FOEX Pulp & Paper Indices - April 17, 2012

Kendall Sinclair

HELSINKI , April 17, 2012 (press release) – US NBSK – US pulp market appears at present relatively firmer than the global situation, in spite of the reductions seen in graphic paper demand. The improving economic outlook may, in some cases, have triggered inventory rebuilds at consuming end. The April 1 price increase initiatives in the US market went largely through already during the first two weeks of the month in both softwood and hardwood grades. The price rises were supported by maintenance downtime taken in BHKP and in southern pine, conversations to fluff of the latter as well as by the maintenance downtime to be taken in NBSKP in Q2. Our PIX US NBSK index, after the removal of the top and bottom 10% of the values received, showed no change and remained thus at 895.12 USD/ton.

US Newsprint – Newsprint capacity drew lower after the conversion of one of SP’s newsprint machines to packaging grades but risks going back up again in a couple of months’ time if the earlier closed Stadacona mill of White Birch were to be re-started. Demand continues to trend down even though the early 2012 monthly rate of decline has been slower than the drop seen in late 2011. Prices have remained quite stable already over a prolonged period of time with capacity exits and/or export volumes maintaining a fairly close balance between practical production tonnages and shipping volumes. The PIX US Newsprint 30lb index remained at 623.12 USD/ton, and the 27.7lb index stood unchanged at 663.88 USD/ton.

General economy: US – Retail sales were up again more-than-expected, or by 0.8% in March. With good growth already through January-February (0.7% and 1.0%), the US GDP-growth estimates are also being revised upwards as consumer spending accounts for about 70% of the U.S. economy. GDP may have increased by about 2.5%. The good numbers on private spending follow the positive data received earlier on employment and on consumer confidence. The most recent indicator values suggest, however, that the stronger-than-expected momentum is now showing signs of slowing down. Many of the indicators measuring manufacturing conditions have weakened. New order intake is tapering off, shipment growth slowing down, inventories higher and the number of unfilled orders dropping. Home-builder sentiment fell in April (first retreat since Q3 2011) and, as reported already earlier, the job growth slowed down quite clearly in March.

Europe – Euro-crisis is raising its head again in April, after about three months of reduced tension, following the trillion-euro boost of liquidity from ECB in late 2011. The fortunes are increasingly polarized with bond yields up again in Spain and Italy, i.e. with a risen cost of financing their debt. The yield on German bonds, on the other hand, fell under 1.8%, the lowest value ever. The Euro-zone GDP fell in Q4 2011 and, according to the preliminary data, again in Q1 2012. Many forecasting bodies, including the EU Commission, expect a decline also for the year as a whole, even if a modest recovery will be seen during the 2nd half of the year. Industrial production showed a small gain in February, pushed by a rise in capital and energy goods. But, with weakening order books, industry will not be a growth driver in near term future. The unemployment moved up to 10.8% in February and is expected to increase further in the coming months with austerity measures leading to additional losses of the public sector jobs. The trade balance improved in February, but this can well be temporary.

Japan – Government committed last week “to do whatever is needed” to get Japan out of the deflation spiral. While the rate of decline in consumer prices has eased and some of the commodity prices are up, most notably oil, the country remains in a mild deflation. This means the government will target for structural reforms and faster deregulation as a further major monetary easing by the BoJ is both unlikely and difficult to execute. Japan showed a trade deficit over the full year of 2011, the first one since 1980. Economy appears to continue to recover slowly. With the US economy picking up, the export outlook has moderately improved. Trade deficit seen in January turned into a healthy surplus in February. PMI on manufacturing headed further above the 50-point neutral level in February and continued to rise in March. Service sector optimism rose even more. Another positive sign was the higher- than-expected rise in consumer spending in February.

China – China surprised the financial markets by doubling the range in which the Yuan is allowed to rise - or fall -against the USD. That can be considered a pretty big step in the process which could lead to Yuan becoming a fully tradable world currency. In March, the industrial output grew by 12%. Retail sales expanded by 15% and fixed asset investments had, once again, a strong showing with a 21% increase. China’s trade balance returned to surplus even though the exports still remained rather weak. In spite of the strength of many of the March numbers, China's economy grew at its slowest pace in almost three years during Q1, lengthening further the now five-quarter long slide towards slower economic growth. On annual basis, the GDP-growth is approaching 8%. A number lower than that would make it problematic to create enough new jobs. Stimulating policy action is soon needed to halt the slowing down of the growth.

Paper industry – The loss of volumes and the unsatisfactory price levels which follow the continuing trending down of the graphic paper consumption in the industrialized world lead to increasing number of closures of the production capacity. In North America, nearly 400 000 tons’ worth of capacity was closed in January-February, divided between different grades, and more will be closed in May-June. In Europe, also nearly 400 000 tons were taken out of operation in January-February. Following that, the March exits alone amounted to about 600 000 tons and also in Europe, further closures will be seen before the end of Q2. In packaging, the demand is stalling, not necessarily trending down. But the financials are unsatisfactory also in this sector and capacity removals continue on both sides of the Atlantic, with Peterson closing two units in Norway and Norampac one mill in Canada. There are, however, new machines starting up as well.

In Asia, paper and board demand, as well as the production capacity continue to grow. For instance in uncoated woodfrees, China adds another 0.5 million tons of capacity during Q2. On the other hand, closures of non-wood pulp based paper mills continue and most of those are in uncoated woodfree paper sector. In tissue, the increases are even more substantial. Between the beginning of Q2 2012 and the end of the Q4 2013, over 40 new machines, most of them in the 20-30 000 ton annual capacity category are scheduled to start up. That, if anything, is good news for the market pulp producers who more than compensate the losses of volume in graphic paper sector in the West by the growing demand in China and other Asia.

NBSK pulp Europe – Tofte’s re-start and grown volumes of free market pulp from the Finnish companies with recent closures of paper capacity are adding pulp supply during Q2 whilst increased maintenance downtime activity works the other way. Deal between Metsä Fibre and Itochu for the latter to buy nearly 25% of Metsä Fibre (formerly Botnia) illustrates the Asian long-term interest in fibre sourcing. Around Asia, pulp purchasing activity appears to have slowed down, probably temporarily. In Europe, market pulp consumption numbers over March, reported by UTIPULP showed a healthy increase from February but a 5% retreat compared to March 2011, with almost the entire drop in BSKP. Inventories at the consuming mills were down both against February (by 3%) and March 2011 (by 4%). There were thus drivers both supporting and opposing the sellers’ price increase initiatives. Euro strengthened by 0.6% against USD from the previous week. Our PIX NBSK index moved up by 7.67 USD, or by 0.91%, and closed at 853.40 USD/ton. Converted into Euro, the re-strengthening of the currency limited the rise of the benchmark to 1.89 euro, or to 0.29%, and the index closed at 649.07 EUR/ton.

BHK pulp Europe – According to UTIPULP, Europe’s BHKP consumption was up in March by almost 11% from February and less than 2% down against March 2011. The hardwood pulp stocks held by consumers were 1.5% lower than at the end of February and 6% smaller than a year ago and represented about 2.5 week’s consumption at present rates. Substantial maintenance downtime, good demand pull by the tissue industry and the still relatively wide price gap between BSKP and BHKP grades have kept the hardwood pulp market relatively tighter than that in softwood, despite the big reductions in woodfree paper demand in Europe and the US. Euro strengthened by 0.6% against USD from the previous week. With the Euro- strengthening pulling the benchmark lower, the index retreated by 3.21 Euro, or by 0.55%, and closed at 577.41 EUR/ton. The PIX BHKP index value in USD rose by 43 cents, or by 0.06%, landing at 759.18 USD/ton.

BHK pulp China – Chinese buyers appear to have started working down their inventories, judged by the cooling off of the purchasing activity in China in late March/early April. Some suppliers have reportedly scaled down their price hike initiatives after facing firm resistance to sellers’ price increase efforts. The price differential between locally sold pulps and imported lots is in favor of the local ones which may have also impacted to the toughness of the price talks. So far part but not all of the announced price increase has gone through. The PIX China BHKP continued to move up, this time by 3.93 USD, or by 0.6%, and closed at 654.13 USD/ton. Yuan strengthened by a marginal 0.04% against USD. The conversion of the USD value into Yuan resulted in an increase of 23.12 RMB, or of 0.56%, to 4122.84 RMB/ton.

NBSK pulp China – In softwood, the local resale price is also down in the process of depleting the risen stocks of imported pulp. Early in the year, the volumes of softwood pulp delivered to China were up particularly from Europe. Price increase announcements for April were mixed in terms of time and size with some producers quiet over their intentions. The market situation remains relatively weaker in softwood than in hardwood, partly explained by the later timing of maintenance downtime in BSKP and partly by the better availability of spot volumes. Our PIX China NBSK index value increased by 22 cents, or by 0.03%, and closed at 706.81 USD/ton. Yuan strengthened by 0.04% against USD. The conversion of the USD value into Yuan resulted in a minor decrease by 0.41 RMB, or by 0.01%, to 4454.87 RMB/ton.

Newsprint – News from the market are limited. European companies are trying to maintain the good export momentum outside Europe over the early months of the year to compensate for the continuing decline of newsprint consumption within Europe. More and more newspapers are switching to tabloid size in order to cut costs. Capacity closures, most recently by Norske Skog at Follum, provide another tool in trying to better match the demand and supply. The Euro strengthened against the weighted basket of non-EMU currencies by about 0.2%, which pulled the benchmark lower. The PIX Newsprint benchmark eased down by 75 cents, or by 0.15%, and closed at 506.86 EUR/ton.

LWC – Demand for coated mechanicals has kept on falling, both in Europe as well as in North America. European companies have succeeded selling more outside Europe which has helped to limit the over-supply pressures. RISI/PPI Europe reports that the LWC paper machine, recently closed at Kama, Russia, will not be re-opened for another month or two. This is likely to support export volumes towards Eastern parts of Europe. In the US, at least two producers have announced price hikes in coated groundwood from May 1.

The approximately 0.2% strengthening of the EUR against the weighted basket of non-EMU currencies had a negative impact on our benchmark. However, the PIX LWC index moved up by 1.02 EUR, or by 0.15%, to 700.33 EUR/ton.

Coated woodfree – The print media continues to lose share to the digital world. The growth in direct mail which earlier held its ground better than e.g. advertising in newspapers and magazines, has started to contract as well with negative impact especially in coated woodfree grade. Slipping demand and ready availability have encouraged buyers to de-stock further which probably exaggerates the shipment decline during the early months of the year. The 0.2% strengthening of the Euro against the weighted basket of non-EMU currencies pulled the benchmark lower. The PIX Coated woodfree index fell by 5.59 EUR, or by 0.79%, to 701.39 EUR/ton.

Uncoated woodfree – While waiting for the March statistics, it can be noted that in January- February, uncoated woodfree was the printing and writing paper grade where the demand declined the least when combining the US and European markets (up 1.5% in North America, down 3.5% in Europe) against early 2011. Also in terms of capacity utilization, this grade was in the front row. The exit of the large Alizay mill in March will reduce further the still prevailing over-capacity problem. The 0.2% strengthening of the Euro against the weighted basket of non-EMU currencies pressed the benchmark lower. The PIX A4 B-copy index lost 4.23 EUR, or 0.49%, and landed on 854.26 EUR/ton.

Containerboard Europe – The US box industry numbers will be published later today. In the US market, the good retail sale numbers in March and the improved economic outlook in general are expected to support the box shipments and containerboard demand in March/early Q2. Risen inventories press the mood down. In Europe, the demand picture has remained relatively bleak with Euro-zone sinking into a double-dip. The risen fiber and energy costs have, however, supported price increase efforts and the prices of all grades of linerboard and corrugated medium have been inching up over the past few weeks. Capacity reductions are taking place in Norway with Peterson closing, at least for now, capacity both in kraftliner and in testliner for a total of slightly over 400 000 tons which will send some buyers after new supply and help to improve the supply/demand ratio.

Last week, the currency fluctuations had a negative impact on our packaging benchmarks. Euro strengthened by 0.6% against the USD and by about the 0.2% against the weighted basket of the non-EMU currencies. Earlier cost pressures and the reduction of supply sources helped most of the prices higher, however, at least over the last week’s volumes. The rise in RP-costs has begun to taper off but the virgin fiber pulp prices have continued to move up, also for UKP. The PIX Kraftliner index headed higher by as much as 8.19 euro, or by 1.58%, and closed at 525.90 EUR/ton. The PIX White-top Kraftliner index value, on the other hand, retreated by 37 cents, or by 0.05%, and closed at 759.03 EUR/ton. Our PIX Testliner 2 index
headed higher by 6.35 euro, or by 1.42%, and settled at 452.03 EUR/ton. PIX Testliner 3 index value rose by 4.11 EUR, or by 0.95%, and landed at 435.99 EUR/ton. Finally, our PIX RB Fluting index moved up by 4.63 euro, or by 1.1%, to 423.75 EUR/ton.

Recovered paper Europe – The demand pull from Asian markets has been soft through the first half of April. Prices of RP in Chinese market have been either flat or continued slightly down. The weakness of prices has been seen most in mixed grades but also our OCC benchmark grade value has been inching down. Through export prices to Asia from Europe, the softening of the prices is beginning to be seen also in the prices quoted in the regional market. Relatively high stocks impact pricing as well. Generalizing over markets and grades, one can say that the pulp substitute prices have continued to move up with market pulp prices, the rise in ONP/OMG grades is still upwards, too, but in OCC + mixed grades, some declines have been seen.

The PIX OCC 1.04 dd benchmark retreated by 32 cents, or by 0.22%, and closed at 147.82 EUR/ton. The OCC’s price gaps to containerboards all widened. Against Testliner 2, the gap grew by 6.67 euro to 304.21 EUR/ton. Against Testliner 3, the difference increased by 4.43 euro to 288.17 EUR/ton. Against RB Fluting, the gap widened by 4.95 euro to 275.93 EUR/ton.
Our PIX ONP/OMG 1.11 dd index continued to move up, this time by 2.17 euro, or by 1.5%, and closed at 147.05 EUR/ton. The differential between newsprint and PIX ONP/OMG 1.11 shrank by 2.92 euro to 359.81 EUR/ton.

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