March 18, 2014
– Containerboard Europe – In North America, Deutche Bank reports that there are still more containerboard projects under consideration, in addition to the already confirmed increases, most of them through grade conversions. Castleton project in the N.Y. state is based on Minimill technology; the others (by PKG and by another unnamed company) are planned conversions from newsprint to containerboard. The total of the planned increases in supply suggests that some of these tons are targeted for export markets. Of course, the improving economic outlook and the moves from plastic to paper packaging play a role in these decisions as well.
In Europe, several producers have separately announced price increases of about 50 euros for white and brown kraftliners typically from the first week of March in Europe. The currency movements had some downward impact on our indices as the Euro weakened by just 0.1% against the USD but strengthened by 0.7 % against the weighted basket of the non-EMU currencies. The PIX Kraftliner benchmark showed a decrease of 2.28 euro, or 0.4%, to 554.88 EUR/ton. The PIX White-top Kraftliner index lost, mainly due to the currency effect, 1.18 euro, or 0.16%, landing at 751.23 EUR/ton. The PIX Testliner 2 index value remained unchanged from the previous week at 480.53 EUR/ton. The PIX Testliner 3 index value declined by 1.14 euro, or by 0.25%, settling at 458.54 EUR/ton. The PIX RB Fluting index headed south by 23 cents, or by 0.05%, and closed at 452.08 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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