A strange thing happened to me the other day. I was on the new Thomson-East Coast Line from Woodlands MRT Station to Great World City MRT Station. I was reading the print copy of The Edge Singapore. People were staring at me.
This is surprising. Singapore’s commuters are a courteous bunch. Most people stare at their phones and not at fellow travellers.
I soon figured out that I was not the centre of attention. It was the glossy paper that they were looking at. Many people were transfixed by the watch advertisements and the investment insights of luminaries like Manu Bhaskaran and Chew Sutat.
People rarely carry newspapers and magazines these days. Those who read print are part of an older generation like me. I tend to take The New York Times and The Edge Singapore with me on MRT trips. I love the touch and feel of paper.
As part of my work, I am required to publish investment recommendations. These are sent by email with a pdf attachment. I sometimes print out the report and post it to a fund manager. The response from the recipient is much better than if I emailed it. The report sits majestically on the fund manager’s desk.
There are signs that stock market investors will also savour the delights of paper. This year may be the year of the paper price boom.
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Though people don’t read as much print as before, paper has found a new avatar. The paper on which this publication is printed has a complex supply chain. It is made from trees. These trees are found in natural rainforests in Indonesia and Brazil. It is also found in colder countries like China and Canada.
The trees are felled by loggers in places like Kalimantan in Indonesia. The wood is then converted to pulp by a mill. The refined pulp is sent to another mill, which converts it into sheets. The sheets are dried to make it into paper. The paper is eventually packaged and distributed.
As my MRT ride indicates, paper usage has collapsed in the last decade. Singapore has one of the highest iPhone penetration rates in the world. Physical books and magazines usage has halved in the last decade. Offices used to have vast filing cabinets. The accounts and records were stored on paper. Today, it is all in the cloud.
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This is not just the case in Singapore. The worldwide demand for graphic paper (for writing and printing) has dropped by 30% since 2014. Some fear that the paper industry is doomed. Is the paper industry heading in the same direction as cassette tapes?
Investors need to see the wood from the trees. The collapse in the demand for graphic paper has been offset by using paper for packaging. E-commerce has accelerated the demand for packaging. People had to visit a hardware store to buy a TV. Today, you can buy a discounted TV online. It will arrive with paper packaging at your doorstep in a few days. Today’s demand for packaging paper is more than half the level in 2014.
Paper supply may decline. Environmental, social and governance (ESG) factors have led to a drop in logging. The wood has to be certified. Indonesia’s pulp and paper production has dropped by a tenth in the last decade. Several players have been banned.
The price of pulp and paper is nearing all-time low levels. There has been a drop in pulp capacity since Covid-19. The chronic under-investment could cause a spike in 2024. The supply of pulp may fall by 1.2 million tonnes per year in the next 20 years. This would amount to 2% of the world’s supply.
The demand for pulp could rise by 15% in the same period. Paper is still the cheapest and most efficient way of sending packages. Geriatrics like myself will still send reports in print. But, children tend to enjoy print books more than adults.
Investors can profit from paper. There are listed pulp and paper producers around the corner. Indonesia’s Indah Kiat Pulp and Paper is one of the largest paper players. Its stock is in the doldrums at less than 6 times FY2024 P/E. A 10% rise in paper prices could double its operating margins. Other paper tigers include Shandong Huatai Paper in China and Mercer International in the US. Like MRT travellers, investors should watch out for paper.
Nirgunan Tiruchelvam is head of consumer and internet at Aletheia Capital and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column. This column does not constitute investment advice of any kind
