By Alex He, Economist, Packaging, RISI
BRUSSELS,
Oct. 26, 2009
(RISI) -
During the past few years as RISI's Asian Paper Packaging economist, this author has received more questions about India than any other country apart from China. One of the key questions from clients is whether India will become the next China in the Asian paper packaging market, especially regarding containerboard and boxboard. In this Viewpoint, we will discuss India's potential on the containerboard side.
Before answering this interesting but critical question, let us briefly compare India and China on the macroeconomic level.
Although both countries have a large population (the latest data from United Nation (UN) show that India has about 1.18 billion people while China has 1.33 billion), according to the UN's "World Population Prospects: The 2006 Revision" and "World Urbanization Prospects: The 2007 Revision", in 2005 India's urban population accounted for only 28.7% of its total population, while in China it accounted for 40.4%. Based on RISI's research, we believe a country's urban population is the main domestic consumer of paper packaging products (mainly consisting of consumer products, home appliances, packaged foods, etc.) and will remain so.
India continues to be one of the poorest countries in Asia on a GDP per capita basis: its GDP per capita has risen from US$910 in 1991 to just US$2,700 in 2007 using purchasing power parity exchange rate. However, over the same time period, GDP per capita in China has grown from US$890 to US$5,300. It is understandable that wealthier (middle class) people tend to spend more on packaged products.
Unlike China, India's service sector, not its industrial sector, has provided more than half of real GDP growth during the recent expansion. Based on data from 2008, India's service, industrial and agriculture sectors accounted for 54%, 30% and 16%, respectively, of India's GDP growth, while these splits were 40%, 50% and 10%, respectively, for China. Based on our understanding, the industrial sector is the primary sector using paper packaging, not service or agriculture.
Since India has focused on the service sector to a greater extent than China, India has not built as solid an industrial base relative to its neighbor. This is clear from India's share of global merchandise exports, which has barely risen since 1991, Fig. 1. In fact, India has run a trade deficit over the past decade, while China has enjoyed a trade surplus for more than a decade.
Infrastructure development in India lags far behind that in China, which has retarded economic growth and increased the cost of doing business in the country.
Turning to the Indian containerboard market, first let us look at the overall market size. Based on RISI's data, India's containerboard demand only reached 2.6 million tonnes in 2008. This was even less than South Korea's 3.5 million tonnes and South Korea only had 48 million people at the end of 2008. In contrast, China had an estimated 30.5 million tonnes of containerboard demand, almost 12 times the market size of India. The majority of both India's and China's demand is satisfied through domestic production. India's production level in 2008 reached 2.5 million tonnes, while China produced 29.5 million tonnes of containerboard. India's containerboard market is very fragmented and with very small-scale mills and machines. According to RISI's 2009 Asian Paper Packaging Capacity Report, the top three India containerboard mills combined have a total capacity of only 220,000 tonnes (part of the capacity is in fact kraft paper). In contrast, Nine Dragons Paper Industries, China's largest containerboard company, will have 7.0 million tonnes of containerboard capacity by the end of 2009. Obviously, China's containerboard market is much more consolidated and, according to RISI's estimate, the combined capacity of the top five Chinese containerboard producers will account for about 45% of total Chinese containerboard capacity by the end of 2009.
On the trade side, both countries remain containerboard net importers mainly because both lack good quality virgin fiber used to make kraftliner board. The difference on the trade side is that India does not export much containerboard, while China does. Lastly, at this point we have only identified two new projects in the pipeline for India in 2009-2010 with a total containerboard capacity of less than 90,000 tonnes, while for China we are going to see an estimated 4.8 million tonnes of new capacity during the same time period.
Finally, in answer to the critical topic question posed above, economic and containerboard market data illuminates the huge difference between China and India regarding their overall paper packaging demand and supply, not to mention their two very different economic development models. Furthermore, we do not see India shifting its economic development focus. So no, we do not think India will become the second China in Asia's containerboard market, at least over our 15-year forecast horizon.
For details about the Indian paper packaging market, please attend the upcoming RISI Indian Seminar, which will be held on December 3 in New Delhi.
Alex He works out of RISI's Shanghai Representative Office: ahe@risi.com.
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