Paper industry crawls amid rising costs, overproduction, demand slump

Infographic: TBS

The country's paper industry, once a success story of self-sufficiency, is now struggling to stay afloat, with overproduction nearly double the domestic demand and a downturn in sales. Many paper mills are shutting down due to rising production costs, leading to significant job and investment losses.

According to the Bangladesh Paper Mills Association, private investment in the industry is nearly Tk1 lakh crore, with over 25 lakh people employed.

However, of the nearly 100 private paper mills, around 70 have shut down in recent years, and several others are on the brink of closure due to loan defaults, the association stated in a letter to the finance adviser in October last year, outlining the industry's crisis.

The letter requested that outstanding loans be transferred to blocked status without interest, along with a two-year moratorium on payments, a 15-year repayment period and reduced interest rates for new working capital.

Entrepreneurs say after 2009, the paper industry, once reliant on imports, began attracting significant investments. It eventually met domestic demand and started exporting paper and paper products to nearly 40 countries.

However, the industry faced a major crisis following the post-Covid economic downturn, compounded by the Ukraine war, the rising dollar, soaring global raw material prices and increased energy costs.

Mustafa Kamal Mohiuddin, chairman of Magura Group and secretary general of the association, told The Business Standard, "Many mills have already shut down, and currently, due to rising raw material prices and shortages, several more are on the verge of closure. The drop in demand has caused many mills to default."

According to the association, the country's annual paper demand is 9 lakh tonnes, while production is nearly double at 15 lakh tonnes.

When asked about the impact of mill closures, he said the timely supply of paper for textbook printing would be disrupted. "Over 300 backward linkage industries depend on this sector, and nearly 10 million jobs would be at risk. The industry would once again rely on imports," he said.

He added that if the paper industry collapses, the government will lose around Tk5,000 crore in revenue.

The rise and decline of the paper industry

Before independence, the country had only four paper mills. In the 1990s, smaller mills began emerging, but as demand grew, large conglomerates like Bashundhara, Meghna, TK Group, Partex Group and Magura Group made significant investments.

According to Mustafa Kamal, 106 of the 128 registered mills in the country were established after 1996.

"Since 2008, paper and paper products have been exported as non-traditional items. In fiscal 2023-24, the export value reached around $273 million," he added.

In 2010, the government began distributing free textbooks to all primary and secondary students. Initially, the state-owned Karnaphuli Paper Mills supplied the textbooks, but when the mill faced capacity issues, the government turned to private firms.

Entrepreneurs stated that the paper industry began facing a crisis around 2015-2016.

Md Reazul Hoque, project director of TK Paper Products Ltd, a subsidiary of TK Group, and a 20-year veteran of the paper industry, said, "The crisis was caused by consecutive investments without proper market and demand assessments, coupled with competition from low-priced, substandard products."

"Technological advancements have significantly reduced the demand for paper-based documentation and printed books, severely impacting the country's paper industry," he added.

12 large, 47 small-medium mills closed

According to the association, 12 large and 47 medium and small mills have shut down in recent years. Some closed down after the Covid outbreak, while others ceased operations before the pandemic.

When paper demand plummeted during the pandemic, many entrepreneurs shut down their factories. Despite the reopening of educational institutions, production did not resume in these mills.

The TK Group, which had significant investments in the paper industry, faced challenges and closed its mills around 2018-19 due to competition from low-quality products.

"Demand has dropped so much that, despite a daily production capacity of 200 tonnes, we are operating at only 20-30% capacity," said Reazul Hoque.

The owner of another Chattogram-based firm, speaking anonymously, said, "We shut down our mill after Covid-19 and haven't reopened it since. Increased competition and poor-quality paper have made it difficult for quality producers to survive."

Lipy Paper Mills, a producer and exporter of white print paper, invested Tk100 crore in waste paper processing to recycle discarded paper into new products.

Shahriar Hasan Khan, deputy managing director of Lipy Paper, said, "Despite the crises, our production continues. We focus on producing high-quality paper, including books for the NCTB. However, there are challenges in opening LCs for importing raw materials."

Domestic paper industry in dire straits

In the letter, the association warned it could become a "sick industry," highlighting several challenges, including rising gas and electricity prices, delays in connections, and frequent load shedding, which have increased production costs by 20-30%. Fuel prices have surged by around 300%.

It also said bank interest rates have surged 15%, reducing the industry's competitiveness. With 70% of key raw materials, such as waste paper and pulp chemicals, being imported, the liquidity crisis has hindered pulp imports.

The letter also criticised the government for allowing duty-free imported paper under the bond facility to be sold at low prices in the open market, exacerbating the crisis for domestic producers.

15 years sought to repay loans

The association's letter sought a two-year moratorium on transferring outstanding interest/profit and principal balances to blocked accounts, along with a 15-year repayment period in six-monthly instalments.

Emphasising the industry's role in import substitution, export promotion and public education, entrepreneurs suggested a 1% down payment for blocked loan accounts. For rescheduled loans and delayed repayments, it called for a two-year moratorium and a 15-year rescheduling option.

The association also requested that the down payment be waived or capped at 1%, regardless of loan size, and that such loans not be classified as non-performing. Additionally, they sought new working capital on easier terms.