FOEX: NBSK index gains in US dollar terms in US, China, Europe; BHK prices increase in US dollar terms in Europe, off slightly in China; OCC, ONP/OMG benchmarks rise in Europe, while export prices stabilize or decline slightly

Debra Garcia

HELSINKI , April 23, 2013 (press release) – NBSK pulp Europe – Market pulp supply and demand remain in a good balance. The strike and congestion in Chilean and also partly Brazilian ports do not show yet in delayed shipments but eventually will, although most of the impact will be seen in the Asian markets. PPPC producer statistics on shipments and inventories are not yet available but the stocks close to the European consumers went slightly down again. Stocks of market pulp in European ports, by Europulp, were at the end of March up by 5 000 tons from end February but 45 000 tons (about 4.5%) lower than at the end of March 2012. Consumer stocks, reported by Utipulp, came down by nearly 30 000 tons from end February and stood about 25 000 tons lower than in March 2012. Consumption was marginally lower than in March 2012. Our PIX NBSK index moved up by 68 cents/ton, or by 0.08%, and closed at 844.11 USD/ton. Converted into Euro, the index retreated by 2.59 euro, or by 0.40%, and closed at 643.62 EUR/ton.

BHK pulp Europe – BHKP market appears slightly tighter than softwood. It is also more dependent on overseas imports than the BSKP market where European consumption is slightly lower than in BHKP but regional supply more than twice the size of the regional supply in BHKP. The combination of the threat of some disruptions in deliveries due to Latin American port problems or maintenance downtime and slightly better order books of graphic paper and tissue, the two major BHKP consuming sectors, have the buyers a bit on their toes. The well-balanced market has also prompted the producers to announce new price increases in BHKP, typically by 30 USD/ton from May 1. Euro strengthened by 0.5% against the USD from the previous week. The PIX BHKP index in Euro slid back by 1.28 euros per ton, or by 0.21%, and closed at 617.16 EUR/ton. The PIX BHKP index value in USD headed higher by 2.22 dollars, or by 0.28%, and settled at 809.41 USD/ton.

BHK pulp China – The major BEKP producers have been trying to push through the 20 USD/ton price hike to 720 USD/ton, announced in March. The closures of small polluting paper mills would amount to just under 4 million tons this year, according to the Government announcement. These closures mean less non-wood pulp based paper and will, most likely, improve the presently in many cases low capacity utilization rates of the more modern, market pulp consuming mills. Consequently, the needs for imported pulp are likely to go up in the course of the year, after having been below last year’s level in early 2013. The PIX China BHKP index slid back by 28 cents, or by 0.04%, and closed at 693.81 USD/ton. Yuan strengthened again by 0.2% against the USD. The conversion of the USD value into Yuan resulted in a decrease of 11.68 RMB, or of 0.27%, to 4286.17 RMB/ton.

NBSK pulp China – With Bratsk start-up still on the waiting list and with some delays reported in shipments to China from Chile, one would expect the market for BSKP to be stronger than what it has been. But, first of all, the grown shipments from the Nordic countries and to a smaller extent from North America have covered the demand well and in early 2013, imports were down also due to inventory draw-down at Chinese consumers and at trading houses. As a result, the success of the sellers to push through the earlier announced increases, in commodity NBSKP mainly to USD 710/ton has been slow and limited as sufficient volumes have continued to be available from a number of sources below the 700 dollar mark. Our PIX China NBSK benchmark value moved up by 2.46 dollars, or by 0.35%, and closed at 698.07 USD/ton. Yuan strengthened by 0.2% against the USD. The conversion of the USD value into Yuan resulted in an increase of 5.22 RMB, or of 0.12%, to 4312.49 RMB/ton.

US NBSK  – The numbers from PPPC will only be available after the sending out of this report. According to the market sources, the downtime taken at some of the integrated mills in March appears to have increased market pulp demand in the US market over the recent past. The start-up of the new tissue machines is also supporting market pulp shipments to and within North America as those machines need some start-up raw material inventory. The relative tightness of the market has made it easier – but not easy - to pass on the price increases in this market than in Europe. On the other hand, the price gap between the North American and European markets has already grown uncomfortably wide and there will be increasing pressures to start narrowing the gap, one way or another. At present, the gap is still widening.   The PIX US NBSK price index moved further up by 2.90 dollars, or by 0.32%, to 919.84 USD/ton. That is about 75 USD/ton higher than in Europe, over twice the “natural” differential related to the difference in the sales terms.

Recovered Paper Europe – The intake by China has slowed down, partly due to the tighter inspection procedures, called Green Fence, and partly by the de-stocking of the inventories in an effort to pressure the prices lower. This has actually brought the prices in China back down a bit. This has also been felt in Europe and the US with overseas export prices stabilizing or even slightly declining while the regional price has still been moving up, even if only quite slowly.

Our PIX OCC 1.04 dd index value moved up by 83 cents, or by 0.73%, and closed at 113.99 EUR/ton. The margins to containerboards widened: compared to PIX Testliner 2 the gap increased by 2.21 euros/ton to 332.29 EUR/ton, against Testliner 3 by 95 cents to 303.66 EUR/ton and compared to RB Fluting by 70 cents to 289.89 EUR/ton. The PIX ONP/OMG 1.11 dd benchmark moved up by 54 cents, or by 0.44%, and closed at 124.31 EUR/ton. The price differential to PIX Newsprint narrowed by 2.92 euros to 351.12 EUR/ton.

General Economy: the US economy has had a very slow recovery. The same applies to most industrialized countries, partly because public spending has been clearly more restrained than in the earlier recoveries from major recessions. The number of new unemployment benefit claims rose last week with the moving 4-week average above 360 000. As the industrial activity and the retail sales both cooled off simultaneously in April, a further moderation in economic growth became obvious. The tightening of the fiscal policy has clearly reduced the confidence levels and thereby pulled brakes on the economy, after a lively start of the year. The latest business activity and leading indicator indices remain positive but down from Q1 average levels. Inventories have fallen sharply in April, after having remained flat in March. With the weakened data, the Fed will continue with aggressive easing. This is expected to revive US growth during 2nd half of the year.

Europe – The austerity measures have lengthened and steepened the recession in the Euro-zone. But simultaneously there has also been some success in correcting the worst imbalances. Some countries, including France have failed to reach their targets but the fiscal deficit of the whole Euro-zone was down at 3.7% of GDP, compared to 4.2% recorded in 2011 and as much as 6.5% in 2010. Budget cuts have alleviated the public debt crisis but they have also worsened the unemployment problems. The social risks are mounting and the individual governments, as well as the EU leaders, are shifting their focus more and more into economic growth strategies. Further delays for reaching the fiscal targets are likely to be granted in May. More stimulation is supported by the US as the link between the expansion potential in the US and the expansion in the Euro-zone is strong.
  
In Japan, the consumer confidence improved in March for the 3rd consecutive month and reached the highest level since 2007. The IMF raised their GDP growth estimate for Japan expecting the latest monetary easing policy to provide sufficient stimulus for a more solid expansion. IMF’s projections show Japanese economy growing by 1.6%. Over 2014, the growth forecast has been revised upwards to 1.4%. Forecasts are slightly higher than the recent consensus view. The finance ministers of the G20 endorsed Japan's easy-money policy last week. The concerns that the aggressive stimulation strategy would give Japan an unfair trade advantage did not surface much among the ministers even though the weakness of the Yen has obviously improved Japan’s export possibilities and limited imports.

China’s minor reduction of the quarterly economic growth to 7.7% during Q1 from 7.9% expansion seen in Q4 2012 sent global markets sharply down, as expectations had been for an 8% recovery rate and a growing support from China on the global expansion. These lower Q1 numbers led to a number of downward revisions also in the annual data. The private analysts’ expectations still remain a few decimal points above the Government’s 7.5% target growth rate. The Chinese leaders are trying to switch the economy towards a more self-sustaining growth which is based on the domestic consumption growth rather than to continue to rely heavily on exports and investments. That change of decades-long direction is one reason behind the slowing down of the overall growth rate, at least in the short run. A top Chinese official said that “the country is going to maintain its proactive fiscal policy and prudent monetary policy to boost economic growth and keep prices stable”.

Paper industry – March was again a fairly weak month in terms of paper industry production and delivery volumes but inventory data is more encouraging. The first paper industry activity numbers in March are out from North America. The printing and writing paper shipments showed a 5.3% drop against March 2012, with less shipping days this year, however. The operating rate for the printing and writing paper total, excluding newsprint, retreated from 93% last year to 88% this March. Cumulatively over the first quarter, printing and writing paper shipments were down by slightly more than 5%. Containerboard shipments were down by almost 7% but when adjusted to the average week basis, they were up by 2.5% for the month. Cumulatively, containerboard consumption was estimated down by 1.6% over the 1st quarter. In Europe, March numbers are not out yet. Demand appeared to have been weak through March but in some grades order books have improved through the first three weeks of April, helped at least partly by the seasonal factors. Fibre prices have been creeping up, both in recovered paper sector and in market pulp, although the recent strengthening of the Euro against the US dollar has more than compensated the modest dollar-based hikes within April. Still, pulp prices are up in Euro-terms by about 5% since the turn of the year whilst paper prices are down by 2-4%. In packaging sector, costs and prices have followed each other much better. In spite of the challenging market conditions, cost pressures have pushed paper producers to announce price increases in several grades from April 1st or from mid-April. No success has been seen so far in graphic papers but in packaging, our benchmark prices over last week’s business moved up, even while exchange rate movements went against the price increase efforts.

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