According to a report this week by The Hindu Business Line, Chennai, Tamil Nadu, India, central banks globally may be printing money to prop up their economies, but this isn’t helping paper demand. Paper usage, especially in developed countries, has been either stagnating or falling in recent few years. This downtrend is likely to continue and is expected to keep India's paper prices in check.

The price of India's paper used in packaging has been stable in the last three years, at around $191 a ton, according to data from IBISWorld. While prices are expected to increase by 3% in 2015, abundant production could dampen prices. There are no bottlenecks in the supply of wood pulp, the main ingredient for paper. Globally, the US and China have been the main producers and exporters of paper, while others such as Indonesia are also ramping up wood and paper output.

The World Business Council for Sustainable Development estimates that China’s paper output will increase by 67% between 2010 and 2025.

While availability has not been an issue, wood pulp prices have been inching up, from $600 per tonne in 2009 to $900 currently. Prices may remain at these levels in the next two years, estimates IBISWorld. The price factor, along with environmental issues, has led to higher usage of recycled paper. Its share dropped from 4%to 1.7% cent by 2013. But research firms cited by The Hindu estimate the nation's recycled segment will grow at 2.5% annually in the coming decade.

Paper is freely traded globally. Prices in India are linked to the landed cost of imported paper with a small premium for faster delivery, due to local logistics, says AS Mehta, president, JK Paper.

That said, the issues seen in the paper industry in India differ vastly from those in other paper manufacturing countries. For instance, wood availability is a huge bottleneck and wood is often imported. Also, while globally the mills are located within 50-100 km from the wood source, timber travels 300-400 km in India for papermaking, says BR Rao of the Federation of Paper Traders Associations of India.

Additionally, recycled fiber or waste paper is not adequately available, given the country’s low recycling rate of 20% according to the Indian Paper Manufacturers Association.

The industry, therefore, uses agro-based raw material inputs, such as bagasse from sugarcane. "Prices and availability of agro-based inputs have been mostly stable, though there is some impact from sugarcane prices," says Mehta. Paper mills also rely on social farming projects wherein wood from eucalyptus trees is sourced.

"Farmers take a call on whether it is profitable to plant these trees. When food prices were in an uptrend, the uptake of these projects was low. This, along with a disease that affected eucalyptus trees, led to wood prices doubling in the last two-and-a-half years," noted Mehta.

Paper mills are also upgrading their production technology to reduce operating costs. "In the past, many mills bought scrap machines, that were not very power efficient, from European countries " said Rao.

With fuel accounting for 7-8% of the total cost, these region's larger mills suffer. India has small-sized mills as well and they are now investing in technology to reduce power and water usage. Biomass that is obtained from pulping is used to generate power. Many of these new units produce more power than needed for the mill.

Globally, per capita paper consumption in developed countries — which peaked at over 250 kg per person — is likely to fall. However, Mehta says that India's demand for paper/paper products is likely to grow by 6-8% annually.

The country’s paper usage of 9 kg per capita is among the lowest in the world; for reference, consumption in China is 71 kg per person, according to data from the Bureau of International Recycling, Brussels. Higher literacy, growth in packaged products, pick-up in the economy and increased use of sanitary paper products are expected to boost demand.