FOEX Pulp & Paper Indices - July 26, 2011
July 26, 2011
– US NBSK – While the global shipment data over January-June was positive, up by 5.3% against 2010 for all grades and by 7.1% for BSKP, the shipments to the North American market were down by 4.5% for the first half. The month of June was better-than-expected, however, with a gain of nearly 6% against June 2010 and by as much as 12% against the weak May 2011. The global and local pressures on prices continue and several producers have announced price declines from August 1, typically by 30 USD/ton in NBSKP, also in the US market where the new announced price is 990 USD/ton. Our PIX NBSK US index fell by 62 cents/ton, or by 0.06%, and closed at 1023.17 USD/ton.
US Newsprint – There are really no major changes in the newsprint market. US newsprint shipment data over June is not out yet. Domestic demand has continued on its long-term downward trend. Exports have been good, partly compensating for the losses registered in the North American regional demand. Capacity reductions have had a hard time keeping up with the drop in consumption. Consequently, prices have been under downside pressure, in spite of the cost increases. The latest price increase attempt over July failed to get off the ground. After removing the top and bottom 10% of the received data, the PIX US Newsprint 30lb index remained unchanged at 623.69 USD/ton. Equally, the 27.7 lb. index remained also flat at 664.50 USD/ton.
General economy: US – Economic growth has continued to weaken. The risk of the debt default, even if still unlikely to be allowed to happen, does not help. Any compromise over the debt-ceiling issue has still not been found. If the problem is not solved within the next few days, the risk of a new recession becomes imminent. Interest rates would go up and the already high 9.2% unemployment rate would also move up. The odds still favour some sort of compromise. Oil price has come down and corporate profits over Q2 appear better than earlier predicted. The most likely outcome is that US economic growth, having slowed down from over 3% in Q4 2010 and then to 1.9% in Q1 2011 will show just 1.5-1.6% growth in Q2 2011 and nothing much better during 2nd half. Most analysts believe in a moderate pick-up in 2012.
Europe – The Euro-zone countries reached an agreement of further loan support to clear Greece over the imminent threat of insolvency. This does not solve Europe’s sovereign debt crisis but it does buy more time to find better permanent solutions. German economy continues to show strong growth. The slight weakening of the export growth has been compensated by some evidence of an increase in the domestic demand. While the German economy has not yet been truly impacted by the debt crisis, the loss of confidence is now spreading into German businesses. The IFO Institute's confidence index fell from 114.5 points in June to under 113 points in July. Both the manufacturing and the retail sector see the outlook weakening. In Germany, as well as in Europe as a whole, the 2nd half GDP growth will be lower than that seen during the first six months.
Japan – The trade balance of Japan turned into a surplus in June, the first time since the earthquake. Some recovery has begun to take place in the industrial production as well as in domestic demand, the latter being boosted by purchases of new TV’s before the upcoming analog-to-digital switchover. But the troubles of the Japanese economy are not over yet. The positive impact from the temporary support factors is beginning to phase out and the household consumption remains weak. The government is prepared to issue 10 trillion yen (almost 130 billion USD) in reconstruction bonds and cut spending by 3 trillion yen to finance more projects in the earthquake and tsunami destruction area. Even with this upcoming support, it will still take some more time before the reconstruction starts profiting companies, especially building firms.
China – The purchasing managers' survey at below 50 points showed that the manufacturing sector contracted for the first time in a year in July. The tightening of the monetary policy and the weakening of the consumer demand at China’s trading partners has started to drag down China’s still fast economic growth. However, according to the IMF’s annual report on China, the economy was doing "quite well". There is still room to tighten the monetary policy even further. If such tightening were to be seen, it is most probable that the recovery will lose more steam during Q3 and Q4. But, with persistently high consumer spending and the continuing heavy investments should keep China well away from a “hard landing”. In fact, the GDP-growth is still likely to remain at or only slightly below 9% during the 2nd half and into 2012.
Paper Industry – June was yet another month with weak results from the paper industry. In the US, statistics show the deliveries or production down against June 2010 in almost all the key grades of paper and board. In some grades, such as uncoated free sheet and bleached board, the loss was moderate, just 1-2%. In some others, such as uncoated mechanical, the decline was in or near the double-digit territory. Containerboard consumption showed a minor increase. In Europe, most of the June data becomes available later. The relatively weak going of the past few months is expected to have continued in June. Yesterday’s release of the CEPIPRINT statistics confirms this with the total mechanical paper demand down in Europe in June by 2.3%. Exports outside the region continued to grow against 2010 performance reducing the retreat in total shipments to just less than 1% and helping the cumulative total to a 1.5% gain. Quarterly financial results are in most cases beginning to improve among those companies buying virgin pulp but remain narrow with recovered paper based producers and weaken among the major market pulp producers. Paper production has been lost also in China. This has been partly due to market reasons with inventories high at some suppliers. Power failures have been another cause of reduced volumes and, naturally, also of reduced fibre needs.
NBSK pulp Europe – The total shipments of market pulp from the countries reporting their data to PPPC were better-than-expected in June with a 3% gain over June 2010 and a nearly 5% advance over May 2011. The high (94%) shipments to capacity ratio did not stop market pulp producer inventories from continuing to rise by one day without seasonal adjustment and by two days including the adjustment. The increase in BSKP stocks was two days without seasonal adjustment but converted to a 3-day hike with adjustment. Pressure on prices continues; especially since the news from the market suggests that the purchase activity from China is still low in July. Spot prices are heading down and several producers have published price declines for August shipments, mainly for the US and Chinese markets. The USD weakened by 1.7% against EUR from the previous week. Our PIX NBSK index retreated by 28 cents, or by 0.03%, and closed at 1016.83 USD/ton. With the stronger Euro, the NBSK EUR index fell by 12.44 EUR, or by 1.73%, to 706.57 EUR/ton.
BHK pulp Europe – In hardwood kraft pulp, June 2011 shipments – among countries part of the PPPC statistics – were up by 3.2% against June 2010 and nearly 14% against May 2011. The good volumes helped the cumulative gain to 2.7% over the first six months. With positive delivery activity, BHKP producer stocks remained unchanged at 42 days without seasonal adjustment and at 45 days with seasonal adjustment, also unchanged from May. Wide, nearly 160 USD/ton price differential supports hardwood pulp sales at the expense of softwood, wherever technically feasible. The 1.7% strengthening of the EUR against the USD pulled the benchmark lower in euro-terms. The PIX BHKP index-value in EUR fell by 10.81 euro, or by 1.8%, and closed at 590.27 EUR/ton. The PIX BHKP index value in USD lost 83 cents, or 0.1%, and closed at 849.46 USD/ton.
BHK pulp China – Even if the market reports from China suggest that purchasing activity has been and continues muted, the total shipments of market pulp to China were quite strong, according to the PPPC statistics. Deliveries were up by 14% from May and by as much as 32% against June 2010. This brought the total gain to 30% over the first 6 months. As shipments have been up also from e.g. Indonesia, the volumes are still quite good. July risks being weaker as the buyers are reducing their stocks and thereby pressuring prices lower. Spot prices have continued to slip lower. The PIX China BHKP index continued to retreat, falling this time by 1.11 USD, or by 0.15%, and closing at 717.32 USD/ton. Yuan strengthened again slightly last week, or by 0.25% against the USD. The conversion of the USD value into Yuan resulted in a drop of 18.76 RMB, or by 0.40%, to 4624.47 RMB/ton.
NBSK pulp China – Demand for NBSKP as an extender for dissolving pulp in textile use was just picking up. This year, this new use is rapidly declining, bringing more pulp back into the traditional end-uses. The price differential is wide for pulp from different sources. NBSKP quotes for some of the Russian pulps are over 100 USD/ton below the quotes from e.g. Canada. Price announcements for August are down, typically by 30 USD/ton. The PIX China NBSK continued to fall, this time by 8.73 USD/ton, or by 1.02%, and closed at 848.84 USD/ton. Yuan appreciated by 0.25% against the USD last week. The conversion of the USD value into Yuan resulted in a fall of 70.13 RMB, or by 1.27%, to 5472.37 RMB/ton.
Newsprint – The June data from CEPIPRINT came out positive for newsprint. The estimated demand in Europe was up by 3.1% against June 2010 and the cumulative gain was now 1.9%. Exports outside the region continued to be weak, however, with shipments to other markets down by 18.5% in June and by 16% cumulatively. The weak export data limited the growth in total shipments to 1.1% over June and to just 0.4% cumulatively over the first six months. As some contracts had a revisit on prices at mid-year, prices have shown a bit more volatility in this July, compared to the previous years. The EUR appreciated against the weighted basket of non-EMU currencies by about 0.3%. This meant a slight down-pulling effect on the benchmark. Still, the PIX Newsprint index gained 13 cents, or 0.03%, and closed at 501.61 EUR/ton.
LWC – Coated mechanical reel shipments (predominantly LWC) were weak in June. CEPIPRINT statistics showed an 8.5% decline in the estimated European demand against last year. This brought the cumulative decrease to 1.3%. Exports outside the region continued to grow, however, with a 13% gain in June and with a 21% cumulative advance. Total shipments were down by 4% in June but are, over the first 6 months, still up by 2.7%. There appears to have been relatively little movement between uncoated and coated mechanicals as the statistics for SC are quite similar to those for coated mechanicals. The currency effect of a roughly 0.3% strengthening of the EUR against the weighted basket of non-EMU currencies meant some downward pressure on the benchmark, but the PIX LWC index still moved up by 68 cents, or by 0.1%, settling at 689.10 EUR/ton.
Coated woodfree – The woodfree numbers from CEPIFINE are not out yet for June. Reports from the market do not indicate a performance much different from coated mechanicals. Over the first 5 months, coated woodfrees were relatively slightly weaker still than coated mechanicals. In the US, the shipments of coated free sheet were about 3.5% lower than in June 2010. Over-capacity in China persists, meaning tough competition on the markets relying on coated woodfree imports. Recent cost driven price increase attempts have met resistance but some minor gains have been seen. The currency effect from the 0.3% strengthening of the Euro against the weighted basket of non-EMU currencies tried to pull the benchmark lower. However, the PIX Coated woodfree index moved up by 67 cents, or by 0.1%, to 714.42 EUR/ton.
Uncoated woodfree – The uncoated woodfree demand recovered in 2010 by about 5% from the severe slump in the recession year of 2010. This year, the going has been tough and the losses seen over the first five months brought the estimated European consumption more or less back to the 2009 level. The June data are not out yet. In the US, the declines continued to be registered in June, but they were clearly smaller than expected. The 0.3% strengthening of the EUR against the weighted basket of non-EMU currencies meant a downward force on the benchmark. The PIX A4 B-copy index lost 5.21 EUR/ton, or 0.6%, and moved down to 870.58 EUR/ton.
Containerboard Europe – In the US, the box shipments were marginally down in June but the inventories came still down more than expected. Containerboard deliveries were marginally up and the operating rates of the containerboard mills were high at nearly 97%. Still, the containerboard inventories at the producing mills moved down as did the board inventories at the box plants. In Europe, the demand has remained relatively strong. Some supply decreases have been seen, due to maintenance work, but the rebuild of Varel’s BM4 brings back supply from July onwards. Price increases were announced from the beginning of July for several grades but, at least so far, the success has been limited. The cost pressures remain. Although the OCC price was marginally down this last week of July, it was up for July as a whole. The currency development added to the downward price pressure of the benchmarks as the Euro strengthened by 1.7% against the USD and by about 0.3% against the weighted basket of the non-EMU currencies. Most of our packaging indices retreated, at least partly due to this currency impact. Our PIX Kraftliner index fell by 17 cents, or by 0.03%, and closed at 579.27 EUR/ton. The PIX White-top Kraftliner index value lost 13 cents, or 0.02%, and settled at 786.34 EUR/ton. Our PIX Testliner 2 index value rose by 1.95 euro, or by 0.38%, and closed at 510.77 EUR/ton. PIX Testliner 3 index headed the other way and lost 3.78 EUR, or 0.77%, closing at 488.41 EUR/ton. Finally, the PIX RB Fluting index value retreated by 1.12 euro, or by 0.23%, and settled at 477.69 EUR/ton.
Recovered paper Europe – Both the demand as well as the supply of RCP is typically reduced during the summer months. The downtime period of late July/August is at hand and the demand for recovered paper is now at its low point. With inventories reportedly slightly above normal, this creates some downward price pressures, at least temporarily. The PIX OCC 1.04 dd index retreated by 46 cents, or by 0.3%, and closed at 154.24 EUR/ton. The price differentials to containerboard varied, depending on the grade. Against Testliner 2, the gap grew by 2.41 EUR to 356.53 EUR/ton; against Test liner 3 the differential narrowed by 3.32 EUR to 334.17 EUR/ton and in RB Fluting the gap was diminished by 66 cents to 323.45 EUR/ton. The PIX ONP/OMG 1.11 dd index moved lower by 16 cents, or by 0.09%, and closed at 172.87 EUR/ton. As the PIX Newsprint index rose slightly, the differential to PIX ONP/OMG 1.11 widened by 29 cents to 328.74 EUR/ton.