Show BUSINESS end and the tho STOCK MARKET by BABSON'S Bf REPORTS Copyright 1972 1971 BETTER OUTLOOK FOR PAPER The pap paper r industry has not done particularly particularly particularly part part- well over the past couple of years because of sharply increased costs during a time of general economic slug slug- After re reaching a record million in 1969 corporate earnings of paper paper and allied products firms slumped 7 per cent to million in 1970 this was followed by an additional off drop-off of 20 per per percent cent last year But the end of 1971 saw earnings pointing painting upward Under the influence of a strengthening economy and recent approval of price increases earnings of paper concerns this year could show at least a modest advance over the 1971 level For the longer longer lon Ion ger range the net of paper manufactures should benefit from the better supply- supply demand ratio expected to prevail within the industry in years to come come although the cost factors of pollution or-pollution control and recycling equipment will restrict earnings earnings earnings earn earn- ings to a degree Fewer New Mills Planned In appraising future prospects for paper companies the supply demand relationship relationship re re- re is a key In the past new new plant space has been added quite freely bringing on perio periodic ic overcapacity overcapacity over over- capacity witch which has resulted in a weak pricing structure in times of lessened demand For the 1974 1972 span paper companies plan to Increase their production production pro pro- capacity only 1 16 6 per cent annually annually annually an an- for paper 25 per cent for paper- paper board The limitation is traceable to the poor return on existing investment heavy debt loads a lack of attractive sites for new new newmills mills and multiplying problems involving involving involving in in- ecology This rate of growth will be the lowest for any year three period since World Wa 11 ll It compares with an average average average aver aver- age annual growth over the past sixteen years of 4 48 8 per cent in capacity for paper and 3 38 8 per cent for paperboard Most Mast of the upcoming expansion in c ca capacity capacity ca- ca will be from additions to existing mills rather than from major new plants Higher Operating Ratio Needed For more efficient operations and higher high high- er profits a greater utilization level is essential In 1969 a record year for profits profits pro pre fits 94 9 3 cent of the per industry's capacity ca was being used But this ratio dropped to per cent in 1970 and 90 9 per cent in 1971 As mentioned a stronger strong strong- er economy means a greater demand for 1972 and fewer capacity additions should boost future profitability Even then in View of pf the heavy capacity added in recent recent re re- cent years oversupply may be a pro pro- lem for some time to come New Nw Uses For Paper To counter the oversupply situation the industry is seeking new uses for paper products A bl big bid area here is disposable disposable dis products which could build a 1 1 billion market by 1980 Currently the best bes hope for disposables is in tex tex- tile like limited limited life life goods goads such as hospital bedding gowns masks throwaway throwaway throw throw- away diapers and wiping clothes Producers Producers Producers Pro Pro- are arc looking farther ahead toward a II sizable recreation market to develop swim wear outdoor clothing sleeping bags etc Already in commercial production production pro pro- is low cost semi permanent paper furniture including end tables chairs music racks and storage cubes Plastic coated paper houses appear appear ap ap- ap pear to be on the way A sturdy fire fire- resistant paperboard house capable of withstanding winds up to one hundred miles mUes an hour and able to meet stiff building codes has already been deve deve- loped If the public accepts the concept of paper houses a huge new market for paperboard rd could be opened up It If really ready got rolling chances are that this promising field could consume as much muchas as 2 25 per cent of all wall double corrugated corrugated corrugated gated paper product The prices es of most paper company equities probably already reflect at nt least partly the earnings improvement that is expected this year But commitments can be retained on the basis of probably term longer earnings progress For purchase purchase pur pur- chase at this time the Babson Staff recommends recommends re reo re- re commends the speculative-grade speculative common common com com- mon stock of St St. St Regis Paper Company for appreciation and a well supported dividend end |