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Show UPDATING THE PAPER LN'DUSTRY Inflation, high interest rates, and the economic recession had an adverse impact im-pact on most industries last year. Surprisingly, Sur-prisingly, however, the paper industry fared better than most groups. Shipments of paper and paper products remained generally high although weakness did begin to occur in September and October, especially in the paperboard segment of the business. This reflected a downtrend in packaging demand and industrial production. pro-duction. Newsprint and printing grades, however, showed less severe declines. Overall paperboard production in 1981 registered a gain of less than 2 percent per-cent over comparable year-earlier levels. Total output for the full twelve months was estimated between 64.5 million and 65 million tons, equaling the record of 64.6 million tons set in 1979. One of the strongest areas in the paper industry last year was newsprint which showed an 11 percent increase over 1980 levels. Also enjoying sustained sustain-ed demand throughout the year were coated papers used in magazine publications. As for the paperboard and recycled paper segment, it posted a third-period decline, thus following closely the overall industrial production produc-tion patterns. A LOOK AHEAD Last year, through heightened efficiency effi-ciency and careful planning, the paper industry made itself less vulnerable to high energy costs and wage rates. The capital expansion and modernization programs instituted by most producers, as well as the increased stress on cost efficiency, should all bear fruit in the future. This year, close followers of the paper industry predict only a modest gain in production of papers and paper-board. paper-board. However, looking at the intermediate-term prospects for the industry, in-dustry, the Research Department of Babson's Reports is optomistic because the basic fundamentals remain positive. When the general economy improves and the construction industry revives, the industry's earnings should move ahead at a stepped-up pace, i The faster capital recovery allowed under President Reagan's tax policies will be particularly important to the paper industry. When fully implemented im-plemented in 1986 it is expected to provide pro-vide up to $750 million to the industry in additional annual cash flow for invest- ment. This will be timely because the industry's requirements by the mid-1980s for yearly investment in new plant and equipment will have doubled to $12.5 billion. THE COMPAMES The Research Department of Babson's Bab-son's Reports follows most of the leading domestic paper companies. Among them are Boise Cascade, Champion Cham-pion International, Crown Zellerbach, Great Northern Nekoosa, International Paper, Kimberly-Clark, St. Regis Paper, Scott Paper, Union Camp and W?estvaco. As might be expected under current economic and market conditions, the stocks of most of these leading firms are priced nearer their lows than their highs of the past year or so. Also their priceearnings ratios are relatively low. However, in view of the prospects for earnings improvement over the intermediate in-termediate term, the Babson's Reports Staff is recommending retention of the stocks of all of these important companies. com-panies. For those wishing to gain representation in the paper group through purchase of an attractive issue, the stock of Great Northern Nekoosa is currently being recommended. GNN, which is a major factor in newsprint, business papers, and con-tainerboard, con-tainerboard, has compiled one of the better records among the paper companies com-panies over the years. Although the recessionary economy had a negative impact on 1981 results which were modestly below those of 1980, some improvement later this year is expected with more impressive gains likely over the intermediate term. |