FOEX Pulp & Paper Indices - Nov. 27, 2012
November 27, 2012
– General Economy: US – Apart from the negative impact of the storm Sandy and the pending threat from the “fiscal cliff”, the economic data from the US has been predominantly positive. The growth in the housing market has been impressive in percentage terms, although the present level remains far below normal. But, the direction is strongly upwards all the same. Despite the problems of the storm, the manufacturing growth appears to have strengthened in November. The preliminary PMI reading, by Markit, brought the index to 52.4 points, the highest reading since the summer. Export sector was still struggling, obviously, but the domestic orders, total output and employment showed expansion - and faster than earlier. Suppliers’ delivery times were lengthening and stocks of finished goods low, promising this growth a follow-up through the end of the year.
Europe – While the US recovery appears to be gaining ground, the hole in the Euro-zone ground is widening and deepening. Export performance and production went down the drain already earlier. In November, the service sector has followed suite at an alarming rate. The preliminary Euro-zone service sector PMI activity index slumped to 45.7, the lowest value seen since summer 2009, the worst part of the earlier recession. The manufacturing PMI showed stabilization and even inched back up but remained firmly in the contraction zone. Q3 GDP-decline appears to have been relatively limited but the October and preliminary November indicators warn of a clearly bigger drop in Q4.
Japanese economy is back in a recession. The contraction of 0.9% in Q3 is the equivalent to an annualized GDP retreat of 3.5%. It is highly unlikely that Q4 could show a positive number, even if the government were to stimulate the economy again. Two consequent quarters of decline will thus put Japan officially in recession at the end of the year. The weaknesses of the data and the ongoing dispute with China have finally dented the faith in Yen as well. In early 2012, Japan still had an account surplus and the Yen became increasingly over-valued. Now, it appears that the Yen is headed to another direction for some time. The currency has already weakened a fair amount in November. The main culprits are a) the unexpected trade deficit b) the major 6% drop in exports, c) the weakness of the general economy and d) the growing likelihood of another BoJ intervention in form of a quantitative easing (printing money in one form or another). Weakening economy means some relief on exports but reduces buying power for imported goods.
In China, the turn for the better is still hesitant but still clear. The preliminary China Manufacturing PMI by HSBC confirmed in numbers the more positive feelings of the market experienced over the past few weeks. The index read 50.4 points and thus climbed back into the expansion mode after 13 months of contraction. The manufacturing output improved even more, rising from 48.2 points in October to a preliminary 51.3 points in November. Domestic orders improved at a reduced rate but export orders started growing again and also delivery times started growing. Some of the growth experienced in November could be related to seasonal inventory build-up, often seen in China before the turn of the year. This probability and the over-all weakness of the global economy are clear causes for concern and a further easing of the economic policy is most likely needed – and activated - to prevent another turn for the worse.
Paper industry – Weak economic conditions continue to speed up the structural changes in the graphic paper sector and have slowed down, but not stopped the growth in some specialty papers and in the packaging and hygiene sectors. The different fortunes show in capacity closures, prices, profits and in many other ways. Price hikes have been attempted by the graphic paper producers in different markets and different grades this year with little, if any success. Looking at our price indices, graphic paper benchmarks are down, on average, by about 10 euros. In packaging the change is upwards for virgin linerboards but downwards for recovered paper based grades. The difference between RP-paper based packaging and graphic paper is that the recent price trend in containerboards has been up whilst graphic paper sector pricing has been flat or marginally down.
European statistics over October are not out yet but preliminary numbers appear much better than the catastrophically low September volumes. Also in the US, preliminary October shipment data is positive with woodfree grades above October 2011 but this may at least partly be due to more shipping days this year. As to 2013, the decline in the graphic paper demand is expected to continue in the industrialized world. If the key economic assumptions hold, i.e. Europe remains in recession through most of the year but in the US recovery picks up during 2nd half of the year, the declines in demand which have been similar in 2012 could be more modest in the US and as bad as in 2012 in Europe. A number of printing paper capacity closures, or conversions to other grades, were seen in 2012, Resolute’s decision to close down Fort Frances mill (pulp and groundwood specialty paper) being the latest one. More of the same will undoubtedly be seen in 2013, in order to balance the supply with the deteriorating demand. Time will tell how well the announced price increase initiatives succeed this time.
NBSK pulp Europe – October data from PPPC came out strong, especially from BSKP producers’ point-of-view. Total shipments for all grades were up by 12% against October 2011. For BSKP, the increase was 15%. Producer stocks were unchanged for all grades total without seasonal adjustment and down one day with the adjustment. BSKP stocks were down by two days without and by one day with the adjustment at only 25 and 26 days, respectively. Consumer inventories in Europe moved up but only slightly and were below end October 2011 levels. Euro strengthened by 1.3% against USD from the previous week. Our PIX NBSK index moved up by 99 cents, or by 0.12%, and closed at 800.01 USD/ton. Converted into Euro, the index retreated – with the Euro-strengthening – by 7.20 EUR, or by 1.15%, and closed at 619.73 EUR/ton.
BHK pulp Europe – Market BHKP shipments in October were clearly down from September but almost as clearly up compared to October 2011. In the PPPC statistics, the gain against October 2011 was 8.5%. Over the first 10 months, the cumulative increase was 1.7%. UTIPULP reported BHKP consumption up by 2% from October 2011. Inventories at producers were up by one day without seasonal adjustment but unchanged with the adjustment. Consumer stocks in Europe were up from September but below October 2011 level. Port stocks headed further down. Euro strengthened by 1.3% against USD from the previous week. The PIX BHKP index in Euro moved down by 6.40 euro, or by 1.06%, and closed at 596.47 EUR/ton. The PIX BHKP index value in USD moved up by 1.62 dollars, or by 0.21%, to 769.98 USD/ton.
BHK pulp China – The shipments of market pulp (all grades) to China in October were considerably down from September but still up by 9% against October 2011, according to PPPC. The cumulative gain now stands at 16%. For other Asian (and African) markets, October was a very good month with a small rise against September and an over 100 000 tons, or 28%, gain over October 2011. The still narrow price differential between BSKP and BHKP has moderated the growth in hardwood grade below that in softwood, contrary to the trend of the recent years. In addition to price differentials, the growth of domestic hardwood pulp production in China, both in BHKP and in hw BCTMP, has played a role here. The PIX China BHKP index moved up by 2.26 dollars, or by 0.35%, and closed at 647.29 USD/ton. Yuan strengthened by 0.1% against the USD. The conversion of the USD value into Yuan resulted in an increase of 9.70 RMB, or of 0.24%, to 4031.76 RMB/ton.
NBSK pulp China – Further delays reported in the start-up of the Ilim Pulp’s expansion at Bratsk continues to leave room for BSKP imports from other destinations, this year notably from Europe. Replacing imported BHKP with hw BCTMP has helped to boost the BSKP shipments to China, in addition to the narrow price gap between the softwood and hardwood grades. Supported also by the low producer inventory numbers and the re-weakening of the USD against Yuan (and Euro), BSKP prices in China headed back upwards. After two weeks
of minor retreats, our PIX China NBSK index value changed direction and moved up by 5.67 USD, or by 0.87%, and closed at 656.38 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan meant an increase of 30.90 RMB, or of 0.76%, to 4088.38 RMB/ton.
Newsprint – Some newsprint producers for the European market have announced their intentions to increase newsprint prices for 2013. Price increase targets of up to 5% or even slightly more have been quoted in the trade press. In numbers, +30 Euros on the Continent and 20-30 GBP in the UK have been reported as the most common announced hikes. With falling demand, it is not unexpected that the buyers have voiced their reticence over the price initiatives. The EUR strengthened further against the weighted basket of non-EMU currencies, now by 0.5%. This time the changes in the price data and the currency effect played out each other, and the PIX Newsprint index remained unchanged at 496.43 EUR/ton.
LWC – October data is not out yet, when writing these lines. After very weak September numbers for estimated European demand, it is obvious that the several closures have not removed the over-capacity problem. In LWC and other magazine papers, the business negotiations for next year have also been opened up with several but so far not all producers announcing their attempts to target for higher prices in Europe. The approximately 0.5% strengthening of the EUR against the basket of non-EMU currencies played a clear role in pulling the benchmark down. The PIX LWC index retreated by 1.43 EUR, or by 0.21%, and closed at 690.39 EUR/ton.
Coated woodfree – US October numbers came out positive with a 2% gain over October 2011. In Europe, at least two paper producers have issued press releases in November where they have announced a price increase attempt for coated woodfrees from the beginning of year 2013. The cost pressures are obvious with the price of pulp and also some other cost items heading higher in recent weeks but the weak demand outlook and remaining over-capacity problem render the efforts challenging. In fact, recent price moves have been rather down than upwards. The strengthening EUR against the non-EMU basket pushed the benchmark lower. The PIX Coated woodfree index lost 2.52 EUR, or 0.36%, and settled at 697.84 EUR/ton.
Uncoated woodfree – As in coated woodfrees, US shipment numbers showed a small gain over October 2011. In Europe numbers are not yet known. Some, but not all, producers have come out with a public price increase announcement. Order books are probably relatively a bit better than for coated grades and costs are heading higher. Still, getting price rises through will be an uphill battle with retreating demand and with the already weak financial status of the merchants and printers. Among paper producers themselves, there are big variations as to the profitability levels at recent prices. The currency movements of last week brought downward pressure on the benchmark, but there was no slippage downwards. In fact, our PIX A4 B-copy index inched up by 12 cents, or by 0.01%, to 864.83 EUR/ton.
Containerboard Europe – The virgin linerboard market remains in a good shape on both sides of the Atlantic Ocean. The October numbers from the US market were positive with shipments up, inventories down and capacity utilization rates high. In Europe, order books are pretty healthy and spot offers few. Currency movements brought some downside pressure but compared to the prices in the beginning of the year, unbleached kraftliner is, among our paper and paperboard benchmark grades, the one with the clearly biggest price gain, nearly 50 EUR/ton.
The recovered paper based grades have not been doing equally well. Order books are clearly weaker than in the virgin fibre linerboards. Some of the box plants have reported of 1-1.5 week stoppages around Christmas holidays. At least two permanent linerboard capacity closures have been announced (Hamburger at Frohnleiten and Mondi at Ceske Budejovice). Downside price pressures are counter-balanced by a continuing rise in the price of OCC.
Last week the Euro strengthened by 1.3% against the USD and by about 0.5% against the non- EMU currency basket. The exchange rate movements caused, therefore, downside pressures on our benchmarks. The PIX Kraftliner index retreated by 32 cents, or by 0.05%, to 582.38 EUR/ton. The PIX White-top Kraftliner index lost 92 cents, or 0.12%, and settled at 773.47 EUR/ton. In spite of the exchange rate-led pressures, the prices of testliners and fluting headed higher this time. The PIX Testliner 2 index moved up by 1.46 euro, or by 0.34%, and closed at 427.16 EUR/ton. The PIX Testliner 3 index gained 72 cents, or 0.18%, ending at 403.81 EUR/ton and the PIX RB Fluting index recovered by 75 cents, or by 0.19%, and closed at 389.24 EUR/ton.
Recovered Paper Europe – The European supply continues to be soft. Demand in China and other Asia has been fairly lively and prices of OCC and other recovered paper grades used in packaging applications have continued to head higher. In printing and writing paper based RP, the situation is not quite as strong and the pricing has been mixed, depending on the market. In OCC, the softness of the regional supply and the lively export demand have pushed prices higher also within the European market, even if the testliner and RP-fluting market has not been very strong as such.
Our PIX OCC 1.04 dd index value continued to rise. The gain was this time limited, only 37 cents, however, i.e. 0.33%, and the index value settled at 111.73 EUR/ton. The price gaps to the related packaging indices widened a bit. The difference of PIX OCC 1.04 dd to PIX Testliner 2 grew by 1.09 euro to 315.43 EUR/ton, to Testliner 3 it widened by 35 cents to 292.08 EUR/ton and to RB Fluting the differential increased by 38 cents to 277.51 EUR/ton. The ONP/OMG demand has continued weaker than the pull for OCC or mixed grades. Our PIX ONP/OMG 1.11 dd benchmark slipped slightly back this time. The index retreated by 20 cents, or by 0.15%, closing at 129.94 EUR/ton. The price gap to the PIX Newsprint benchmark widened by the same 20 cents to 366.49 EUR/ton.
US NBSK – Wishing Happy 10-year Anniversary to our US NBSKP index (first published November 19, 2002)! Shipments of pulp to the North American market were quite positive in October. For all grades, the deliveries, according to PPPC, were slightly lower than in September but still up by as much as 13% or over 70 000 tons compared to October 2011. After the positive comparison, cumulative shipments are still down, though, by 2.4% over the first 10 months of the year. The decision of Resolute to close down the Fort Frances pulp and paper mill in Ontario will remove about 200 000 tons of market NBSKP and reduce supply to the near-by US market from end-November, this year. Buyers have continued to resist the price increase initiatives made for November but the higher prices have gradually been implemented. The PIX US NBSK pulp benchmark moved up with the index value gaining 2.08 dollars, or 0.24%, per ton and closing at 866.29 USD/ton.
US Newsprint – Several of the idled North American newsprint machines are planned to be converted to other grades, mainly to containerboard. These changes semi-guarantee that they will not be re-started for newsprint production but that does not remove the present over- capacity problem, alleviated in the US market by a clearly bigger decline in imports (mainly from Canada) than in exports outside the country. The PIX US Newsprint indexes both stayed put at previous week’s levels. The 30 lb index remained at 620.49 USD/ton and the 27.7 lb index was flat at 661.09 USD/ton.