Pizza and Chicken Delivery Increase Draws Attention to White Cardboard

Packaging Material Stocks, Including Hansol Paper and Other Top 5 Manufacturers, Simultaneously Rising in Stock Prices

[Image source=Yonhap News]

[Asia Economy Reporter Eunmo Koo] As the novel coronavirus infection (COVID-19) resurges, attention is turning to the performance of white cardboard manufacturers used for chicken and pizza boxes.

According to the Korea Exchange on the 14th, on the 11th, the stock price of Hansol Paper, the number one white cardboard company, closed at 14,550 won, up 0.34% (50 won) from the previous trading day. Since the government raised social distancing to level 2 in the metropolitan area on the 19th of last month, Hansol Paper's stock price has risen 5.1%. During the same period, all five other major domestic white cardboard manufacturers also saw their stock prices increase alongside Hansol Paper. Seha rose 27.1%, KleanNara increased 18.7%, and Shinpoong Paper and Hanchang Paper rose 4.0% and 3.8% respectively, outperforming the KOSPI return of 1.5% during this period.

The surge in delivery demand due to COVID-19 has led to a sharp increase in demand for white cardboard used in food delivery packaging, which is believed to have influenced the stock prices. White cardboard is a thick white paper mainly used for product packaging. While corrugated cardboard is used for external packaging such as parcel delivery, white cardboard is used as internal packaging to highlight the product's value aesthetically and to provide hygienic functions that prevent contamination and damage to the contents.

Recently, the decline in the price of old corrugated containers (OCC), the main raw material for white cardboard, is also cited as a factor improving the profitability of white cardboard manufacturers. White cardboard contains a high proportion of recycled pulp, OCC. The cost of purchasing OCC generally accounts for 25-35% of total sales costs, so profitability is linked to OCC prices. Doohyun Kim, a researcher at Hana Financial Investment, explained, "As the Chinese government restricted OCC imports, the domestic supply of OCC increased, and OCC prices fell sharply, improving the profitability of paper manufacturers."

Additionally, the fact that paper mills are perceived as nuisance facilities causing environmental pollution, limiting future expansion potential, is advantageous for existing companies. Kyungha Yoo, a researcher at DB Financial Investment, said, "It is difficult to obtain local government permits and resident consent for new paper mill construction in Korea. Even if permission is granted, astronomical costs are required for facility establishment and distribution network acquisition, making structural expansion more difficult than in the past."

Demand for white cardboard is expected to continue expanding as online shopping steadily grows. White cardboard demand benefits from the increase in online shopping transaction volume and the trend toward smaller product packaging. The recent three-year average annual growth rate of transaction volume in five sectors?food, agriculture/fisheries/livestock products, daily necessities, cosmetics, and food services?that primarily use white cardboard in online shopping exceeds 30%.