capacity there, plus there is the extended downtime of various mills because of a conversion project.

The PrintWeek India team was talking to book publishers and newspaper CEOs. Most of them have switched to lighter paperweights to save costs. This resulted in a further knock-on squeeze, with web offset, gravure and newsprint papers in particularly short supply.

PrintWeek India takeaway: Everything from magazine papers down to newsprint grades is certainly tight. Previously we were looking at a four-to-five week lead time. Now it could be extended as far as three months.

In 2000 there were paper traders whom we can count on fingers and now in 2018, we have countless traders. It indicates the growth rate of the printing industry, as demand increased so have the suppliers.

PrintWeek India paper dealer survey
PrintWeek India conducted a small sample survey in which we asked the question: Do you think a paper trader has a role to play in your print business?

A resounding 97% said, YES, we think there is a big role for the paper trader to play.

We requested these 97% printers to describe who is a paper trader.

They said, the "paper trader” definition into two — commodity and specialty paper traders.

The commodity trader adds value by being our eyes and ears at the mill and ensuring that supplies are received in a timely manner and also maintaining a buffer to our stocks. Those who are not adding these services become very replaceable/ interchangeable with another trader. Also, they provide unsecured credit to the printing industry. This is acknowledged as one of their leading roles.

On the specialty front, the trader also plays a role of educating the end user/designer of the available choices and helping them make decisions. Since the options for specialty paper is quite high and customer choice is varied, we usually do not stock large volumes of these - so we depend on the traders to maintain the volumes required. They also assist printers to get certain grades as preferred by the brand owners.

In addition, there are many traders in the commodity and speciality side have added converting/sheeting units across the country, aiding the printing community in servicing odd sizes and with JIT deliveries.

Cost of paper / board
Paper or board, whichever is the substrate, comprises 69.5%-72.5% of the print cost. So any sudden rise in the price affects the profit as well as overall value.

Moreover, in the case of few clients, they float quotations every six months and once frozen the cost stays for the next six months. It is becoming extremely difficult to predict the price of paper.

In terms of raw material, the choice of material has increased tremendously. From a place where pretty much had only art paper and maplitho or multiple imported and domestic materials with not much differentiation, now there's a world of choice.

The number of specialty paper traders has increased.  At the same time, those in the volume trade also have stepped up their service levels.

PrintWeek India takeaway: A paper trader has a very critical role to play between the mill and the printer. Good, mature, responsible dealers/traders provide valuable inputs on developments in the mill. They communicate problems faced by printers to the mill, coordinate after-sales complaints and service requirements, and can help support printers with their long-standing association with mills. A good paper trader is an advantage both to the mills and more so, to the printer.

PRINTWEEK SURVEY #1 with a premium printer: How do you source your paper – directly from the mills, the dealer or a mix of both?

Most mills have to bill through the channel - we maintain a good relation with mills and with the dealers. Generally, the billing is through a dealer.

While we did talk about the important role that paper traders play - there are still those whose main function is to provide credit facility. This is unhealthy for them as well as the industry. Instead, if they concentrate on better servicing, the entire industry will be helped.

PrintWeek India takeaway: The premium printer expected his trader to be able to cut paper wastage by setting up a sheeting facility and maintaining a good percentage of his stocks in reels. He said, "They can command a higher cost per kg for this service, while the printer also saves and its good for the environment too as wastage is reduced."

Wastage is key. On wastage of paper, two important points came to the fore. One, as mills supply paper in roll form, the paper stock in the core is often wasted. Again, the system of paper handling remains primitive where hooks are used to unload the rolls. This adds to the wastage.

PRINTWEEK INDIA SURVEY #2 with a book printer: How do you source your paper – directly from the mills, the dealer or a mix of both?

Almost all of our paper is sourced directly from the mills in India and abroad. A tiny amount of paper is purchased from the open market but directly from dealers.

How have you seen paper trade business change over the years?

Normally, the customer is king. Buyers control the levers of power. However, in the print industry, the mills are much larger than most printers, in size. So, they enjoy a greater balance of power in the equation. Some mills are very professional, responsive to our problems and expectations. There are others, who do not care about customer feedback, or, are least interested in resolving issues. Equally, it is not necessary that large mills are more professional than smaller mills. It depends on the leadership in the mill and the culture developed by the CEO/Owner.

However, mills appear to be listening to us a lot better (if we demand service from them) and meeting our needs with providing FSC paper, synchro cut pallets, resolving our complaints, etc. Also, paper traders can add much more value to the print industry by importing much more variety of papers in the market as foreign trade policies are much more flexible these days.

Stora Enso is evaluating options to convert its entire one million-plus tonnes of Lumi coated woodfree paper production to packaging board instead. The book printer wanted to know what will be the implication for the Indian printers?

The paper and wood products group has announced a feasibility study for its Oulu Mill in Finland, which runs two paper machines and has an annual capacity of 1.08m tonnes, alongside a chemical softwood pulp plant with a capacity of 3,60,000 tonnes.

The mill currently makes various grades of fine paper, including LumiArt and Silk sheets, LumiForte reels and sheets, and the LumiPress Art and Silk range. It is Stora Enso’s only coated woodfree fine paper mill, so if the scheme goes ahead it would mean the group would exit that part of the market.

The book printer expects his paper dealer to provide market information.

PRINTWEEK INDIA SURVEY #3 with a Kolkata print firm: A printer from Kolkata with a double-digit healthy growth was asked how do you source your paper – directly from the mills, the dealer or a mix of both?

The printer said we source paper directly from the mill if the quantity is enough for them. Usually, in case of Maplitho, we source it directly from mills, for example, ITC (Bhadrachalam).

How have you seen paper trade business change over the years?

All types of businesses/trade have evolved over a period of time. We have seen definite improvement in this segment and dealers/ mills are ready to make special size paper, custom made for more cost-effective runs. However, we want the quality and inspection side to be much stronger than what it is currently. Grain direction is a big issue.

PRINTWEEK INDIA SURVEY #4: PRINT BUYER – BOOK PUBLISHING MAJOR

Creaky infrastructure: We need very simply TATs. And books need to hit third-day delivery anywhere in the country. Transportation is a huge issue

Government policy ignores publisher concerns: There is no effective government ‘lobbying’ and no understanding of publishers’ needs. The earlier copyright battle over the controversial 2m amendment and the recent 12% GST on royalties shows that.

Perceived corruption: More for the educational side where foreign firms are actually at a disadvantage for being honest.

Red tapism: the ridiculousness of bureaucracy is still there. For example, weights and measures (legal metrology) which will fine you almost a lakh for writing on the sticker of a pack (or box set) that it contains 20 copies or 20 nos instead of 20N. The fundamental logic of weights and measures is twofold — consumers should know the certified weight and should know expiry dates. Now we need reform that does away with weights and measures for non-perishable items like books.

Disregard for IPR: It is impossible to police this as the govt has no will whatsoever and that message emboldens pirates. For a country seeking investment abroad and constantly putting ourselves up against China as a better place to invest, this should be one of the USPs - that you can come here to an IPR protected regime.

Actual policing vigour: which can only happen if there are separate cells designated for IPR (like there are cyber cells today). Only then can we get prioritised action. In the 70 years since independence, it is telling that there is not one conviction for piracy.

RESPONSE FROM ALL 25 PRINTERS ABOUT THINGS PAPER TRADERS SHOULD BE WARY ABOUT

-    Owners disconnected from the marketplace

-    Protecting the position of the firm against dependence on key customers and suppliers

-    Taking a nuanced view of finances

-    Ignoring status of the business premises

-    Potential non-compliance risks

PrintWeek India takes

PWI's take #1 – Elle cover experiment
The magazine has used recycled paper for the first time as part of a special edition devoted to encouraging sustainability in the fashion business.

The September issue of Elle UK went on sale (8 August), billed as ‘the sustainability issue’ on the cover. The autumn publications of glossy fashion titles are typically bumper issues and Elle said it was its biggest of the year. The Hearst title has an ABC-certified monthly circulation of 168,850.

Elle has switched its text pages from its usual UPM Star 75gsm to a 70gsm UltraSky grade from Leipa Paper for the special edition. Leipa uses waste paper as the main raw material at its two mills in Germany, and UltraSky is made from 100% post-consumer waste.

As part of the sustainability initiative Elle commissioned research among its core audience of young women, which revealed that 62% were unaware that the fashion industry is one of the world’s biggest polluters.

Education is vital and we should be teaching about the value of paper and its sustainable use. The world has been poisoned by the idea of deforestation, which is now long gone and nothing to do with the paper industry.

Tip: People do not know about sustainable practices around the world. For example, only 1% of trees in Scandinavia are harvested and only one-third of that is used for paper. The understanding that paper can be harvested and sustained unlike plastic would generate better responses in the market

PWI's take #2 – PUSH GREEN WITH BUYERS
Penguin Random House said the company had become the first trade publisher in India to move to FSC paper entirely. The company has taken the initiative to recycle the excess unsold inventory to make stationery products for internal use.

Two publishing majors explained how the company chose print partners across different geographies, closer to the company warehouse, to avoid logistics delays. He added that the ideal situation would be the one where the printers directly supply the books to the schools.

A word of caution: Both printers and the publishers agreed that often there is no consistency in the same category of paper supplied by the same mill. This invariably affects quality.

Tip: What we need is a concerted effort to maintain the momentum so that in time we can arrive upon a set of best practices guidelines which are acceptable to all stakeholders, from publishers to paper manufacturers to printers. In time, the scope can be widened to include others, such as distributors and sellers, both physical and online, and even the literature festivals, big and small.

PWI's take #3 – WHAT PAPER ARE THE BRANDS SPENDING ON
Companies spend the best part of their budget on their most valuable asset – brand. According to a market research company, brands account for 30% of the stock market value of the businesses. For some, brands inspire loyalty. For others, it becomes a marker of distinction where products are not very different.

Please have conversations with brands. Especially with the government regulations against plastic

In the Campaign India list of TOP 100 brands, Samsung has retained the number one position it held last year. There was much fanfare on 9 July when the Indian prime minister and South Korean president jointly inaugurated Samsung’s largest mobile factory in the world. This Noida unit will double the company’s output to 120 million units in the next few years. The company also regained the top market share in the Q2 with a 29% share against its closest rival Xiomi’s 28%.

Nestlé too retained its second spot. The FMCG major’s market cap crossed the Rs 1-lakh crore mark recently. However, the company failed to protect Kit Kat’s four-finger bar shape in a legal war it has been waging with US rival Mondelez.

Consumer electronics and durables dominated the conversation among Top 10 rankers in India with five out of the top 10 brands belonging to that space.

PWI's take #4 – MEDIA DARK STATES
Today Dainik Bhaskar is operating in all 38 districts of Bihar. The DB Group has invested Rs 200-crore in print centres and, editorial resources and in the launch process in the state. The newspaper has seen a 20% circulation growth.

If you look at Bihar there are four Hindi newspapers (Hindustan, Dainik Jagran, Prabhat Khabar and Dainik Bhaskar). Dainik Bhaskar is at number two position with an average issue readership (AIR) of 9.11 lakhs, while the legacy player leads with AIR of 9.98 lakhs. In the Patna edition, Dainik Bhaskar is at number one position with AIR of 5.07 lakh readers.

Now consider the stats.

DB Group has invested close to Rs 200-crore in Bihar. If you look at it from the publisher’s point of view, this market is bigger than Madhya Pradesh, or Rajasthan. It is also bigger than Gujarat. All these states have a population of around six-crore. Madhya Pradesh has a population of five- to six-crore. For Rajasthan and Gujarat, this figure stands at six and a half. The population of Bihar is 11-crore. So from the perspective of reach and penetration consumption, Bihar is a huge market.

But Adex for Bihar is not as high. It is low because the potential of Bihar from advertising and purchasing perspective is lesser as compared to other markets. But the market has to change. In terms of spending in advertising, Bihar and Jharkhand are a Rs 500-crore market with a population of 11-13-crore. To put this into perspective, Rajasthan is a Rs 800-crore market with a population of around six to seven-crore. So, Bihar should at least be Rs 1000-crore market.

Are YOU ready for this?

Tip: These are traditionally under-represented markets and in terms of readership, one important lesson that emerges is that these markets were earlier ignored by almost everybody under the pretext of looking only at the bigger markets, but now the reality is that these are the markets that offer growth.

PWI's take #5 –UV PACKAGING
The embellishment market is booming at the moment. From spot UV coating through to hot foiling, more and more printers and trade finishers are looking to invest in embellishment technology driven by growing demand from their customers for something different.

In only a few years, it has become one of the major growth areas within the printing market, and it will have a major impact in the commercial, packaging (labels, folding cartons, corrugated) and publishing market [in the future].

The driving forces in each one of those segments are different, but they are all working in the same direction: major growth in this market.

Have YOU created a system to address this, segment?

PWI's take #6 – EVERY DEALER IS AN AMAZON MINI CENTRE
Digital print is the future.

InfoTrends says 1.8 trillion colour pages digitally printed on an annual basis. Therefore, smaller lots and many more deliveries.

PrintWeek India has an Amazon mini centre below its office. It is our favourite lunch break activity. To watch how humans follow processes, algorithms make decisions.

This is the logic underpinning an Amazon Fulfilment Centre, the high-tech warehouses that are primed to ship parcels with zero error and lightning speed, to impatient customers all over the country. Amazon says it reaches all of the 20,500 pin codes in India.

Barcode Pairing
A principle at the heart of an FC is the pairing of an item and its container, using barcodes. All items and all containers, including carts used to move an item from one area to another, have unique barcodes. When an item is moved from, say, a cart to a shelf, a clerk scans the item and the shelf using a handheld device. This way, Amazon knows where an item is, at all times.

Sorting and Packaging
Containers are diverted into two kinds of packing bays — one for single-item orders and another for multiple-item orders. The single-item bays are relatively uncomplicated. Associates scan the barcode of the item and the system tells them which packaging to pick. At the bay where containers with multiple orders arrive, another level of sorting, also algorithm driven, is involved. 

Tip: Amazon has created zero margins for errors even for small Rs 100- items. Have YOU?


 

PWI's take #7 – PAPER YATRA
In UK! A Paper Appreciation Course for designers and brand placement experts. This one-day event is ideal for gen-nex that have not had the chance to visit a fully working paper mill.

The course can take place in the morning ahead of a tour around the paper mill concluding the day in the afternoon. Invite 2-3 PrintWeek India Award winners to show the power of paper and packaging.

You can invite companies from a wide range of sectors. Also, have conversations within our industry and involve more voices alongside experts from academia and NGOs.

Tip: Engagement has to be very strong, and people are key if we are to respond to the challenges we face.

PWI's take #8 – R&D CENTRES
There are 25 technology and R&D centres in India. Do you collaborate with them?

Look at the presses/kit that are run; plus the products and prototypes that are showcased.

Technical sessions and demos: Customers visit the centre to see the kit being operated in action;

The cutting-edge applications which include design, graphics and finishing embellishments;

Your staff can get training or skill upgradation;

You can host a show or networking event at some of these centres;

Plan an outreach with print buyers and brand owners;

Access to handbooks/tech tutorials at these centres;

Tip: Start work with partners, now.

PWI's take #9 - A PAPER LAB
A lab-cum-testing centre which is part of a broader strategy to make your premises a centre for education to be used by members of the public, and especially young people, interested in the creative industries.

In UK, there was a paper merchant, DENMAUR, that offers PAPER HEALTH CHECK UP.

We will have a number of expert paper people on our stand to discuss specific areas of paper for print, there will be plenty of swatches to give out on the day, and we'll be inviting visitors to take us up on free paper health checks.”

IT INCLUDES PRICING!

The firm said this service sees its consultants “proactively find alternatives and solutions for our customers to keep them ahead of the market”.

PWI's take #10 – REAL DIGITAL
I visited Real Digital in Croydon near London. We were really excited about what we saw on the shop-floor of the PrintWeek UK Company of the Year.

The firm was formed in 2005 with 12 persons. They were among the first to do full-colour transpromo for direct mailers. Now it’s a two location plant with 130 persons who are on a profit-sharing scheme; and a healthy growth.

This is thanks to an ambitious plan, huge upfront investment in kit, impressive turnaround and solid IT backbone which extends the company’s print scope. This includes lots of very nifty work on the database. At one time, Real Digital was the world's largest Xmpie investment with 10 data processing servers.

Real Digital have a fleet of iGen4s and i Gen3s (a total tally of nine), backed by Xerox monochrome devices. The highpoint is the two: one ratio of post-press to press kit. This range from Stahl folders to Buhrs inserters to Hunkelers for paper finishing.

The interesting investment has been two custom-built Agfa Dotrix web-press (630mm x 1500 mm); fully variable four colour duplex kit.

The entire ops works on a strong IT backed system.

Tip: This is the future! Are YOU ready?


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