Despite the dark cloud hanging over the forestry sector, most industry leaders said they still see the paper business as a good investment.

Overcapacity has kept a lid on paper prices for years, while increasing costs of wood and energy have eaten into the paper makers’ already low margins.

But when asked where they would invest 50,000 euros ($74,330) in stocks other than their own, the participants at the Reuters Paper Summit said the forestries is where they would put their money.

“The good companies will come out of the storm stronger than they were ever before,” said Jouko Karvinen, chief executive of the world’s top paper and board maker Stora Enso.

Karvinen said there has been a silver lining to the “perfect storm” of bad news.

“There may be a good thing with this storm; maybe we will finally get our act together and make decisions that need to be made and start making some real money one day,” he said.

The rapidly growing demand for paper products in China and Latin America’s wealth of fibre were a key argument, the executives said.

“We all need to look for areas that have some growth and create some competitive advantage through your investment,” said AbitibiBowater <ABH.N> Chief Executive David Paterson.
“You either look at the southern hemisphere, markets that have a high growth rate for fibre, like Brazil or Malaysia, or you look at products, which have a real growth in consumption,” he said, adding market pulp and tissue were the products with long-term prospects.

Head of engineering group Metso <MEO1V.HE> paper unit Bertil Langenskiold said he would put the sum into one of the aggressive Brazilian pulp companies or a Chinese paper firm.

Norske Skog’s <NSG.OL> Chief Executive Christian Rynning-Toennesen said he would bet on the industry’s side product, biofuel, which he said will be the sector’s boom area one day.

“I think 10 years from now the biofuel industry will be equally big as the paper industry today,” he said.

All said that the sector would pick up before long.

“I might be an optimist,” said Swedish Holmen’s <HOLMb.ST> Magnus Hall. “But I believe I have a good base for being that.”

Head of packaging firm Huhtamaki <HUH1V.HE> Jukka Moisio said he could not invest in his firm just weeks before the capital markets day.

But he proposed investing in anti-cyclicals.

“I am a risk-averse person, ” he said. “I’d invest in strong brands, where I believe the customer and consumer sentiment is likely to last over declines, like Louis Vuitton.”

Head of struggling fine paper maker M-real said if he could invest in forestries, packaging is the direction he would go.

The heads of International Paper and Smurfit-Stone only saw their own company worthwhile.

“I love the brown business,” Smurfit-Stone’s <SSCC.O> COO Steve Klinger said. “There is a tremendous opportunity and we are ahead of the curve.”

Combining paper and packaging production may seem like the obvious union, but head of Finnish packaging maker Huhtamaki said it proved time and again to be a money loser and his company will not go that route.

Huhtamaki manufactures a wide array of food and beverage packaging and other packages for industry. It buys raw materials from forestry companies and converts them into packages.

“Over time, paper and packaging companies have been together in many instances, and in most cases they lost their shirt in this combination,” Huhtamaki Chief Executive Jukka Moisio told Reuters Paper Summit in Helsinki.

Moisio said Huhtamaki would remain a converter and not get into the basic materials business of the pulp and paper companies. “One has to be pragmatic.”

While paper making is a global business, producing packages is local because it makes no sense to transport packaging around the globe, he said.

“From the logical point of view and how you operate, the paper industry is global, so you make paper reels … and that can travel to Asia or back. (When) you make packaging, you have to actually respect that the packagings cannot travel very long. So you actually have almost an opposite way of looking at the world.”

Moisio said that Huhtamaki’s strategy is to focus on the areas where it has knowhow and competitive advantages and to follow its customers around the world to places where it can supply them locally. “Packaging is a multi-local business,” he said.

Huhtamaki’s peers include such packaging manufacturers as Pactiv and Bemis of the United States, UK group Rexam, Australia’s Amcor.

If you think that packaging produces loads of unnecessary waste, think again, says head of ice-cream and fast-food packaging maker Huhtamaki.

Chief Executive Jukka Moisio told a Reuters Paper Industry Summit in Helsinki that packaging a product actually reduces the amount of waste used rather than creating it.

“If you think about the food chain all the way from where you grow the food to the ultimate consumer, if you don’t have a packaging, the waste rate all the way from the field to you or me will be huge. If you look at the end situation of any cup of coffee, you see that the carbon footprint used by the packaging of any cup of coffee is insignificant compared to what the cow does,” Moisio said, explaining that adding milk is more damaging to environment than the rest of the product.

In most cases, packaging is actually beneficial to the environment, he said.
“If you do it the other way round, you take the packaging away, you take the carbon footprint of the packaging away, but you create a significant waste along the way before the product meets you.”

For the green-minded among us Moisio had the least polluting solution:
“Our alternative in that case is that, if we don’t want to use packaging, then we need to dismantle the big cities and go back to the fields. And we don’t have waste if we pick up the potatoes and eat them in the village we live in.”

But there is a risk the products might never reach you at all.

“If you grow mangoes in India, if you don’t have any protection or packaging for mangoes, you won’t get them out of India. And you will not even get them from the fields in India to the people in Mumbai. That would be the biggest waste.”

The current slew of bad news was necessary to get European forestry companies to act, the head of the world’s top paper and board maker Stora Enso said on Wednesday.

For years the European paper industry has suffered from overcapacity, which has kept a lid on prices, while increasing costs of wood and energy have eaten into already low margins.

But Stora’s Chief Executive Jouko Karvinen, speaking at the Reuters Paper Industry Summit in Helsinki, said there has been a silver lining to the “perfect storm” of bad news.

“The good companies will come out of the storm stronger than they were ever before,” he said.

“And as bad as the past eight years have been, and as much as we complain about every possible problem right now, I have one thought: there may be a good thing with this storm. Maybe we will finally get our act together and make decisions that need to be made and start making some real money one day. It will take a little time, but that’s the goal,” he said.

Mongolia may seem like an extremely exotic investment destination in a world where money is heading for safety and avoiding risk, especially when violent riots are seizing the capital, Ulan Bator. But not for Junichiro Sano, president and CEO of Dalton Investments KK. “I found really special investment opportunities,” Sano said at the Reuters Japan Investment Summit. Sano said he’s been travelling to Mongolia regularly to learn more. The Mongolian Stock Exchange is made up of 360 companies and a total market capitalisation of $750 million, Sano said. As for corporate governance in Mongolia, a topic of much debate at the summit, Sano simply said: “It is nothing.” Seventeen stock brokers are in the country, but there is no official qualification. Riots have hit Ulan Bator this week, leading to five deaths, over accusations of fraud in a parliamentary election held last weekend.

Japanese companies are on the prowl for foreign assets, and this time it has nothing to do with Rockefeller Center and world-famous golf courses as Japan was famed for snapping up in the late 1980s at inflated prices. Steven Thomas, managing director and head of Japan mergers and acquisitions at UBS, said at the Reuters Japan Investment Summit that Japan Inc. sees foreign acquisitions as necessary to open up growth opportunities.

No country has been a bigger fan of the dollar over the years as Japan. You can see it in the country’s $1 trillion of foreign exchange reserves almost entirely concentrated in U.S. bonds or the sheer portfolio flows in the greenback month after month. But that may be changing. Yuuki Sakurai, head of financial planning and investment at Japan’s No. 9 life insurer Fukoku Mutual Life, said the dollar’s long role as the centre of the global currency universe may be coming to an end, partly due to politics. “Look at the U.S. position in the world community, that’s changing and that’s part of the story. I think Pax Americana, that regime is gone. But it’s not happening overnight, it’s changing gradually,” said Sakurai, whose oversees about $54 billion of assets, while speaking at the Reuters Japan Investment Summit. “If you think that a paradigm based on the dollar may be starting to change and that the euro’s weight globally may come close to matching the dollar’s presence, the dollar might fall to 80 yen in the future,” Sakurai said. “I am saying something a bit extreme, but the dollar might fall below 50 yen 10 years from now,” he said. The dollar is near 106.50 yen now, up from a 13-year low of 95.77 yen in March, but it is still not far from record lows against the euro.

When you’re in charge of $1.5 trillion of assets, keeping an eye on it with all of 80 people is not so easy. So says Takahiro Kawase, President of Japan’s Government Pension Investment Fund – the world’s largest government pension fund that manages about 150 trillion yen assets, nearly the size of Italy’s entire economy. And Kawase would like some help, even as the government keeps pressuring the agency to reduce costs and staffing. “We need more people and more resources to do what we really need to do,” Kawase told the Reuters Japan Investment Summit. “When I talk about foreign pension funds … they are growing in terms of size. They are investing in systems. In Japan, the traditional thinking is that its a cost centre. But I’m trying to change that.” At a staff of about 80, that comes to about $190 billion per employee.

While Japan can do more to improve corporate governance, Tokyo Stock Exchange President Atsushi Saito said comparisons to the United States need a little context. Saito said the Federal Reserve’s decision to sell Bear Stearns off to JP Morgan Chase for a mere $2 a share in a weekend firesale was not exactly in the interest of Bear’s shareholders. “Is that respecting shareholders? You have to think about that,” Saito told the Reuters Japan Investment Summit in Tokyo. One persistent criticism of Japanese companies do not have enough outside directors on their boards. But Saito also noted that a majority of the board members at Enron – the poster-child of the U.S. corporate scandals in 2002-2003, along with WorldCom – were from outside the company. And Saito said it was a little worrying how the US Congress has been itching to take action against China with the variety of laws introduced that threaten sanctions and limits on investment. “Everything is not going according to logic.”

The rest of the world is feeling the global credit crunch, but Japan’s cash-rich firms are looking to expand overseas.

Dan Sloan reports.