India on the brink - RISI industry outlook

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India on the brink - RISI industry outlook

May 12, 2013 - 16:00

BRUSSELS, May 13, 2013 (RISI) -A new RISI study, 2013 India's Forest Products Industry Outlook, shows that India's wood fiber deficit is set to more than double between 2011 and 2021, placing increased emphasis on imports.

The "wood fiber deficit" is defined as the country's imports of logs, and the roundwood equivalent of its imports of primary forest products (e.g., lumber, wood panels and pulp). It is forecast to increase from 11.9 million m32011 to 27 million m3in 2021.

Due to regulations in India, companies are not permitted to own land in any significant amount and therefore cannot develop their own plantations. With limited opportunity for growth in domestic timber production, India's need for imported wood fiber is expected to be sustained for several decades: Is that for pulp or construction? How much of each? Study author Robert Flynn, Director of International Timber at RISI, explains that it depends on how one wants to describe it. "If you want to talk about the increase in wood fiber deficit over the decade 2011-2021, then 48% of the increase will be in logs, 42% in pulp, and the remainder in wood products meaning building materials like lumber and wood panels. If you want to talk about what the wood fiber deficit will be in the year 2021, we say 47% logs, 36% pulp and 16% wood products."

Figure 1 - Which are the major suppliers of paper products to India?

RISI does not expect India's growth trajectory to follow China's explosive patterns. Why not? This strikes at the heart of the report and Flynn calls it a "deep subject."

"A basic difference is due to the differences in government structures. For example, infrastructure was a limiting factor in China, and is currently restricting trade into India, But in China, when the government wanted to build a new port, or new roads and highways to distribute the imported wood products from the port across the country, the government just outlined the project, told the people in the way to move, rolled over anyone who objected and just did it, "Flynn explains

In India, he adds, any development requires miles of red tape, and endless meetings and debates in government, and is always a much, much slower process. Because the entire process of economic development must proceed at slower pace in India, due to its "messy democracy", this means growth in their demand for wood and timber to help build the new housing, infrastructure projects, etc., will also move at much slower pace. The connected reason is that housing construction in China has been a major driver in wood demand. For logs, lumber, panels - government policies have ensured massive housing projects, both private sector and public, to accommodate the huge shift in population from rural to urban areas. In India, the government has done very, very little to promote housing construction, and the urbanization process has been much slower than in China.

Flynn continues, "So again, demand for wood will develop over time in India, due to scarcity of domestic resources and expected long-term economic development, but it will all be at slower speed than in China, which means growth in demand for timber will not be "explosive", but will grow more gradually (and, we assume, for a longer time period, than in China)."

The study explores the similarities and differences between economic development and forest industry evolution of India and China over the past five years. India is expected to be the world's next substantial wood fiber import market after China.

Figure 2 - Forecast of India’s paper and paperboard production, 2011-2021

Where does it come from?

The study also details the overseas sources of India's fiber. For example, India is the world's largest market for teak, and over the past several years sources of teak log imports in India have been relatively balanced, with one-third from Southeast Asia, one-third from Africa and one-third from Latin America. In contrast, softwood log imports, which were 83% greater in volume than teak log imports in 2012, are heavily concentrated, with 88% coming just from New Zealand.

The US is the largest source of paper and paperboard for India (19.2% in first nine months of 2012), followed by China (11.1%), Russia (10.9%), Canada 8.5%, Korea 8.1%, Finland 5.7%, NZ and Sweden 4.3% each, UK 3.9%, Germany 3.4%, and "Other" 20.4%.

Wood pulp imports in 2011 were from Indonesia (30.9%), USA 13.1%, Canada 12.9%, Sweden 7.9%, South Africa 6.9%, Finland 5.0%, Chile 4.9%, Brazil 4.0%, Russia 3.1%, China 2.4%, other 9.2%.

The study also looks at farm forestry programs, which have been instrumental in planting hundreds of thousands of hectares of fast-growing hardwoods like eucalyptus, casuarina, subabul, etc. The paper companies have developed very high quality tree breeding programs, and produce high quality trees for farmers to plant, at subsidized prices. However, since the vast majority of these plantings are done with hundreds of thousands of very small farmers, who can decide when to harvest and to whom they want to sell the wood, the paper companies cannot rely on very large scale volumes of wood fiber coming back to their mills. This means the companies are limited in the scale of pulp mills they can/are willing to finance, so we see some paper companies like Ballarpur and Birla Group going overseas to acquire pulp mills, in order to continue expanding.

Another key point, Fig 4, is that while China's working age population will start to decline in the next couple of years (not just "level off", but actually decline), a problem that is very troubling to the Chinese government and their outlook for long-term economic growth, in India the working age population will continue to grow, and by 2030 will be 8% larger than in China.

Figure 3 - Fiber furnish forecast for India’s paper and paperboard production, 2007-2021
Figure 4 - By 2030, India’s working age population will be 8% larger than China’s

The report also contains:

  • Analysis of India's infrastructure limitations and developments in ports, roads and energy production;
  • Profile and analysis of India's forest products industry and market trends, including major companies;
  • 10-year historical data on imports of softwood and hardwood logs, softwood and hardwood lumber, pulp, recovered paper, as well as the various paper grades: tissue, newsprint, P&W, containerboard and boxboard.

For more information, please visit: www.risi.com/indiaforestproducts