The adverse impact of lockdowns has not really worn off when
a very awkward situation is now confronting the labels and printing industry at
large. Prices of paper and all essential inputs are moving skywards disrupting
the cashflows that appeared to be getting back to normalcy. It is a strange
situation whereby there is a volume growth in demand and reduced availability
of pulp and other materials coupled with compulsion of paper mills to recoup
the losses incurred due to lockdown, driving up the paper prices. Stuck in
between, the label and printing industry is compelled to swallow the increases
with intense pressure on their operating margins and working capital
requirements. The phenomenon is evident globally, as paper sellers are
directing supplies to wherever they find a bigger demand around the world and can
command higher prices. There are also logistics challenges owing to shortage of
containers. One wonders if this surge in demand is real or there is an element
of stockpiling. If it is the latter, it may result in a market crash once the
normal working returns that would be even more worrisome. It is mentioned by
analysts that the present spurt in prices is due to increased demand coming
from China’s domestic consumption increasing dramatically. Surely these are
unprecedented increases happening leaving a premonition of adversity amongst
the printing and packaging fraternity.
The price increases in paper are coming continuously at
regular intervals of time. Asia
Pulp & Paper (APP) which is one of the largest pulp and paper
company in the world, wide their notification dated 22nd January 2021 increased prices of all grades of
paper by 100$ per ton then on 1st February 2021 they increased the
prices by another 100$ per ton and also withdrew the reel discount they were
offering, yet again on 1st March 2021 they increased the prices by
yet another 150$ per ton. With such a steady rise on monthly basis, one is left
wondering when and where this will stop. SAPPI another global supplier of label,
packaging and specialty papers, on 3rd March 2021 announced an
increase of 7-11% in prices. In the case of labels, both the face stock and the
release paper have suffered cost escalation. Vinyl Acetate Monomer or VAM is an
important part of pressure sensitive adhesives used for manufacture of self-adhesive
labelstocks and tapes. Owing to a whopping increase in demand from China VAM
prices also witnessed a continuous upward trend to reach an increase of more
than 20% so far in 2021. This too directly impacts the cost of producing self-adhesive
labelstock and eventually labels. Many polyethylene
(PE) and polypropylene (PP) producers in Texas USA have shut plant operations because
of the winter storm in mid-February 2021 sending prices of films upwards due to shortages. This increase in
prices of polymers directly impacted price of label films and filmic
labelstocks. The increase for different films varies between 12-25%.
As if the raw material price rise was not enough the varying demand
across different geographical zones in the world and shift in purchasing
pattern of populations around the globe brought about a huge impetus to online
retail business. This resulted in a logistic change of transportation from
established routes and volumes causing disruption of smooth flow of materials
and altering the planning for container needs. All this led to increased
freight rates, coupled with increasing fuel prices the ultimate impact on the
end product keeps on escalating. It is
surprising that such an unprecedented upward revision of all inputs in one go
has never been witnessed before in the labels industry. The labelstock
manufacturer is squeezed between the large raw material suppliers and the
printers who are themselves under intense pressure of high equipment cost and
facing print buyers who are not willing to increase buying rates. More so, considering
that increasing number of label printers are bidding for the same business and are
always ready to compromise a bit more, the situation is complicated.
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| Gautham Pai |
Gautham Pai founder and Executive Chairman of Manipal
Technologies Limited Manipal, expressing concern at the situation prevailing
says, “The price increase of raw materials is significantly impacting the
business. In addition, the supply chain disturbances and logistic cost
increases have added to the overall costs increases. These increases at a time
when buyers are still struggling with low demands and muted orders is a major
concern.” U K Gupta Group Chairman & Managing Director, Holostik Group also
feels, “Price increase in paper, solvents and adhesives have impacted the Label
Industry badly”. Indian Labelstock producers have steadily grown in numbers and
size as the industry registers double digit growth over the last many years.
The industry players have gradually transformed from being manufacturers of just commodity stocks like semi-gloss and
uncoated wood free or maplitho to advanced specialized label materials, both
coated, uncoated, filmic and specialty products like security label materials. Since
all inputs in labelstock manufacturing have been adversely impacted and spreading
the effect to the entire self-adhesive label industry, Ajay Mehta Managing
Director of India’s largest indigenous labelstock manufacturing company SMI
Coated Products Pvt. Ltd. brings forth the reality that the industry is facing
by expressing, “The price rise in all raw materials of Label
Stock solutions have gone up tremendously and we have to pass it on to the
Label converters and unless the Label converting industry joins hands, to
take immediate action in getting a price rise from Label buyers , the Industry
stands to loose INR 250 million per month, which is going to be extremely
detrimental for the health of the industry”.
The pain and anguish at the emergence of this difficult
unprecedented turn of events in words of, Ajay Agarwal, CEO of Syndicate labels
New Delhi, “Price increase is nothing but a nightmare for the Label Printing fraternity
and the biggest reason is that it disrupts the operations for all label
Convertors. The process of transmission of the rate increase to the end
customer is extremely difficult and is often characterised by a new round of negotiations,
reverse auctions etc. and most likely it results in reduced margins for the
label convertor. While price increase is a reality and need of the hour yet in
face of the current increase in prices of raw materials, it still leads to a
lot of pain.” Sharing the same concern, Himanshu Kapur Director, J K Fine Prints
Pvt. Ltd. Mumbai agrees, “Price increase is a necessary evil for accommodating
inflation, if done effectively it will benefit the entire supply chain else operation will suffer long term. Unfortunately,
the print buyers are also responsible for the collapse of an industry which was
once an art form and now considered a commodity”. Rajesh Nema Director Pragati
Graphics Indore and honorary secretary LMAI (Label Manufacturers Association of
India), “Label industry is indeed facing tough times as cost of all inputs has
gone up yet print buyers are not agreeing to price increases. Most of the
self-adhesive label manufacturers are in yearly contracts with their buyers, it
is difficult to make them agree to price increases during currency of the
contract”. According to Lakshminarayanan
business unit head-Wintek at Signode India Ltd. : Impact of Prices is not only
from raw materials, but it is also due to Inflation and logistics. There is a strong demand for consumer goods and food
packaging in the country. Nonessential packaging sectors is also regaining normalcy,
but the price increases continue to challenge converters supplying due to their
inability to pass on the price increases to end-users, who in turn are
driven by their cost pressures and not accepting to consider any price increase
in current situation. Considering the greater need for working capital due to
the steep increase in prices during recent weeks and the narrowing margins,
inventory held by both converters and end-users remained below the average.
A brave Anuj Bhargava of fast-growing Kumar Labels NOIDA beamingly says. “Price hikes shouldn’t affect any organization’s normal profitability in the entire eco-system. All actions favorable to this intent should be taken so that a new equilibrium is arrived at with positivity” However he further adds, "that price hikes should be passed on so that profitability is not affected for anyone. New equilibrium is with revised prices for everyone.".
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| Kuldip Goel |
LMAI President Kuldip Goel, Managing Director of Any Graphics
NOIDA, sums it up as a situation whereby
in the covid times many in the industry have lost customers because when you
take the increased price to them, your competitors who have their own pressures
to strengthen their balance sheets so that banks are satisfied to lend more,
are ready to offer without any profit or at a minor loss. Or if they have spare
capacity and can retain their loyal customers they will attempt to take in new
customers at unreasonable rates. It is not that the print buyer is not facing
the impact of covid-19, the moment they see price escalation they will start
exploring options to prevent the rise in cost of inputs. Printers at this time must
evaluate as to how best they can handle the situation; price increase is
imperative for them to sustain but then it needs to be seen how much of their business
is dependent on that customer. One must strike a balance in price and cost optimization
internally by trying to achieve more from their existing infrastructure and
manpower. One must look within, reduce labour cost, wastages, save electricity,
inventory control, and produce more with less.
At this time, the entire value chain is in jeopardy, each
business product unit is customer of another, all constituents of the industry up
to the print buyers need to empathise with their suppliers to bring some relief
from this dilemma post continuous increase in input costs, that has descended
on entire industry. It is appropriate at this time to mention a famous quote, “The
journey is never ending. There's always going to be growth, improvement,
adversity; you just got to take it all in your stride and do what's right,
continue to grow, continue to live in the moment”.
Addendum: Messages received after posting the above article;
Aaditya Kashyap, Marks Emballage Pvt. Ltd. Baddi; Already struggling to come back to normalcy from the
pandemic-induced challenges, the increasing raw material pricing is like the
last thing we could have wished for. I see label printers in a very weak
and vulnerable position completely squeezed out of business by increased prices
from bigger players on the supply side and the dominant brands and buyers on
the other hand who refuse to accept any price hikes. Would love to see that material
manufacturers and suppliers work with printers to take the price hikes to
brands and buyers. This is a difficult time for all, so need for all
stakeholders to work together to find a win-win in this difficult times."
Rajeev Chhatwal, Kwality Offset, New Delhi: Very Strange Scenario no break on increasing RM prices. Business being run on negative profits!
Written by Harveer Sahni Chairman Weldon Celloplast Limited New Delhi March 2021
Note: Print magazines are free to reproduce this article subject to giving credit to author with blog address
