Manufacturers of corrugated boxes or brown boxes for packaging anything from electronics to e-commerce to agricultural products to fast-moving consumer goods used in daily life continue to experience a challenging period, which has become more and more in the past few months. It's getting worse.

"These are not just challenging times, but the survival of the corrugated box industry is under threat," said Sanjay Rajgarhia, president of the Indian Corrugated Manufacturing Association (ICCMA).

In the past three months, costs have increased by 30%. Between January 2020 and March this year, the cost of raw materials for corrugated box manufacturers rose by at least 70%.

There are more than 400 automated production enterprises and more than 10,000 semi-automated units in the corrugated carton industry in the country, mainly small, medium and micro enterprises. If some factories are closed, its employees will exceed 700,000, which may have an impact on the economy.

Corrugated boxes play a vital role in the domestic supply chain and exports. In addition to recycled brown cartons, they are also made of kraft paper, waste paper and cuttings. Kirit Modi, Honorary Chairman of ICCMA, said: “Since January 2020, the price of scrap, the main raw material of kraft paper mills, has more than tripled.”

The price of waste paper and shavings quoted below $100 per ton before January 2020 is currently $330. ICCMA Chairman Sandeep Wadhwa said: “The shortage of containers and higher freight rates are adding fuel to the fire.”

According to reports, the cost of shipping containers to the United States was US$2,000-2,500, which has now soared to US$12,000, while freight to destinations such as West Asia has increased sevenfold to US$1,500. On the other hand, ocean freight rates have increased by more than 300% year-on-year.

“The price of coal has risen from 3,000 rupees per ton to nearly 14,000 rupees per ton now. We need at least one ton of coal to produce one ton of paper for a factory with a combined heat and power plant,” Rajgarhia said.

Wadhwa said that the energy crisis had a huge impact on corrugated box manufacturers. With factories operating with zero inventory and crude oil prices above US$80 per barrel, the energy crisis has almost begun. "Electricity prices will rise further and everything seems to be out of control," Wadhawa said.

Harish Madan, vice president of ICCMA, said: “The spiral increase in all commodity prices and the three-fold increase in coal prices have made the carton manufacturer industry struggling to survive.”

"With the upward cycle of all commodities, other inputs such as kraft paper, adhesives and starches, inks and steel have all increased. In some cases, they have increased by 40%," Modi said.

Globally, since the beginning of this year, coal prices have risen by nearly 190%, while steel prices have risen by 32%. Since the price of corn has risen by 10% during this period, the price of starch has risen.

Starch is used for bonding purposes, while steel needles and wires are used to make brown boxes.

"We have notified our customers of the situation we are facing through a notice. However, due to the rise in the commodity market, they are also facing similar problems," Wadhwa said.

Rajgarhia stated that the problem faced by Indian manufacturers is the country’s fiber shortage and dependence on imports. At the same time, due to soaring prices, the industry cannot even pass on half of the additional costs it has to bear.

When asked about exporting kraft paper to China, Modi said that shipments were not as high as six months ago. "If this trend continues, we will be in greater trouble," he said.

As China begins to import large amounts of kraft paper to meet domestic demand, China is one of the main reasons for the soaring paper prices. Since the Chinese Communist government has banned the import of all waste, mainly paper, on January 1 this year, it has begun to import kraft paper.

Before the ban, China had been importing waste paper from all over the world. This includes all waste paper produced in the United States, Europe and other developed countries. Waste paper is recycled and used to make paper.

In view of the waste ban, Chinese paper mills switched to importing kraft paper from India. Kraft paper is recycled paper, and Chinese factories use it as a source of pulp or fiber to make paper.

In addition to these issues, the industry also faces higher Goods and Services Tax (GST) levies. From October 1st, the consumption tax on corrugated boxes will be raised from 12% to 18%.

"This will put further pressure on our working capital because we must provide credit to customers immediately. This hinders our working capital, and we must also pay interest to the bank for this," Wadhwa said, adding that the industry is now Looking down a long dark tunnel, no light can be seen.

"The biggest challenge facing the corrugated box industry is the lagging price implementation. ICCMA spokesperson Vikas Goyal said that although the purchase situation is dynamic, in the case of sales, it either occurs in a phased manner or at a contract price. .

The problem with the industry is that the industry is driven by owners, and interest rate hikes are announced via SMS or Whatsapp messages and take effect immediately. On the other hand, customers are mainly businesses and need to contact them to request approval to increase the price so that the rate on the order can be modified.

Goyal said that although paper mills are raising prices every week, carton manufacturers must wait for customers to agree and approve interest rate hikes. "Before that, we have to pay out of our pockets, which hurts us because the rate hike is huge," he said.

In the past, this situation has happened once, and the industry has been the first to bear the brunt. But now, with the sharp increase in the frequency of price increases, customers should also consider how to correct this problem, Goyal said, adding, "We need to make corresponding price increases immediately to maintain viability."

Ma Dan said that the added value of the industry is small, so input costs are sometimes higher than the selling price.

Up to now, the industry believes that there is no respite and no way out. "Before the end of winter in Europe and other Western countries, input prices are expected to remain firm because the demand for energy will increase. We must accept this situation and work hard to overcome it," Wadhwa said.

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