Stock prices for paper companies have been erroding for more than a year. But a recent bump upward could mean the mills might rise again.

I’m betting this will have tree-huggers (the literal kind, not just any hippy who might be around) screaming for blood: Did you know that there’s a global paper glut? We’re producing too much of it. And no one’s buying, which means papermills are slowly dying.

Here at the TFN office, we’re almost completely paperless, and I’m sure email and web 2.0 interventions have cut down on the paper you use at your office as well. Oh, and don’t forget China.

Unfortunately for papermills in Europe and the U.S., the Chinese have figured out that, unlike coal and iron ore, they can actually create more trees to fill their needs. And the country that used to be one of the strongest markets for Western papermills has become a net exporter (I can hear the executives at Finland’s Stora Enso (OTC:SEOAY) and Sweden’s Svenska Cellulosa (Pink Sheets:SVCBF) complaining about the fact that the Chinese suddenly learned how to grow trees).

The net result of paperless offices in the West and a China with trees in the East is the collapsing share price of Europe’s papermills.

Stock prices for paper companies have been eroding for more than a year. But a recent bump upward could mean the mills might rise again. Check out this Wall Street Journal article for an argument on that bent.

Personally, I think paper is a relic of the past. We like to send each other birthday and Christmas cards made of it. We like to scribble our adolescent, self-absorbed thoughts into journals full of it. And coming from the perspective of a writer, nothing will ever fully replace the delicious feeling of a really good pen scratching across thick, heavy paper.

But business, government and art will continue to move away from paper and into the electronic medium in the next few decades. And those industries, currently the major consumers of paper in the world, will leave papermills to languish in disuse.

That doesn’t mean you can’t make some money on paper in the meantime. But the logic that papermill stocks will rise because the companies are cutting back on production is lost on me. Perhaps the paper companies should stop cutting back on production and start thinking about consolidation. You might be able to find some very short term profits in the the paper sector, but avoid it long term.

Source: Can You Profit from Paper Stocks?