With 20 pc Safeguard Duty, the publishing Industry will suffer, fear paper traders’ body

With 20 pc Safeguard Duty, the publishing Industry will suffer, fear paper traders’ body

Author | Puneet Bedi Bahri | Monday, May 11,2009 8:24 AM

With 20 pc Safeguard Duty, the publishing Industry will suffer, fear paper traders’ body

The Federation of Paper Traders Associations of India (FPTA) has expressed its deep concern over the move by some domestic paper manufacturers for imposition of Safeguard Duty, as it feels that there is no cause for action and no reason whatsoever for the same.

The bone of contention is the two applications filed by the paper manufacturers, mainly the large units, through the Indian Paper Manufacturers Association (IPMA) before the Directorate General of Safeguards for imposition of 20 per cent Safeguard Duty on import of coated paper and boards, uncoated paper and copy paper. The FPTA fear that if this 20 per cent Safeguard Duty is imposed, the print industry would suffer as this duty would lead to a further hike in the price of wood-free coated papers that is used in magazines.

The FPTA is the apex body of paper traders in the country. It has in its fold 34 member associations and looks after the interests of more than 5,000 paper traders from all over India.

Speaking on the issue Suresh Kilam, Vice Chairman, Indonesian Association of Pulp and Paper, said, “Safeguard Duty is imposed in a country if it is facing a sudden surge in imports of the product. But the fact of the matter is that there is no one in India who can provide wood-free coated paper that is used by the publishing industry. Only recently, in March 2009, a machine was bought that can produce this paper.”

He further said, “The Director General, Safeguard, has made the recommendation to the Board and a notice was passed on April 30, 2009. I feel this not the correct step as this will result in increased cost of paper and thereby impact the print media industry. I am fighting this cause so that a larger number of people don’t suffer while a few reap the benefits.”

The Background

It is alleged that the logic behind this move is merely to seek indirect protection in keeping the prices on the higher side, protect their market shares by resorting to monopolistic practices, and higher revenues.

It is important to note that domestic players themselves outsource coated paper and boards, uncoated paper and copy paper and market the same in the domestic market. Amongst these domestic players are paper manufacturers, who are part of this exercise seeking Safeguard Duty. Even to this day they continue to import a substantial tonnage.

When imports are an issue, prices do come into the picture. The domestic paper industry can be divided into three groups based on the raw material usage: Forest based – wood; agricultural residue based – wheat straw, rice straw, baggasse, etc; and recovered paper based – waste paper based on recycling and de-inking.

According to a report published by Crisil Research in October 2008, the current utilisation of the different raw materials is as follows: wood - 36 percent; agro residue - 32 percent; and recovered paper - 32 percent.

The Crisil Research Report of October 2008 states, “In the paper industry, the cost of raw material forms the largest cost component, accounting for 50-55 percent of the total cost. Hence, even a slight increase in the price of raw materials skews the cost structure of the players.”

The research further states, “With the increasing demand for better quality paper, softwood prices were on the rise post-January 2006. Prices grew by around 34 percent from March 2006 to August 2007. Currently, prices are in the range of $740-765 per tonne.”

Between 2006 and 2008, when pulp prices were moving upwards, the domestic players continued to increase prices frequently, reasoning it with the increase in pulp prices internationally as well as the demand-supply imbalance.

And then with the global financial turmoil, everything started to fall apart. With fears of recession, reduced demand, cash crunch, etc., the prices of hardwood pulp fell to a level of $350-370 per tonne. But it did not have an impact on domestic prices. On the contrary, the domestic players made additional profits as they remained immune to the global happenings.

When globally raw material prices were falling, the prices of finished paper also fell. But India was an exception. The domestic players were reaping the benefits of substantial lower raw material prices and at the time continuing to keep the domestic prices intact.

The imports of uncoated paper and copy paper work out to a mere 0.64 percent against the country’s production of the similar grades, and a mere 0.20 percent if the country’s total production is taken into consideration.

The coated paper manufacturers feel threatened by imports. But what about the coaters who buy base paper from such manufacturers for coating purposes? The prices of base paper for coating grades have only moved northwards despite the global financial turmoil.

Considering all the above facts, imports of uncoated paper and copy paper being in negligible quantities and coated paper and boards of better quality at internationally competitive prices, are not likely to cause any serious injury to the domestic paper industry. Therefore, it was argued that there was no reason and or any cause of action for imposition of any Safeguard Duty on these products.

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