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The Long Haul--December 2022
By Jim Thompson
Most readers of this newsletter view the pulp and paper industry from long game. These are the times when you remember, indeed, that it is a long game.
This is not crypto (aside, I haven't bought any crypto because no one has been able to explain it to me in a way that this old simple farm boy can understand it).
Here is how I explain the long game in pulp and paper. I have done so many times, perhaps you have even heard me say this before.
Paper is made largely of cellulose. Carefully examine where that cellulose goes.
If that cellulose is used to make paper or paperboard grades whose primary function is to convey ideas, it is deader than a doornail. These grades would be magazine, newsprint, books and so forth. Yes, these grades still existing, but they are much diminished from just two or three decades ago and, further, they are not growing significantly. Some sectors are still shrinking.
If that cellulose is used for its physical properties it is just fine. Examples of such uses are toilet tissue, kitchen roll towels, boxes, bag and sacks and so forth. These grades may experience perturbations in demand, but they are on a long upward slope.
Recently, I have had to add a caveat about other raw materials (straw, hemp, kenaf, and so forth, but not bagasse). Here, be cautious, be very cautious. Although promoters tend to get quite enthusiastic, the underlying problem here is the lack of infrastructure to harvest, store and transport these fibers. It just does not exist and will take a long time to build.
Why is bagasse not in this category? It has been used for papermaking for a very long time and the infrastructure to handle it does exist.
Again, think long term, making your investment choices wisely.
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