Year-End Box Shortage... Paper Stocks Benefit from COVID-19 Boom

[Asia Economy Reporter Koh Hyung-kwang] Recently, the market value of paper manufacturers producing corrugated cardboard has surged sharply. This is interpreted as reflecting expectations that the manufacturing cost of corrugated cardboard, the raw material for delivery boxes, will rise due to increased demand for online shopping and food delivery amid the COVID-19 pandemic.

According to the Korea Exchange on the 30th, Asia Paper, which manufactures corrugated cardboard base paper, traded at 40,500 KRW as of 9:43 a.m. on the KOSPI market, up 8.0% from the previous session, setting a new 52-week high. It has risen nearly 20% over the past four trading days. Its market capitalization exceeded 360 billion KRW. Compared to the end of last month’s stock price (30,750 KRW), the increase rate reached 30%.

During the same period, other paper-related stocks such as Daeyoung Packaging (1,070 KRW → 1,420 KRW, 32.7%), Shindaeyang Paper (51,000 KRW → 59,400 KRW, 16.5%), Korea Export Packaging (18,450 KRW → 21,600 KRW, 17.0%), and Sambo Paperboard (8,340 KRW → 9,400 KRW, 12.7%) also recorded high increases of around 20% over the past month.

This is interpreted as a result of a shortage of corrugated cardboard, the raw material for delivery boxes, caused by the surge in delivery demand due to the spread of COVID-19. The expectation is that paper stocks will naturally benefit as delivery volumes increase.

The Korea Corrugated Packaging Industry Cooperative announced on the 25th that "the supply shortage of corrugated base paper is worsening" and warned of price increases. Since the Ministry of Environment’s implementation of the 'Waste Paper Import Reporting System' in July, the import volume of waste paper used to make corrugated base paper has sharply declined. Additionally, a fire at a paper mill in Ansan, which accounts for 7.5% of domestic corrugated base paper production last month, further intensified the raw material shortage.

The market size is steadily growing. Paper is divided by use into newspaper, printing, hygiene, and industrial paper (packaging), with the industry showing the greatest growth potential in industrial paper such as corrugated cardboard and white paperboard. According to the Korea Corrugated Packaging Industry Cooperative, the corrugated cardboard market size approached 4 trillion KRW last year. This year, it is expected to increase by more than 10% compared to the previous year due to the impact of COVID-19.

In the securities industry, it is assessed that a favorable environment for paper-related stocks, such as increased delivery volumes, is likely to continue, and ongoing attention is necessary. Lee So-jung, a researcher at SK Securities, said, "Until the COVID-19 situation calms down, the demand for corrugated cardboard, the raw material for delivery boxes, will continue to increase due to the expansion of online orders. As a result of this, some consumers have become accustomed to online ordering, so even after the COVID-19 situation settles, part of the sales increase is expected to be maintained, and delivery raw material base paper and corrugated cardboard manufacturers will benefit from the increase in delivery volumes."