Rising Costs and GST Hike Push India’s Corrugated Carton Industry into Survival Mode

India's corrugated packaging industry is being squeezed from two sides: rising input costs and supply chain disruptions are dragging down revenue. The energy crisis, economic tensions, higher freight and fuel rates, and the goods and services tax on corrugated boxes are continuing to hurt an already troubled corrugated packaging sector.

Sanjay Rajgarhia, President of the Indian Corrugated Case Manufacturers Association (ICCMA), said: 'What the industry faces now is not just a challenge, but a question of survival.' He noted that overall costs have climbed 30% over the past three months. From January 2020 to March this year, raw material costs for corrugated carton manufacturers rose by at least 70%. Meanwhile, paper mills are increasing prices weekly, while carton makers must wait for customers to agree and approve the increase.

SMEs bear the brunt

Across India, the corrugated carton industry has more than 400 automated production enterprises and more than 10,000 semi-automated production enterprises, mostly micro, small and medium-sized businesses. If some plants shut down, more than 700,000 workers would be affected, which could have a severely negative impact on the economy.

Corrugated cartons are essential to India's domestic supply chain and exports. Besides recycled brown cartons, the sector also relies on kraft paper, waste paper and waste trimmings. Kirit Modi, Honorary President of ICCMA, said: 'Since January 2020, prices of key raw materials for kraft paper mills, including waste trimmings and waste paper, have more than tripled.'

Before January 2020, waste paper and waste trimmings were quoted below USD 100 per tonne; they now stand at USD 330 per tonne. Sandeep Wadhwa, President of ICCMA, said: 'Container shortages and higher freight rates have added fuel to the fire.'

Earlier, shipping a container from India to the United States cost USD 2,000-2,500. That has now soared to USD 12,000. Freight to destinations such as West Asia has risen sevenfold to USD 1,500. Ocean freight rates, meanwhile, are up more than 300% year on year.

Rajgarhia said: 'Coal prices have risen from 3,000 rupees per tonne to nearly 14,000 rupees per tonne now. A plant with a cogeneration unit needs at least one tonne of coal to produce one tonne of paper.'

Wadhwa said the energy crisis has hit corrugated carton manufacturers hard. With factories running on zero inventory and crude oil above USD 80 per barrel, the energy crisis has almost begun. 'Electricity prices will rise further, and everything seems to be spinning out of control,' Wadhwa said.

Harish Madan, Vice President of ICCMA, said: 'The spiraling rise in all commodity prices, along with coal prices increasing threefold, has left the carton manufacturing industry struggling to survive.'

Modi said: 'All commodities are in an upward cycle, and costs for other inputs such as kraft paper, adhesives and starch, ink and steel continue to increase. In some cases, prices have even risen by 40%.'

Globally, coal prices have risen nearly 190% since the start of this year, while steel prices are up 32%. Starch prices have also increased because corn prices rose 10% during the same period.

Raising prices with customers is difficult

Wadhwa said: 'We have informed our customers through circulars about the situation we face. But because commodity markets are rising, they are dealing with similar problems.'

Rajgarhia said Indian manufacturers are constrained by a domestic fiber shortage and dependence on imports. At the same time, with prices soaring, the industry cannot pass on even half of the extra costs it has to absorb.

Asked about kraft paper exports to China, Modi said shipments are not as high as they were six months ago. 'If this trend continues, we will be in even bigger trouble,' he said.

China has started importing large volumes of kraft paper to meet domestic demand, which has also become one of the main reasons for the surge in India's domestic paper prices. Before the waste paper import ban, China imported waste paper from around the world, including waste paper generated in the United States, Europe and other developed countries, mainly for recycling into paper.

Given the waste import ban, Chinese paper mills turned to importing kraft paper from India. Kraft paper is recycled paper, and Chinese mills use it as a pulp or fiber source for papermaking.

Higher GST

On top of these problems, the corrugated carton industry also faces a higher goods and services tax (GST). From October 1, GST on corrugated cartons increased from 12% to 18%.

Wadhwa said: 'This will put further pressure on our working capital, because we must immediately provide credit to customers. It is a huge challenge for our working capital, and we also have to pay interest to banks for it.' He added: 'The carton industry is currently like being in a long, dark tunnel with no light in sight.'

Vikas Goyal, spokesperson for ICCMA, said: 'The biggest challenge facing the corrugated carton industry is the lag in price execution. While purchasing is dynamic, sales are either phased in or carried out at contract rates.'

The problem is that the industry is driven by paper mills, which announce price increases by SMS or WhatsApp with immediate effect. Customers are mainly brand companies, and they must be contacted to request approval for price increases before order rates can be revised.

Paper prices rise every week

Goyal said that while paper mills raise prices weekly, carton manufacturers must wait for customers to agree and approve the increase. 'Until then, we have to pay out of our own pockets, which hurts us enormously because the cost increases are so large,' he said.

In the past, this situation happened once and the industry bore the brunt. Now, however, with the frequency of price increases rising sharply, customers should also consider how to correct the problem, Goyal said. 'We need immediate, corresponding price increases to remain viable.'

Madan said the industry has very little added value, so input costs are sometimes higher than sales prices.

As of now, the industry sees no respite and no way out. Wadhwa said: 'Input prices are expected to remain firm until winter ends in Europe and other Western countries, because energy demand will increase. We must accept this situation and work to overcome it.'

——Source: China Packaging Network (pack.cn), original link: http://news.pack.cn/show-378650.html