The Indian economy and packaging growth

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The Indian economy has had a good run of GDP growth for the last fiveyears, that is, since the 2003-04 financial year. The packaging industry wasready for this growth and it has prospered in these years as well as addedconsiderable capacity. In the flexible packaging industry, major players suchas Jindal Polyfilms, Cosmo Films, Polyplex and Uflex have not only addedcapacity to manufacture films and laminates but have also become global playersby setting up manufacturing capacity outside the country. Jindal Polyfilmacquired the French company Rexor in France 2003, while the recentlyinaugurated Uflex plant in Dubai, as well as its plant under construction inMexico are organic expansions. So are the Polyplex plants in Turkey andThailand.

Altogether, Europe imports 100,000 tons of BOPET films each year, andsixty per cent of this is from Indian companies in spite of the anti-dumpingand anti-subsidy duties that are applied against them. This is because theIndian companies import the latest premium lines and are able to achieve 110per cent capacity utilisation and lowest cost status. Nevertheless, thevolatile increases in the price of imported oil over the last nine months havecreated an inflationary situation and enormous cost pressures on the entirepackaging industry and the flexible packaging industry in particular. It ishoped that the very recent downturn oil prices will continue and perhaps bringoil closer to the US$ 100 mark. 

Capacity creation andthe prospects for 09-10 and 10-11
In these last fiveyears considerable forward-looking capacity has been created. Apart from thenew Uflex plant in Dubai, its Mexican plant under construction should be readyfor commissioning in the first quarter of 2009. The first of Jindal Polyfilms'two new Dornier lines were to be commissioned in June and the second inDecember 2008. Cosmo Films plans to more than double its annual BOPP filmcapacity to 136,000 tons by financial year 2010-11 and one line has already beenordered. There has also been a slight pick-up in investments in blown filmlines and high-speed wide web flexo presses - one can expect more than three tobe installed in each of the coming years.

Similarly, amongstthe several raw material suppliers to paper and board packaging, JK Paper andITC's Paper and Specialty Papers division have set up new paperboard plants.

The board packagingprinters and converters have also created considerable capacity over the lastthree years. ITC's own packaging division, Twenty-First Century Packaging,Borkar, and Parksons Packaging, amongst many others have becomemulti-locational and have invested in several 6-colour plus coater presses anddie-cutters and folder gluers in their new plant locations.

Not yet a slowdown forconverters - positive for 09-10and 10-11
The feedback frompackaging converters is that although cost pressures are being felt it is notyet a slowdown. In any case, June to November is the busy season for theconsumer product and packaging industry. And although the premium capacity forplastic packaging on the UV presses is not seeing the kind of demand that hadbeen anticipated because of higher raw material prices, this capacity is beingutilised for premium board packaging.

For those who havealready created high technology capacity, the current financial year (April2008 to March 2009) is seen as a time to concentrate on productivity issues inanticipation that oil prices and inflation will moderate by December. Theseplayers expect converting prices to firm up and demand to grow withanticipation of strong profits in the 09-10 and 10-11 financial years.  

Capital machineryexperiences slowdown
On the capitalmachinery side, the situation is not so sanguine. Advances on new equipmenthave been given, but one could see even at drupa from the non-committallanguage of some of the vendors, that the letters of credit are not forthcomingas quickly. At the time, some converters spoke of waiting for the exchangerates to settle down but since then the interest rates have also risen from 11to 14.5 per cent. This has played havoc with the viability thresholds of manyof the new projects.  

We expect amoderation in the number of installations of high technology presses,die-cutters and folders gluers in the current financial year ending in March2009. One way this scenario could change is if print and converting rates wereto rise but the industry has too many small players. It still lacks a cohesiveand articulate voice that can communicate effectively to their customersespecially in an inflationary climate, and what is now seen as an electionyear.                       

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