Market Overview

The Price Of Paper Is Increasing As Companies Try To Stay Profitable In Electronic Age

The Price Of Paper Is Increasing As Companies Try To Stay Profitable In Electronic Age

In this era where every business is moving online, businesses and consumers alike still depend on paper, especially in various packaging and shipping markets. The trend should benefit companies operating in the paper and packaging industry, including International Paper Co (NYSE: IP) and Domtar Corp (USA) (NYSE: UFS).

An increase in consumer spending is expected to boost demand for various discretionary and nondiscretionary goods, which are often shipped using paper-based packaging. The increasing penetration of smartphones and tablets should spur e-commerce sales and demand for packaging products.

Sustained growth in e-commerce activity and increases in consumer spending power will drive growth in demand for paper-based packaging products.

Related Link: Packaging Corporation Adds $200 Million To Share Buyback Authorization, Highlights "Substantial Operating Cash Flow"

Meanwhile, rising wood pulp and paper prices will flow on to paper-based packaging products and services. According to IBISWorld, the price of wood pulp is forecast to rise even further at an annualized rate of 5.1 percent in the three years to 2019. The rising price of wood pulp will also be reflected in the domestic price of paper, which is projected to grow at an annualized rate of 3.2 percent in the next three years.

The Influence Of Technology

Falling demand has been causing contractions in the paper manufacturing industry, and is a systemic problem that will continue indefinitely. Companies and consumers will continue to find ways to use electronic media to save the money that was once used on paper. Paper manufacturers know this and will continue to contract to prevent their businesses from becoming altogether unprofitable.

IBIS said even though wood pulp prices are expected to reach historical highs in the coming years, it's not all bad news. Paper-based packaging manufacturers are in a strong position to protect their profit margins, with rising demand for packaging products and solid negotiating leverage.

Paper-based packaging producers and suppliers will have ways of counteracting rising input costs while growing demand for paper-based packaging products will allow firms to continue passing on some of these costs to buyers.

Image Credit: Public Domain

Latest Ratings for IP

Dec 2019DowngradesNeutralSell
Dec 2019Initiates Coverage OnOutperform
Oct 2019MaintainsNeutral

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