Paper Porridge Stocks Will Be More Promising As Paper Consumption Increases

By : Herry Barus And Aldo Bella Putra | Monday, March 19 2018 - 22:00 IWST

Industri Pulp n Paper (Foto Dok Industry.c.id)
Industri Pulp n Paper (Foto Dok Industry.c.id)

INDUSTRY.co.id - Jakarta - After the past 10 years the paper industry has been under pressure due to the era of digitalization that dominates the global market making the need for paper decline, the gloomy period began to be replaced with the increasing trend of paper with the rise of the e-commerce industry.

Over the past 10 years the need for papers around the world shows a downward trend in paper used for newspapers, writing or other printed papers because people can already read news, books or magazines online, as well as for the writing needs already replaced by use of email or other digital technologies.

The fall in paper demand for printing and writing, is inversely proportional to the consumption of tissue paper and packaging as more and more widespread buying and selling online or e-commerce. FAO data show that from 2006 to 2016 the average world paper consumption decreased or negative 4.6%, while paper consumption for writing needs on average decreased or negative 1.3%. While the consumption of tissue for the last 10 years showed an average increase of 2.8% and packaging paper consumption grew an average of 2.3%.

"The future needs of tissue in the world will be higher along with the increase in people's lifestyle as well as the demand for packaging paper will be greater because people are increasingly fond of shopping online," said Bahana Securities analyst Gregorius Gary.

The increase in future demand for paper, especially will be driven by China which controls 26% of total world paper consumption. Meanwhile, China's per capita consumption for tissue paper is still very low at around 7 kg / capita, compared with about 22 kg / capita, Europe about 17 kg / capita and Japan about 14 kg / capita.

Consumption of new Chinese packaging paper is about 50 kg / capita, compared with America about 128 kg / capita, Japan about 91 kg / capita, Europe about 78 kg / capita. It is estimated that the increasing demand for tissue and paper packaging from China will continue to rise. Meanwhile, in terms of availability of raw materials and pulp production in China is lower than the consumption side.

Data show that from 2006 to 2016, pulp production in China increased from about 52 million tones to about 79 million tons, while consumption increased faster than about 60 million tones to about 97 million tones, so the future is expected to widen the deficit. To cover this deficit, China continues to import pulp, mainly from Indonesia and Brazil. In the future, Gary considers that Indonesia and Brazil will be more profitable because until now only two of these countries are still able to increase the number of production and have cheaper production costs compared to other countries.

"The Chinese government is also in the last two years increasingly incentive to prohibit paper production by using paper waste, this will give more positive impact to the pulp industry in Indonesia," said Gary, therefore Bahana Sekuritas recommends Buy for shares of PT Indah Kiat Pulp and Paper with price target Rp 16.000 / sheet.

The state-owned securities estimates the price of pulp will still rise to 2019, from the $ 636 / ton price range in 2017, an increase of about 26% on an annual basis, which is influenced by some of the key notions that there will be no additional production capacity in the world so far this year, after Sinarmas' Asia Pulp and Paper Group (APP) increased its subsidiary production capacity of PT OKI and also increased production capacity of the Fibria plant in Brazil, as opening a new factory or industry usually takes about three to four years.

The Chinese government will also continue its policy of protecting the environment with a lot of tightening including banning the import of waste paper, which will ultimately impact the decline in pulp production capacity, whereas China's paper consumption is expected to continue to rise.

Bahana estimates PT Indah Kiat's net profit to rise to $ 545 million by the end of 2018, up about 32 percent from last year's forecast of $ 412 million. If this year's rise in pulp prices is equal to 26% last year to around $ 800 / ton, this net profit is very likely to rise about 45% to $ 596 million.

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