"Production cost will be higher in the second half of the current financial year since cost of inputs such as fuel and chemical has been rising," said an official from TNPL, which has writing and printing paper capacity of 400,000 tons.

Cost of pulp has remained $650-700 per ton, though at a much lower level compared to $840 in the first quarter. BILT, the biggest domestic paper manufacturer, however, said the profit margin would improve since pulp prices were lower.

The paper industry did well in the April-June period last year. It was able to improve its realisation, while cost had been stable. Most companies were able to increase prices by over 8 per cent. TNPL, for instance, saw a net profit of Rs 93 crore in the period, up 152 per cent from corresponding period in the previous year.

Seshasayee Paper saw its net profit move up over 87 per cent to Rs 39.84 crore. JK Paper saw its net profit move up over 33 per cent to Rs 58.19 crore.

Companies like BILT, TNPL, West Coast and Andhra Pradesh Paper have added capacities most of which became operational in the last calendar year.

The industry is worried about the imposition of anti-dumping duty on varieties of Chinese paper by the US. Chinese imports had forced companies to take a price cut of Rs 3,000 per tonne on coated paper. When they tried to increase the price by Rs 1,000 in January, there was market resistance. Chinese coated paper is available at Rs 49,000 per tonne, which is Rs 3,000 lower than domestic price.

Indian paper industry produces 10 million tonnes. Of this, writing and paper segment is 3.8 million tonnes, packaging paper segment is 4.5 million tonnes.