Historically, the most common uses for paper have been packaging and printing. With the expansion of the digital economy, the printing paper industry has entered a long-term recession. So when the 2020 pandemic hit, papermakers consolidated operations, closed factories, and some closed.
At the same time, the demand for printing paper is greatly underestimated. These factors combine to create an imbalance between supply and demand. The pandemic has exacerbated supply-side problems related to the availability of raw materials and labor, as well as transport problems. All this contributes to a further restriction of supplies.
Other sectors of the paper industry are also facing logistical challenges, most notably the packaging sector. However, environmental factors continue to drive demand for environmentally friendly packaging materials, primarily paper.
Companies are researching paper and related products to replace plastic and achieve ESG goals. The pandemic has dramatically increased the need for sustainable packaging, as products previously picked up from stores had to be shipped in some form of packaging (mostly cardboard boxes).
The demand for this type of packaging will continue to grow as people’s shopping habits change and move online. Paper bags are also increasingly replacing plastic bags in stores. So, this is a huge and fast growing market.
The third segment that keeps popping up is health/hygiene. The pandemic has led to a significant increase in the use of paper (napkins, napkins, etc.) as the demand for it grows in hospitals and nursing homes. In general, household paper consumption is higher in advanced economies than in emerging economies.
It is therefore reasonable to assume that growth in developing countries will continue to drive this demand in the coming years. Since population growth is also higher in these countries, this is a strong long-term demand driver.
Rising disposable income and rising food consumption on the go in developing countries are also driving demand.
China is the largest producer and consumer of paper per capita. Therefore, events in China tend to affect the market as well.
The war in Ukraine has also disrupted supply chains and affected the availability of raw materials. Part of the problem stems from the availability of parts, and partly from a Russian trade embargo that limits supplies.
The above factors suggest paper demand is likely to remain relatively stable even if the economy worsens, a recipe for higher prices. This is good, as raw material and energy prices are likely to remain high for the foreseeable future. Comments from various companies suggest that the higher prices more than offset the higher costs. Thus, paper stocks are a relatively safe bet in 2023.
The Brazilian company operates timber, paper, processing and pulp businesses. The Forestry segment is engaged in the cultivation and forestry of pine and eucalyptus, as well as the sale of logs. The Paper segment manufactures and sells cardboard rolls, kraft paper and recycled paper. The conversion segment is engaged in the production and sale of corrugated boxes and cardboard, as well as industrial bags. The Pulp segment manufactures and sells short, long and fluff pulp.
Current business drivers for Klabin include growing demand in the food & beverage and industrial packaging markets as the Brazilian economy continues to strengthen. Higher volumes, better mixes and higher prices all contribute. In the third quarter earnings report, management reported that the average net price per tonne was 28% higher than the same period last year.
Estimates based on P/E ratios are low. The stock is trading at a 3.8x gain, a 21.0% discount to its median last year and a 78.1% discount to the S&P 500.
Mondi manufactures and sells packaging and paper products in Africa, Western Europe, emerging Europe, Russia, the Americas, Asia and Australia. He works with corrugated packaging, flexible packaging, construction materials and uncoated printing papers. It serves Agriculture, Automotive, Construction, Chemicals & Hazardous Materials, Food & Beverage, Graphics & Photography, Home & Personal Care, Medical & Pharmaceuticals, Office & Professional Printing, Paper & Packaging Recycling, Animal Care, Retail trade and e-commerce. , shipping and transport industry.
The company saw strong prices in all segments, with high volumes in all segments except for corrugated board, which is struggling.
Over the past 30 days, the Zacks consensus estimate for 2023 revenue has increased earnings by 22 cents, or 7.5%, from 2024 revenue, adding 10 cents, or just over 3%.
Susano is mainly engaged in the production and sale of eucalyptus pulp and paper products in Brazil and abroad. It operates through the pulp and paper segment. The company offers coated and uncoated printing and writing papers, board, napkins, commercial paper and fluff pulp, as well as lignin and its by-products.
Like Klabin and Mondi, Suzano hardwood pulp sells at higher prices in North America and Europe, where demand is strong, and in China, where demand is strong. Although demand in South America is also very strong, new projects have faced hurdles due to European sanctions on Russian timber.
Sylvamo manufactures and supplies printing paper in Latin America, Europe and North America. Some of its products include paper products (cut and offset; pulp, aseptic, liquid packaging board, coated unbleached kraft paper) and hardwood pulp (bleached kraft paper from hardwood and eucalyptus; bleached kraft paper softwood; bleached chemical thermal mechanical pulp) uncoated. It sells through merchants and distributors, stationery suppliers, e-commerce channels, retailers and resellers, and directly to converters that produce envelopes, letterhead, and other related products.
In addition to higher volumes, price and assortment now determine the company’s profitability. In particular, prices were better than management had expected.
These stocks are trading at a slight discount to the median over the past year and a 69.5% discount to the S&P 500.
Veritiv Corporation operates in the United States and internationally as a provider of value-added packaging products and services, room solutions, printing and publishing products and services. The company operates through four segments: Packaging, Object Solutions, Printing and Publishing and Print Management (Publishing). It serves manufacturing, food and beverage, wholesale and retail, healthcare, transportation, property management, higher education, entertainment and hospitality, commercial printing, and publishing.
Management spoke of declining volumes in the logistics and consumer electronics markets, while volumes increased in the healthcare, manufacturing and e-commerce markets.
While corrugated and resin price growth has slowed, other packaging segments remain strong and price increases are expected to continue in 2023. In the facility solutions segment, non-residential verticals such as entertainment and hospitality are likely to remain strong (cruise lines and theme parks are making a comeback), offset in part by continued softness in offices. In the printing industry, demand exceeds supply for the reasons mentioned above, resulting in higher prices.
These stocks are trading at a 9.6% discount to the median for the last year and a 59.7% discount to the S&P 500.
All of the above stocks are rated #1 by Zacks, which implies a strong buy rating. In addition, all companies except Klabin have A or B value and growth valuations. In addition, as the examples above show, current conditions are not reflected in the share price, which is still a mature market with slow growth and limited pricing power. . So this is a market worth considering.
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Post time: Jan-12-2023