Discover the hidden catalysts driving paper stocks to new heights.
The paper industry is going through some positive changes lately. The stocks of paper companies are rallying fast like they are on a winning streak. Companies like West Coast Paper, Orient Paper, Seshasayee, Andhra Paper, and others have seen their stock prices increase by a substantial 31% to 49% in just one month!
Now, the big question is, why are paper stocks on such a hot streak, and will it continue?
Let’s dig in and find out the reasons behind this rally and whether it’s likely to last.
What’s Happening?
Over the past month, from August 14th to September 13th, 2023, paper stocks have been on a remarkable journey, showing impressive performance. West Coast Paper surged by an impressive 33.43%, while Orient Paper recorded a gain of 30.16%. Seshasayee saw a substantial increase of 49.60%, and Andhra Paper rose by 34.49%. Shree Rama Newsprint displayed a gain of 22.7%, with Star Paper Mills and Tamil Nadu Newsprint not far behind at 24.05% and 18.25%, respectively. These paper companies have been turning pages at a rapid pace in recent times.
Before you start wondering what is causing this paper stock rally, we will give you a quick overview. The main reason behind this rally is the European Union lifting its ban on waste paper. Additionally, paper companies are doing a good job of keeping their profits stable even when paper prices are high.
Let us dive into each of these reasons in more detail.
Reason Behind the Rally of Paper Stocks
European Union Ban
Let’s begin with the basics of paper production. The primary ingredient for making paper is used-paper or paper cutouts. Particularly, this recycled material is used in manufacturing kraft paper, which is used for crafting brown boxes for packing various items, ranging from FMCG to electronics.
Historically, Indian manufacturers used to import this used paper from the European Union (EU). However, in November 2022, the EU imposed an export ban on these paper cuttings. This posed a significant challenge for paper companies, as they faced a shortage of raw materials necessary for paper production.
Fortunately, this setback was short-lived. On April 1, 2023, the EU lifted its ban on waste paper exports to India. This move provided much-needed relief to the paper industry, grappling with raw material shortages. As a result, paper manufacturers swiftly resumed operations at full capacity, leading to a notable increase in paper production.
Paper Companies Maintaining Margins
According to CNBC TV18, paper companies have seen prices of writing and printing paper rise to an all-time high of Rs 90 per KG. However, these companies have kept their profits high by passing on the rising cost to the customers.
So, these companies are making more money despite having to spend more on making paper.
National Education Policy and Single Use Plastic Rule
The government’s new rules and education policy changes have greatly boosted paper stocks. The government introduced the National Education Policy (NEP), which means there will be a lot more need for new educational products like textbooks, workbooks, and study materials. They also want to recycle the old materials, which means even more paper is needed.
Plus, the new rule says we can’t use single-use plastics anymore. So, online shops are using paper-based things like packaging, straws, cups, and bags instead. This is making paper companies even more popular because they are the ones making all these paper products. So, in simple words, the government’s new rules are boosting paper stocks.
What’s Next?
All these factors are great news for paper companies and their growth. But, it’s crucial to realise that the fortunes of paper companies are connected to various economic indicators. These include literacy rates, how much people spend on education, and the sales of everyday items like fast-moving consumer goods.
If any of these factors take a hit or if the government makes changes to existing rules, it can have an impact on paper stocks.
So, while things are looking up now, there are still factors outside the paper industry’s control that can affect their future.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The companies mentioned are for information purposes only. This is not an investment advice.
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