There has been a lot of chatter about the ongoing surge in lumber prices. From what I’ve heard, people in the United States continue to visit stores like Home Depot, and the cost of lumber continues to rise. Prices have been exceptionally turbulent. It reminds me of the gas station attendant changing the price of gasoline in the middle of a hurricane. The numbers keep going higher. Meanwhile, there is an adjacent industry that is under pressure. It seems that the COVID pandemic did a number on the paper industry.
The Impact on Paper Industry
The paper industry manufactures products for everyday use. Most of which are resistant to economic cycles. However, the high dependence on the raw material markets resulted in fluctuating purchase prices.
Wood prices recovered paper, paper and pulp rose in 2020. As a result, more money had to be spent on purchasing. These effects which could not be passed on to the market. Profits have slumped. Profit declines were often in the high double-digit range.
At International Paper (NYSE:IP), profits fell 60.7% to $482 million.
At Svenska Cellulosa (OTCPINK:SVCBF), profits slumped more than 95%. Sappi could no longer generate a profit but instead had to report a heavy loss of $135 million.
Stora Enso (HEX:STERV) fared somewhat better. With this company, the decline was only 27.9% to €617 million.
Packaging Solutions Remain the Golden Ticket
Mayr-Melnhof Karton AG and UPM Kymmene were positive. Both were able to convince with clearly above-average results and shine with strategic superiority. Both groups specialize in two areas: Sustainability and packaging solutions.
UPM uses its paper production as the basis for other business areas such as sustainable energy production. Today, UPM is the second-largest energy producer in Finland, although this area is only a tiny part of the business development.
Another growing mainstay, which also achieved great success during the pandemic, is Raflatac’s subsidiary specializing in labeling products in the food and pharmaceutical business. UPM is well-positioned for the future and has a clear long-term strategy. The somewhat weaker figures for 2020 can therefore be accepted.
At Mayr-Melnhof Karton, more and more focus will be on sustainable packaging solutions in the future. Due to the booming online trade, demand is higher than ever. The pandemic has even accelerated this development. At the same time, packaging solutions are increasingly being used as advertising space to differentiate themselves from the competition.
Mayr-Melnhof is the clear quality leader here and will be able to expand its market share further. In the United States, I’m expecting that International Paper will continue its positive momentum.
Office Supplies are Under Pressure
The pandemic not only had an impact on the paper and cardboard market but also on-demand for classic office supplies. BIC ADR (OTC:BICEY) is one of the few office product manufacturers listed on the stock exchange. It’s an old family business that relies on a quality image.
However, the company is struggling to cope with strong competition from Asia, which still lags somewhat behind in terms of quality but charges much lower selling prices.
Operating margins are therefore under pressure. Shares have pulled back in the last few weeks, and that acceleration might continue. The digitization process of today’s economy is leading to lower demand.