Corrugated Packaging Industry facing multiple challenges, seeks support to cope a little better

The net profit margin of the industry is an average of 5% and it can vary around 3%-7%. The industry rarely makes 7% margin and that could happen only when paper prices are at rock-bottom

Bannet Gamalath, CEO – UNIDIL Packaging Ltd – the packaging arm of VALLIBEL ONE PLC) – who is also the President of Lanka Corrugated Carton Manufacturer’s Association says that following the recent IPO announcement made by one of the carton manufacturers, people have started talking about the industry in an interested and excited way.

“In this context, as President of the Lanka Corrugated Cartons Manufacturers Association (LCCMA), I’d like to shed some light on the industry.”

“Today, corrugated cartons are recognised among the world’s most widely used materials for packaging. As a material, it also offers almost unlimited possibilities to produce packaging with different properties and shapes.” he says.

“Despite the fact that this industry serves nearly every sector of the economy becoming an integral part of the supply chain, corrugated cartons have not been regarded as an interesting area of discussion.”

“At present, around 30 small to large corrugated cartons manufacturers operate in the island. Out of these firms, seven companies control 80% of the market share while the remainder contribute around 20%. The demand for the corrugated cartons in Sri Lanka is very limited as our economy has not shown steady growth in the past.”

“The current market is around 14,500 MTNS (metric tonnes) per month and the year-on-year growth of the market is less than 2%. Hence, there is a huge competition among the players to capture the existing market. Consequently with the market pressure, the industry maintains minimal prices and eventually the companies just make normal profit. In early 2000s, many companies discontinued their operation due to heavy losses including the then corrugated giants including MSH Packaging and Nisol Corrugated Packaging.”

“The net profit margin of the industry is an average of 5% and it can vary around 3%-7%. The industry very rarely makes 7% margin and that could happen only when the paper prices are at rock-bottom.”

“Apart from imported paper, the members of the Association also source local paper to a certain extent. The paper manufacturing industry in Sri Lanka is at the infant stage and have yet to expand. Hence, the convertors are being forced to rely upon the imported paper mostly.”

“During past few years the board making capacity in Sri Lanka was expanded as some of the companies increased operations through new corrugated plants. Today these plants contribute a monthly capacity of around 4,000 MTNS while the second level entities maintain a capacity around 2,500 MTNS per month. It is estimated that the total board making capacity in the country is around 34,000 – 36,000 MTNS monthly. However, the printing capacity is limited and does not match the same volumes. Howerver, any company can enhance its printing capacity within 5-6 months as good machinery can be sourced from China and Taiwan.”

“Despite the interest in packaging is growing and the realisation that other sectors cannot survive in isolation without packaging, our industry continues to face many challenges.”

“The latest upsurge of the prices began nearly one and half years ago adversely affecting the industry. As a result, paper prices have escalated by around 70% and this ‘alarming’ upward trend is expected to rise over 100% towards the end of this year. Adding to this crisis, is the huge shortage of paper in the international market consequent to the ill-effects of Covid 19 pandemic. Furthermore, in the midst of this shortage, our members continue to struggle to open LCs with the current dollar restrictions imposed by the local banks.”

“While the industry is equipped with adequate infrastructure to support the future growth of Sri Lanka’s economy, it is also imperative that all the stakeholders and authorities contribute towards a sustainable and thriving packaging industry in Sri Lanka,” Bannet Gamalath says.