West Asian Turmoil Puts Pressure On India’s Paper Industry

The paper industry in India is already experiencing the spillover effects of the continuing geopolitical tension in West Asia, with the increasing cost of energy and future interruption of markets in the export arena becoming a central issue.

According to the Indian Paper Manufacturers Association (IPMA), the region is one of the most important export destinations for Indian paper and paperboard products. During FY2024-25, India exported paper and paperboard at a value of approximately $980 million, with almost $290 million, or approximately 30%, of this being exported to West Asian markets.

The key export segments include uncoated writing and printing paper, coated paper and paperboard, and kraft paper.

Why Is The Crisis Affecting The Paper Industry?

The paper industry is very energy-consuming and strongly connected to international trade patterns. Consequently, any disturbances in the world’s energy markets can have a direct effect on the cost of production.

The market participants in the industry indicate that the supply of fuels like liquefied natural gas (LNG), piped natural gas (PNG), liquefied petroleum gas (LPG), and propane gas is already subject to tight supply after the regional crisis intensified.

An increase in the price of fuel might lead to a huge rise in the operating costs of the paper mills, and this would squeeze margins in the industry.

Meanwhile, producers are struggling with the problem of obtaining some chemical components that are utilised in the production process, such as hydrogen peroxide and binding agents. They play a key role in the processing of paper.

These shocks can also be transferred to downstream sectors that require constant supplies from paper mills.

Could Global Trade Patterns Shift?

This crisis can also bring about alterations in the global trade flows that might impact the domestic market.

Economists in the industry caution that key exporters like China and Indonesia, which are heavy industries depending on the West Asian market, are likely to shift excess supplies to other parts by the time the market weakens.

These distractions would result in increased imports of paper into India, which may be at competitive prices.

According to industry bodies, this would increase the pressure on local manufacturers who are already grappling with the issue of dumping of cheaper imports into the local market.

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What Does This Mean For Investors?

To investors, the events underscore how the paper industry is vulnerable to energy prices and global trade forces. This may put pressure on margins in the short run, as any prolonged increase in the prices of fuel or interference with the supply of gas would raise operating costs in paper mills.

At the same time, a slowdown in exports to West Asia and the possibility of excess paper being redirected to India by producers such as China and Indonesia could increase competition in the domestic market. Going ahead, investors will need to track energy prices, export demand, and import flows closely, as these factors can influence the industry’s profitability and pricing power.

Sources:

CNBC TV18

Economic Times