FOEX: NBSK markets firm, price in US dollars increases in US, Europe, China and in China in yuan and in Europe in euros, BHKP price falls in China, Europe in US dollars and in yuan and euros; in Europe, OCC, ONP/OMG prices down on soft demand

Diane Keaton

HELSINKI , March 18, 2014 (press release) – BSK pulp Europe – The softwood pulp market remains firm. While the share of North America in normal paper grades BSKP has been reduced over the past decade or two, a large part of it still comes from Canada and the US. The problems encountered both in harvesting wood in the record-wet US South and in delivery logistics of pulp – including the strike by truckers in Vancouver - as well as in production itself continue to impact the supply/demand balance. Price increases have been going through around the world and in fluff pulp, where North America (mainly the US South) accounts for about 85% of the global production capacity, the spot prices exceed in some markets the contract price levels. Euro weakened this time against the US dollar, but only by 0.1%. Our PIX NBSK index showed a modest gain of 69 cents, or of 0.07%, and closed at 921.17 USD/ton. When converting this dollar-value into euro, the benchmark edged higher by 98 euro cents, or by 0.15%, and the PIX NBSK index in Euro landed at 663.48 EUR/ton.

BHK pulp Europe – In hardwood, the market situation is distinctly different from BSKP, even though some of the NA supply-chain problems impacted hardwood as well and the over 150 USD/ton price differential between NBSKP and BEKP pushes the buyers to maximise the hardwood pulp share in the furnish. The main reason for the softness of the BHKP market is the anticipation of larger volumes. Little of the new supply has actually reached the consumers yet but the knowledge of the growing volumes from Maranhao, followed by Montes del Plata start-up in Uruguay and Oji mill in China at some point during Q2 (with pulp reaching customers in Q3) puts a lot of mental pressure on the market and this has been reflected in gradually softening prices around the world. Euro weakened by 0.1% against the dollar from the previous week. The PIX BHKP index value in Euro came down by 91 cents, or by 0.16%, and closed at 550.79 EUR/ton. The PIX BHKP index value in dollars retreated by 1.81 dollars, or by 0.24%, and settled at 764.72 USD/ton.

BHK pulp China – In China, major paper and board capacity increases continue to be seen. In tissue alone, about 20 new machines with a total capacity of well over one million tons are scheduled to start up between Q1 2014 and Q2 2015. Even bigger increases are scheduled to be seen in packaging grades but much of that is recovered paper based whilst a bulk of the tissue capacity will run on virgin fibre pulp as the use of recovered paper in tissue for human use is restricted in China for health reasons. All these additions would mean a major increase in BHKP demand, if they were to run full which is not likely to be the case as the supply growth outpaces the, as such, rapid growth in demand. The key downside is that the continuous over-supply in paper and paperboard depresses price levels and profitability, also outside the Chinese borders. While waiting for the support in pulp demand for this new capacity, hardwood pulp market remains soft and prices continued to head south also last week. Our PIX China BHKP index lost as much as 6.23 dollars, or 0.96%, and closed at 642.18 USD/ton. Yuan weakened against the USD by 0.4%. The conversion of the USD BHKP price into Yuan resulted in a decrease of 22.56 RMB, or of 0.57%, to 3949.33 RMB/ton.

NBSK pulp China – As in all other major markets, the softwood pulp market remains firm. And, the delivery problems from North America in January-February will impact the pulp arrivals in March and still April. With reduced availability of spot volumes, prices have continued to creep higher, both for spot sales and for the contract business. It is difficult to determine just how much of the apparent demand is true consumption and how much is explained by efforts to secure volumes or to replace the badly delayed shipment from some other source. The price gap between NBSKP and BEKP has grown from about 10 dollars/ton one year ago to 90 dollars at the turn of the year to over 115 USD/ton today. Our PIX China NBSK index value headed higher by 1.61dollars, or by 0.21%, and closed at 758.75 USD/ton. Yuan weakened against the USD by 0.4%. The conversion of the USD value into Yuan resulted in an increase of 28.29 RMB/ton, or of 0.61%, to 4666.23 RMB/ton.

US NBSK – Yet another snowstorm hit the US on Monday. For a mid-March storm, it brought unusually high amounts of new snow especially to and around Washington D.C. The delivery problems which have plagued the NA East coast especially, are still not over. In some cases quite considerable delays in shipments have been reported. While paper production has suffered as well, the supply-chain problems for pulp have tightened the market considerably. Consequently, the announced 20 dollar increase in March, typically from 1010 to 1030 dollars in NBSKP, has been gradually passing through, in spite of fairly stiff resistance from some buyers who see their narrow margins tightening even more. Fluff pulp market is equally tight, partly due to cold but especially due to heavy rains in US South. Our PIX US NBSK pulp price headed higher again, this time by 3.49 dollars, or by 0.34%, and closed at 1017.06 USD/ton.

Recovered Paper Europe – In Asia, announcements of new, large-size containerboard machines continue, most recently in Vietnam by Nine Dragons and in China by Hebei Changtai. While these and other earlier decided expansions will raise the demand for recovered paper from local and import sources considerably, the recent demand has been pretty soft and prices have been declining, not by all that much but still between 5-15 USD/ton, depending on the grade, over the past four weeks.

In Europe, the market has been quite stable. Our PIX OCC 1.04 dd index inched down by 4 cents, or by 0.04%, to 114.20 EUR/ton. The price differentials against linerboards and fluting changed as follows: against Testliner 2 the gap widened by 4 cents to 366.33 EUR/ton, to Testliner 3 it narrowed by 1.10 euro to 344.34 EUR/ton and against RB Fluting it shrunk by 19 cents to 337.88 EUR/ton.

Our PIX ONP/OMG 1.11 dd benchmark ended up losing 20 cents, or 0.16%, closing at 126.30 EUR/ton. The price differential against our PIX Newsprint index widened by 2.12 euro to 357.26 EUR/ton.

General Economy – US: The eyes of the world remain fixed on Ukraine. From an economic outlook point-of-view, major economic sanctions on Russia, could lead to a vicious circle of retaliating measures from both sides and could slow-down the global economic growth considerably. If that can be avoided, the outlook is promising. In the US, the Markit global business outlook survey, companies were quite upbeat. Also the February statistics are encouraging, taking into account the weather problems. Industrial production climbs up faster in February than in any month over the past half-a-year. The 0.8% improvement beat the expectations. One sector is lagging below the forecasts, and that is housing where the builder sentiment moved up less than forecast. Sales expectations were on their lowest level in 10 months. US economic growth estimates have been revised slightly upwards with the majority of analysts believing in a 2.7-2.9% real GDP growth this year and a 3.0-3.2% growth in 2015.

Europe – In the Euro-zone, the corporate sector optimism is at its highest level since early 2011 but still well below the sentiment level in the UK. The outlook on the British Isles is better than in any other developed country and at a 5-year peak for the UK. Investment activity continues to pick up and also the employment numbers are getting better. The biggest improvement of the sentiment – and of economic data – since the turn of the year, has, however, been seen in Spain, in spite of the still very high unemployment, Germany continues to do well and, finally, there are some small signs of optimism surfacing also in France. As the formerly very weak economies are moving higher in the recovery territory, the GDP-forecasts are being revised upwards. The Euro-zone economic growth is projected to advance by slightly over 1% this year and by about 1.5% in 2015. The corresponding numbers for the UK are nearly 3% this year and about 2.5% in 2015.

In Japan, the future business confidence readings are rather muted. This is partly due to the increase of the sales tax in just two weeks’ time. But, the lower-than-expected growth during the months preceding the tax hike has also impacted the sentiment negatively. The service sector prospects are particularly weak. In manufacturing, the outlook is more promising with weakness of the Yen and with the economic outlook in two major export markets, WE and the US, steadily improving. The two sub-segments of the Japanese economy with most optimism are the capital spending and employment. Prices and costs are beginning to move up almost too fast for comfort now. GDP real growth estimates have been revised slightly downwards. The Consensus pegs this year’s growth at 1.3-1.4% and 2015 expansion at the same or even slightly slower rate.

China’s business confidence over the short-term outlook has improved a little bit in February- March. Still, the recent economic data has been disappointing. In February, most key indicators performed less well than anticipated. Industrial production, with an 8.6% gain, y-o-y was weaker than the 9.5-10% early estimates. The retail sales advanced by nearly 12%, while most projections were at 13.5-14%. Fixed asset investments were disappointing, even if the growth rate of nearly 18% was well above anything seen in the western world. The most dramatic news came from the export sector. In February, China’s exports were expected to rise by about 7.5%. Instead, they sank by 18%! Annual growth forecast are slipping lower and are now below 7.5%, both for 2014 and for 2015, but still slightly above the government minimum target of 7%.

Paper industry – EU is planning a move which could support the paper bag industry. Parliament’s environment committee is backing a report by the European Commission to reduce the plastic bag use by 80% by 2018-19. This is to be achieved by curbing the sales of the thin plastic bags produced for single use purposes in all of the EU member states. So, instead of using an average of about 200 bags/year, an average EU citizen would use only about 40, and use them multiple times. Decisions on this are expected tomorrow, March 19th. If enacted in the proposed or similar manner, this decision is likely to continue the switch from plastics to paper and board packaging, some of which has already been seen for instance in the change from foam trays to paperboard trays in fast-food chains.

The news from the paper market is mixed. After the weak January data both in Europe and in North America, the latter obviously partly weather-stricken, the order books appear to remain weak in the wood-containing publication papers and in coated woodfrees. However, in uncoated woodfrees, in tissue and in packaging grades, the order volumes appear healthier in late February through mid- March than in the very beginning of the year. Slow price negotiations have reduced the paper inventories near consumers in some grades/countries in Europe.

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