FOEX Pulp & Paper Indices - Jan. 8, 2013
January 8, 2013
– General Economy: US; The global economic growth appears to have grown quite rapidly in December, based on JPMorgan’s Manufacturing and Services PMI which showed, at 53.7 points, a nine-month high. Strong growth in the US economy, together with e.g. India and part of Latin America, were largely behind the positive index movement. Most of the improvement came from the service sector. With housing starts on a rise, construction is another positive element. US economy added 155 000 new jobs in December, close to the 2012 monthly average gain and close to the level where the unemployment rate is unlikely to change, up or down. The Fed says that they may be able to end the quantitative easing rather sooner than earlier expected. On the other hand, the Fed has promised to keep interest rates near zero until the unemployment rate falls to 6.5% which is quite far from the present 7.8%.
Europe – Amidst the continuing contraction of the Euro-zone economies, and the UK for that matter as well, in December, analysts and especially the politicians are looking for signs of a turn-around or other rays of hope. The slowing down of the slowdown is, in fact, something that can be considered as a positive sign. The various public budget cuts, tax increases and other pieces of the austerity programs are no longer added. Some of the worst problems have been taken care of. This means that the small-scale, targeted stimulation efforts can start providing some positive impact. The beginnings of this were seen in Germany’s service sector numbers in December. Increasingly positive news on the US and Chinese economies will give the European consumers and investors more confidence and promote spending and investing, instead of the recent continuous pulling back.
Japan, alongside with the Euro-zone, remains the principal drag on the global growth. And, while the rate of the contraction is getting slower in Europe, the downturn is actually accelerating in Japan, at least in the manufacturing sector. In December, contraction deepened in several sub-sections of the economy. The most worrisome was the sharpness of the fall of the new orders, as that suggests that there is no quick way out of the mess. Japanese leaders had earlier expressed their views that the downturn in Japan will be short-lived. The most recent data underlines the downside risks. The contraction of the manufacturing output also applies to both exports and domestic orders, especially in the capital goods and thus no likely avenue out appears to be available.
In China, just as in the US, prospects of the economic growth picking up soon are emerging. The recent rise in unemployment has halted and the present jobless rate is not a very serious one. Inflation was a key concern still a few months ago but the rate is now down at near 2.5%. Both the retail sales (in real terms) and the industrial production are growing faster again. The recent further loosening of the monetary policy, with a lower inflation rate, should help to lift the real economic growth first close to 8% in Q4 2012 and above 8% in 2013. If the stimulation efforts are again directed to infrastructure spending, re-rising of the property prices continues, domestic private consumption continues to flourish and better growth in the US starts supporting export industries, some of the most recent projections of 8.5-8.7% real GDP-growth in 2013 could actually materialize. The consensus still lies at around 8.0-8.2%.
Paper industry – Industry statistics are still not fully available over November, due to the holidays taking this time out more working days than normally. The lack of data may slow down further the as such difficult price discussions. And, in grades and regions where the data is available, November data was again weaker, after stronger showing in October. Almost regardless of the region, buyers’ and sellers’ views seem to be particularly strongly opposed. The few signs suggesting an improvement in the general economic conditions have not had time to build in much optimism among the printers, publishers and other buyers of paper. Apart from virgin kraftliner, tissue and some specialty paper grades, the end of the year 2012 appears to have been difficult to most of the paper producers. This applies to both volumes and prices. In China, uncoated woodfree prices fell in December and some other grades were under pressure with over-capacity persisting. Longer-than-normal New Year holiday shutdowns are expected, even though the economy at large appears to be doing a bit better. In Europe, holiday shut-downs taken in late December/early January were in many cases slightly longer than normally. November graphic paper numbers were back down, after a better-than-expected October. Order books have not weakened much facing the quiet period of the year but they did not go up much either during the peak period.
Also in North America, November was a bit disappointing after some positive comparisons seen in October. Demand in woodfree grades fell back proportionally more than in wood-containing grades but in uncoated mechanicals supply/demand balance weakened the most as SC-capacity grew due to re-starts. The results were seen as lower prices.
In general, it is too early to see where the year-turn price negotiations will end. The order books are not long but they are long enough to have the order back-logs impacting the index values now and over 1-3 weeks to come before the results of the price negotiations are seen from the first shipments in new prices, up, down or unchanged.
NBSK pulp Europe – Most producers have separately announced price increases from January 1, typically by 20 USD/ton. This means a list price of 840 for standard NBSKP. But, the earlier list price of 820 was not fully reached in November-December. Paper producers have met a lot of resistance to their efforts to raise prices and that resistance is reflected in paper makers’ negotiations with their fibre suppliers, virgin or RP. Apart from the difficulties in the paper markets, most of the pulp market fundamentals are favourable to pulp suppliers with stocks low in the supply chain and with recent pulp delivery volumes surpassing expectations. The strengthening of the US dollar against Euro since the turn of the year works, however, against the pulp producers’ aspirations. Euro weakened by 1.3% against the USD from the previous week. Our PIX NBSK index moved up by 3.39 dollars, or by 0.42%, and closed at 812.76 USD/ton. Converted into Euro, the index value moved up – with the strengthened USD – by 10.67 euro, or by 1.74%, and closed at 624.62 EUR/ton.
BHK pulp Europe – The increases announced in Q4 2012 to 780 USD/ton by the prime grade eucalyptus and birch pulp producers did not go quite fully through in November-December but did not fall much short of the producers’ target either. The same 20-dollar increase has been announced in BHKP as in softwood, meaning a new announced list price of 800. Low inventories at European customers and ports support the price increase efforts but the weak finances of the paper makers, coupled with an exchange rate increase already seen in Euro-terms, makes the price discussions difficult. The level of discounts is another key topic of the talks. Euro weakened by 1.3% against USD from the previous week. The PIX BHKP index in Euro moved up by 9.30 euro, or by 1.58%, and closed at 597.41 EUR/ton. The PIX BHKP index value in USD headed higher by 2.04 dollars, or by 0.26%, and settled at 777.35 USD/ton.
BHK pulp China – Buyers of pulp in China were working down their inventories at the end of the year 2012 and no such spurt was seen in the purchase volumes as in 2011 and in some of the earlier years. Growing tissue consumption and tissue paper production capacity supports market pulp demand but over-capacity in coated and uncoated woodfrees suppresses pulp demand for these grades. It also depresses paper prices. Uncoated wood free paper prices fell in December. Little price movement was seen in the other grades but the over-all level is historically low. This makes the pulp producers’ efforts to increase pulp prices challenging especially if the extra downtime is taken by the paper producers over the Lunar New Year holidays. The PIX China BHKP index retreated by 1.77 dollars, or by 0.27%, and closed at 643.92 USD/ton. Yuan strengthened by 0.04% against the USD. The conversion of the USD value into Yuan resulted in a decrease of 12.67 RMB, or of 0.31%, to 4012.03 RMB/ton.
NBSK pulp China – Several NBSKP producers have announced a list price increase from 670 to 700 dollars/ton. However, as our NBSKP benchmark value shows, that 670 was not uniformly accepted in December which may, or may not, have some carry-on impact. Buyers of pulp are trying to resist the proposed hikes. On the other hand, the narrow price differential between BSKP and BHKP needs for extra softwood share when starting up new paper capacity and the delay in the start-up of the new line at Bratsk may tempt them to try to stock up in January which could bring up the delivery volumes. Our PIX China NBSK index inched back up. The benchmark value advanced by 84 cents, or by 0.13%, with the index closing at 652.34 USD/ton. Yuan strengthened by 0.04% against the USD. The conversion of the USD value into Yuan resulted in an increase of 3.57 RMB, or of 0.09%, to 4064.49 RMB/ton.
Newsprint – This morning we read, for the first time, clearly the biggest Finnish newspaper, Helsingin Sanomat in a new tabloid format. The switch from broadsheet to tabloid format has already been experienced by the readers of scores of other newspapers across Europe in the past 2-3 years. This is one of the many ways the newspaper publishers are trying to combat the advances of the electronic media and to address the profitability problems. It makes them no readier to accept the price increase initiatives of the newsprint suppliers. Negotiations will take more time. At present, virtually all of newsprint continues to be delivered at “old” prices. The 0.5% weakening of the EUR against the weighted non-EMU basket helped to lift the benchmark value higher. The PIX Newsprint index gained 41 cents, or 0.08%, reaching 495.98 EUR/ton.
LWC – In the US, production of coated mechanicals in November went down from October and from November 2011. Due to capacity exits, the operating rate remains high, however. Also in Europe, the production capacity of coated magazine paper came down in Europe with UPM closing their PM at the Stracel mill on January 4th. The new potential owners (VPK Packaging and Klingele) are planning to convert the machine into production of RP-based packaging grades. The 0.5% weakening of the EUR against the weighted non-EMU basket tried to push the benchmark higher. The PIX LWC index retreated, however, by 14 cents, or by 0.02%, settling at 688.42 EUR/ton.
Coated woodfree – In the US, coated free sheet production was clearly down in November from the strong October volumes but remained above November 2011 tonnage. In Europe, November shipments were slightly below November 2011 but coated woodfrees was still the grade that did relatively best of the graphic paper grades. December business was “not too bad”, according to the market reflections. Producers are driving for price increases, supported by the pulp price increase initiatives and by the weakening of the Euro which adds to the cost pressures and supports exports outside the region. Printers are not ready to accept those suppliers’ initiatives and talks continue. The exchange rate movements meant an upward push on the benchmark. In spite of this, the PIX Coated woodfree index lost 1.26 EUR, or 0.18%, and closed at 695.26 EUR/ton.
Uncoated woodfree – November statistics were fairly weak in uncoated woodfrees in all of the key markets with production in the US falling by 2.1% from last year, with total European deliveries falling the same 2% and with prices of uncoated woodfrees in China falling by about those 2%. In Europe markets are reported to have remained weak in December in order to bring the inventories as lean as possible but early January order books appear more comfortable, considering the seasonal factors. The question of prices remains fully open and talks are expected to continue in some cases through January. The 0.5% weakening of the Euro against the non-EMU currency basket gave the benchmark an upward lift. The PIX A4 B-copy index came down, however, by 2.87 EUR, or 0.33%, settling at 860.02 EUR/ton.
Containerboard Europe – In the US, AF&PA reported containerboard production up by 1% from November 2011. Linerboard was marginally down but corrugated medium clearly up from last year. Containerboard production remains slightly above 2011 volumes also on cumulative basis, one of the very few grades with a positive comparison over the first 11 months. In Europe, the numbers for November have not been published yet. Over the first 10 months, case making materials showed a minimal 0.1% retreat from 2011, making it also in Europe one of the best performing grades, after sanitary and household grades. In Europe, December/early January market situation remains unchanged. Virgin kraftliner market is still relatively tight whilst in recovered paper based grades an over-supply situation persists after the supply moved up in early autumn without much or any improvement in either regional or export demand. The different fortunes show also in the pricing front where prices for brown virgin fibre kraftliner remained firm through December/early January but the prices of testliners and RP-based medium slipped lower in late December and early January, as seen from our price index values. Currency movements supported rises in the benchmark values as the Euro weakened last week by 1.3% against the USD and by about 0.5% against the weighted non-EMU currency basket. Our packaging indices showed mixed results with virgin fibre benchmarks up but with RP-based indices down. The PIX Kraftliner index inched up by 17 cents, or by 0.03%, to 584.18 EUR/ton. The PIX White-top Kraftliner index gained 61 cents, or 0.08%, and settled at 778.16 EUR/ton. The PIX Testliner 2 index fell by 5.67 euro, or by 1.33%, and closed at 420.42 EUR/ton. The PIX Testliner 3 index retreated by 4.07 euro, or by 1.01%, ending at 397.42 EUR/ton and the PIX RB Fluting index lost 3.33 euro, or 0.86%, and closed at 382.76 EUR/ton.
Recovered Paper Europe – Demand as well as supply for recovered paper has remained fairly soft in China and other East Asia. Some shipments were pushed in from the US, just in case the port strike had started (but the strike threat was postponed by one month) which led to some price slippage. That slippage was felt in a minor way also in the regional market in Europe in late December/early January. Relatively high inventories played a role, too, mainly in the OCC-grade. Apart from that minor slippage, the RP-markets in Europe remain pretty calm and non-dramatic. Our PIX OCC 1.04 dd index lost some more ground. The retreat was this time 46 cents, or 0.42%, and the index value settled at 108.22 EUR/ton. The changes to the related packaging indices meant narrowing price gaps. The differential of PIX OCC 1.04 dd to PIX Testliner 2 decreased by 5.21 euro to 312.20 EUR/ton, to Testliner 3 it shrank by 3.61 euro to 289.20 EUR/ton and to RB Fluting the gap decreased by 2.87 euro to 274.54 EUR/ton. Our old news and mags benchmark changed direction and inched this time back up. The PIX ONP/OMG 1.11 dd index advanced by 13 cents, or by 0.10%, and closed at 128.36 EUR/ton. The price gap to the PIX Newsprint benchmark widened by 28 cents to 367.62 EUR/ton.
US NBSK - The market pulp delivery numbers to North American destinations were quite good in November. Some of this may have been spot tonnage from the recently re-started Terrace Bay. Low producer and relatively low US consumer stocks encouraged most suppliers to come out with pulp price increase announcements, typically from 870 to 900 USD/ton for commodity NBSKP. The suggested further widening of the price gap between Europe and the US markets raises some concerns, or questions about the size of the relative discounts. The PIX US NBSK pulp benchmark moved up by 10.29 dollars, or by 1.18%, and closed at 880.29 USD/ton.
US Newsprint – Newsprint production was down by as much as nearly 12% in November, compared to November 2011. The weakness reflects the softness of the regional demand as well as the reductions of supply since late 2011. The cumulative loss over the first 11 months was much smaller, at -3.5%. The re-start of some of the closed capacity is putting pressures on the supply/demand balance and, through the weaker balance, on prices. The PIX US Newsprint 30 lb index remained unchanged at 620.08 USD/ton from last week, as did the 27.7 lb index at 660.15 USD/ton.