Paper makers bet on sector despite clouds ahead

August 22, 2008

metsopaper_head_web.JPGDespite 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.”

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