FOEX Pulp & Paper Indices - May 17, 2011

Kendall Sinclair

HELSINKI , May 17, 2011 (press release) – US NBSK – Mood among pulp market people continued relatively upbeat during the International Pulp Week in Vancouver last week. In addition to the seasonal downtime, pulp supply in North America has been affected by some technical problems. Flooding could, once again, cause wood supply or other problems in Southern US. Weak paper shipments in some market pulp consuming grades, notably uncoated free sheet, are among the negative drivers. Our PIX NBSK US headed further up, this time by 65 cents, or by 0.06%, and closed at 1019.79 USD/ton.

US Newsprint – The most recent data on newsprint was encouraging with a minor increase in shipments against the corresponding number from 2010. This increase does not remove the over-capacity problem, however. In spite of the risen costs, newsprint prices appear to be under downward pressure with increasing number of spot offers available. The PIX US Newsprint 30lb index retreated by 95 cents, or by 0.15%, and closed at 624.24 USD/ton, and the 27.7 lb index lost 1.02 USD, or 0.15%, and landed at 665.09 USD/ton.

General economy: US - While the growth in the US and world economy appears to be slowing down during Q2 from the quarterly growth of 0.4% in Q1, most of the key indicators, including the purchasing managers buying plans, support the continuing recovery with a wide basis but at a modest pace. Financial concerns over the US debt issue continue as the Treasury has now hit its legal limit on borrowing. Limit increase is needed soon as the US cannot take a risk of defaulting on its debt payments. The US debt could come to about 90% of GDP this year. That size of a debt is estimated to reduce GDP-growth by about one percentage point.

Europe – European economic growth exceeded expectation during Q1 with both Germany and France growing faster than expected but with other countries, including Italy and Spain hardly showing any advance. GDP-growth of the Euro-zone over Q1 was 0.8%, twice as fast as the advance seen in Q4 2010 and also faster than the growth seen in the US. This development strengthens Euro, as does the agreement which was reached on the support for Portugal but the financial crisis persists with Greece back on the forefront. The positive growth picture is dimmed by the excessive strength of the Euro, taking into account the speed up of the inflation to 2.5% over Q1. Europe may be the only major economic region with an interest rate hike coming up, on top of the increase already seen earlier.

Japan – The latest estimates take damage done by the earthquake and tsunami to over 300 billion USD, the most expensive natural disaster recorded. The impact on the Japanese and global economy could also be bigger than earlier predicted. The extended disruptions to Japan’s electricity network, transport logistics and other factory supply chains will continue to impact the production negatively over an extended period of time. The reconstruction work will counter-balance the impact but a negative GDP-growth number for this year is a distinct possibility, even if the latest consensus is still marginally on the plus-side.

China – Economy expanded at a rapid rate still through Q1 but now there are more and more signs, and even statistical facts, that the economic growth is cooling off. Industrial production growth eased clearly more than projected in April. This reduces the need for further monetary policy tightening even if the inflation remains a concern at 5.3% in April, marginally down from March. Retail sales growth was also less than expected and the same easing was also seen in money supply growth. The measures taken to cool down the excessive economic growth are starting to bite, in fact so much that the earlier expected interest rate hike may not be seen, after all, and bank reserve requirement tightening could be limited to one more round.

Paper industry –The Q1 paper and board production data from CEPI came out showing a 2.7% growth in total paper and paperboard production against Q1 2010. Growth was fastest in the group of “other papers”, including many specialities. Printing and writing papers grew 2.5%, packaging marginally more at 2.6% but tissue showed a most marginal decline of 0.1%. The growth in printing and writing papers was all in newsprint and in coated papers, both against low comparison data from last year. The regional consumption growth was limited and thus most of the gain was contributed to still growing export volumes. The strike by the Finnish paper industry white-collar workers (mainly office and other administrative) continues and is now spreading to the whole industry simultaneously as opposed to company-targeted action seen so far. The impact on production and on deliveries has so far been limited. In the US, production and shipment levels remain close to those seen last year. USD-weakness and risen costs, especially fibre and energy, have prompted price increase attempts, with mixed success at least as far as May efforts are concerned.

NBSK pulp Europe – Softwood pulp markets continue to be well balanced if not though similarly tight as during the Q1. Pulp buying activity has somewhat cooled off in China where more pulp is used from the inventories and the strongest appetite for buying BSKP to replace dissolving pulp has calmed down. Total inventories at producers of the key market pulp producing countries, at customers and ports are estimated to have stayed at lower-than-normal levels when maintenance downtime is cutting the output and paper capacity increases in Asia are requiring additional market pulp. Some producers are seeking a 30 USD per ton price increase for June business in Europe. The USD strengthened against EUR by 1.5%. Our PIX NBSK index moved down by 11 cents, or by 0.01%, and closed at 1009.42 USD/ton. As the Euro weakened, the NBSKP EUR index increased again, this time by 10.70 euro, or by 1.5%, to 706.88 EUR/ton.

BHK pulp Europe – The situation has not been as strong as in BSKP and resistance against price increases in April has meant lower shipments and higher inventories than in BSKP. The tight availability of pulp substitutes has, on the other hand, supported BHKP shipments. Strengthening US-dollar, by 4-5% during the first two weeks in May, has increased the price of pulp in European currencies. In spite of the widening price gap between BSKP and BHKP, the shifts from hardwood to produce softwood have not grown, at least not to such volumes which would have had a major impact on the supply/demand balance numbers between the two grades. The 1.5% strengthening of the USD against the EUR meant an upward push on the benchmark in euro-terms. The PIX BHKP index-value in EUR rose by 9.47 euro, or 1.57%, and closed at 613.87 EUR/ton. The PIX BHKP index value in USD moved up marginally by 0.17 USD, or by 0.02%, and closed at 876.61 USD/ton.

BHK pulp China – There appears to be a pause, possibly temporary, in the in-take of dissolving pulp and also in the demand for paper pulp as an extension of dissolving pulp in textile end-use. This and the very high March shipments have reduced the demand for market pulp in April/early May. Later in the year and especially in 2012, the decreed closures of non-wood pulp based paper units will improve the demand for wood pulp based paper and, with it, market pulp, mainly BHKP. The PIX BHKP China index moved this time up by 1.19 USD, or by 0.16%, and closed at 765.81 USD/ton. Yuan weakened again last week marginally, or by 0.08% against USD. The conversion of the USD value into Yuan resulted in an increase of 7.87 RMB, or by 0.16%, to 4976.37 RMB/ton.

Newsprint – The latest market rumours in Europe have brought out the possible upward price changes in newsprint from the beginning of the third quarter for those volumes which were not price-fixed for the full year. In the price negotiations in the beginning of the year, the producers drove strongly for shorter price validity periods for this year to replace the traditional full year period. The newsprint production costs, e.g. prices for recovered paper, have kept rising during the first months of the year. The 0.6% weakening of the EUR against the weighted basket of non-EMU currencies delivered a positive impact on the benchmark. The PIX Newsprint index moved up by 95 cents, or by 0.2%, to 500.83 EUR/ton.

LWC – While March statistics from Cepiprint on coated mechanical paper grades in Europe showed a slight demand drop for the month (-0.8%), and an almost flat development for 1Q (-0.1%), the January-March production data came out with a 6.8% increase, due to a rise in exports and, possibly, some increase in inventories against the very low level a year ago. The roughly 0.6% weakening of the EUR against the weighted basket of non-EMU currencies meant an upward push on the benchmark. The PIX LWC index rose modestly, i.e. by 47 cents, or 0.07%, to 688.05 EUR/ton.

Coated woodfree – Recent price increases of softwood pulp in Europe in USD, have more or less remained flat in EUR, except for the rise seen this week, due to the persistently weakening trend of USD against EUR. Fine paper production costs have not increased at the rate of the fibre price hikes in USD but still remain relatively high in this respect, and the need for the improved paper price initiatives launched a couple of months ago has prevailed. The currency effect of a weakened EUR against the basket of non-EMU currencies, tried to push the benchmark in an upward direction. Anyway, the PIX Coated woodfree index lost 2.28 EUR, or 0.32%, settling at 713.12 EUR/ton.

Uncoated woodfree –The estimated demand for uncoated woodfree paper grades showed downward changes against last year through the first quarter. The cumulative demand change, by Cepifine, accumulated to -2.6%. Production volume was down by slightly more than 3% over Q1. More recent order book development and other “vibes” from the market seem slightly more optimistic about the uncoated woodfree paper consumption in April and in early May. The weakening of the EUR against the non-EMU currencies contributed with a positive effect on the index. The PIX A4 B-copy index advanced by 3.83 EUR, or 0.44%, to 867.44 EUR/ton.

Containerboard Europe – Packaging business has remained quite strong. In the US market, containerboard inventories at box plants decreased heavily in March and corrugated box shipments were quite strong. Maintenance downtime and seasonal high during Q2 keep the market firm but cost pressures have lessened with OCC prices flat/marginally down in early May. In Europe, recovered paper availability is tight and OCC prices are very high at the moment, pushing containerboard production costs up. Price increase initiatives in recovered paper based grades have been largely successful and prices have increased over 50 EUR from the start of this year. One producer has announced a further price increase of 50 EUR in the Iberian market from May 16. Last week, the exchange rate development had a positive impact on our benchmarks as Euro weakened by 1.5% against the USD and by about 0.6% against the non-EMU currency basket. Our PIX Kraftliner index ended up losing 2.24 EUR, or 0.4%, and closing at 588.77 EUR/ton. The PIX White-top Kraftliner index value went up by 84 cents, or by 0.1%, to 769.31 EUR/ton. Our PIX Testliner 2 index value increased by 26 cents, or by 0.05%, to 497.08 EUR/ton. PIX Testliner 3 index headed north by 1.12 EUR, or by 0.23%, settling at 485.48 EUR/ton. The PIX RB Fluting index increased by 70 cents, or by 0.15%, to 471.11 EUR/ton.

Recovered paper Europe – RCP is very scarce in Europe and prices continue at high levels. The export front to Asia is rather quiet at the moment due to the same reasons. The PIX OCC 1.04 dd benchmark ended up losing by 44 cents, or 0.27%, closing at 161.03 EUR/ton. As the related containerboard indices gained the price differentials widened: against Testliner 2 the gap grew by 70 cents to 336.05 EUR/ton, Testliner 3 by 1.56 EUR to 324.45 EUR/ton and RB Fluting by 1.14 EUR to 310.08 EUR/ton. Higher ONP/OMG 1.11 prices were again received by us and the PIX ONP/OMG 1.11 dd benchmark gained 4.57 EUR, or by 2.7%, settling at 173.73 EUR/ton. As the PIX Newsprint index gained less, the differential to PIX ONP/OMG 1.11 narrowed by 3.62 EUR to 327.10 EUR/ton.

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