Shares of Hansol Paper and Moorim Paper, the two leaders of Korea's paper industry, have been falling day after day. Investor sentiment appears to have weakened as the Middle East war-driven earnings deterioration and a Korea Fair Trade Commission penalty surcharge were followed by the "ballot paper shortage" that erupted during the June 3 local elections.
Hansol Paper's stock closed at 6,400 won on the 5th. The share price, which was trading in the low 8,000-won range in early January this year, is now down about 21%.
Moorim Paper is in a similar situation. The closing price on the 5th was 1,483 won, down about 22% compared with the 1,900-won range in January this year. The two companies' share prices remain at their lowest levels even compared with the trend over the past four years.
Weak earnings are behind the decline in Hansol Paper and Moorim Paper shares. Hansol Paper posted first-quarter sales of 559.8 billion won and operating profit of 11.2 billion won. Year over year, sales fell 2.7% and operating profit dropped 44.8%.
Moorim Paper's results were even weaker. First-quarter sales were 307.3 billion won, down 3.6% from a year earlier, and operating profit plunged 96% to 150 million won.
The burden of materials and supplies costs due to geopolitical tensions in the Middle East is also cited as a factor worsening profitability. In addition, in April the Korea Fair Trade Commission uncovered alleged collusion on printing paper prices by paper companies, including Hansol Paper and Moorim Paper, and imposed a total penalty surcharge of 330 billion won.
The bad news did not stop there. Ahead of the June 3 local elections, Hansol Paper and Moorim Paper participated as suppliers of base paper for ballot papers. According to the paper industry, the two companies reportedly split supply volumes by region. In past elections, the two companies were selected as ballot paper suppliers and drew attention as election-related beneficiaries.
This time, however, the election turned into a headwind. On June 3, election day, voting was delayed at some polling stations, including in Seoul's Songpa District and Gangnam District, due to a shortage of ballot papers, which is seen as having negatively affected the two companies' share prices.
However, the role of paper companies is limited when looking at the ballot paper supply structure. For election ballot papers, the National Election Commission commissions production to printing companies. When a printing company orders special paper of the required specifications from a paper company, the paper company supplies the base paper accordingly. The printing of actual ballot papers, volume management, and regional distribution are handled by printing companies, while the election commission oversees the entire process.
In the market, however, there is a view that the negative issue was reflected in the two companies' share prices because a strong image has formed that paper companies are "ballot paper suppliers." In addition, it has not been disclosed which printing companies were in charge of producing ballot papers. Printing work related to elections is not publicized due to reasons of security and ensuring fairness.
Within the paper industry, there is also a response that they feel wronged regarding the ballot paper shortage. A paper industry official said, "Paper companies only supply base paper according to the ordered specifications and volumes, and do not get involved in the actual printing or volume management process," adding, "Following the recent industry slump, we are being hit by unexpected headwinds."