FOEX Pulp & Paper Indices - Sept. 20, 2011

HELSINKI , September 20, 2011 (press release) – US NBSK – The price differential between contract business and spot offers has widened again. This creates price pressures. The drop of paper demand over the summer was met by more or less equal reduction in market pulp shipments to the North American market and the consumers’ stocks of pulp remain relatively low. Pulp producers see some supply potential to be withdrawn in September-October through normal seasonal downtime. The slightly smaller-than-normal price differential between the CIF-based NBSKP prices in Europe and the prices in the US in delivered terms helps the producers to defend the present price levels. After several weeks of price declines, our US NBSKP benchmark value actually showed a very minor uptick. Our PIX US NBSK index gained 11 cents per ton, or 0.01%, and closed at 971.54 USD/ton.

US Newsprint – The closure of two newsprint machines (East Millinocket and Port Hawkesbury) has sent some paper buyers to look for new suppliers to fill the gap from these two closures. White Birch bankruptcy process adds to the uncertainties in newsprint procurement. While demand continues to head lower and lower, the hunt for replacement volumes has provided support to the sellers’ efforts to stop the price erosion. At least for the time being, those efforts have been rewarded, not with a price rise but with halting the decline. The PIX US Newsprint 30lb index remained unchanged at 623.06 USD/ton as did the 27.7lb index at 663.81 USD/ton.

Pellet Nordic - Our Nordic pellet index value over the month of August seemed to detect the approaching winter season and turned the corner with prices moving back up after the early summer declines. Our PIX Pellet Nordic index gained 24 cents/MWh, or 0.88%, and closed at 28.85 EUR/MWh. The seasonal lull in the pellet and woodchip markets is coming to an end. Producers of consumer pellets are beginning to prepare for the pick-up of pellet demand over the coming weeks and months. This means that they are withdrawing from the lower-priced industrial pellet business which some of them enter during summer months to improve the operating rates. The new nuclear-related incident in Southern France has increased the public opposition against nuclear energy sourcing. A major machinery producer, Siemens, has decided to withdraw from supplying nuclear sector. These types of news increase the pressure to build more bio-energy supply, in various forms, including pellets. Global wood prices have been on a rise. As this is partly due to the increasing competition for land, this will put some upward pressure also on pellet prices, especially in locations, such as Northern Brazil, where pellet production is planned based on fast-growing plantation wood.

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General economy: US – The government of the US and those of many other economies are desperately trying to find ways and means to stimulate and save at the same time. Meanwhile, the earlier econo-political mistakes and the still on-going games to score points in internal politics reduce further the confidence of the consumers and markets over the leaders’ capability to solve the different economic crises. The growth forecasts continue to be revised downwards. US has been unable to reduce unemployment, still remaining at 9.1%. Construction sector, a big employer, cannot help. The housing market continues to struggle and the homebuilders’ sentiment fell again in September. ISM survey suggests further weakening of consumer demand, after a tepid 0.4% rise in Q2. Consensus forecast on the US GDP growth is at just 1.5% for this year and at about 2% next year, both numbers about 0.5% lower than those proposed by the government.

Europe – Time is running out in the efforts of saving Greece from defaulting on its loans. The problem is that if Greece goes, that could trigger a chain reaction. European economic growth would be slowing down even without the crisis. Now, with many banks in increasing financial difficulties to borrow money, their customers are suffering, too, and the wheels are turning slower and slower. Incoming new business turned negative in August and the overall growth of August was the weakest in two years. The latest PMI numbers indicate that the Q3 growth may well be as low as Q2 at 0.2% and Q4 might be weaker still. In spite of the growing pressures to come up with something constructive and confidence-building, the finance ministers of the EU got no further in dealing with the Euro-zone debt crisis over their talks during past weekend. GDP-forecasts for the EU have been revised down to about 1.5% for this year and to 1.0%, if that, in 2012.

Japan –The hopes of the growth in Japan beginning to resume were dashed with the latest economic data. During Q2, the economy contracted more than earlier estimated. The strength of Yen threatens to reduce the strength of the still expected recovery. With these fears, capital spending decreased. In Q2, Japan’s GDP retreated at a 2.1% rate (annualized) in the three months ended June 30. Q3 looks better but still not good. E.g. the important machinery orders fell in July more than even right after the earthquake. Persistent weakening of the economic environment outside the country is a further threat. Mr Noda, the new PM, will soon introduce a third package to rebuild and stimulate the economy after some stimulus already offered by the Central Bank last month. GDP forecasts have been revised marginally upwards for this year but downwards to barely over 2% in 2012 in the latest estimates.

China – It seems to be very difficult to tame the inflation in China. A small easing was seen in August but the rate was still high at 6.2%. Weakening of the real growth looks likely but according to the government, China should refrain from turning from a policy tightening phase into stimulation by promoting credit availability and fiscal spending as such measures could re-fuel inflation and risk also starting to build up government debt. During the period of tightening, China’s Central Bank lifted interest rates five times and banks’ reserve requirements nine times. The risks of a hard landing could be reduced by allowing small enterprises to issue more shares to raise capital and make it easier for the bigger ones to participate more actively in the bond market. GDP growth forecasts remain at about 9% for this year and at 8.5% for 2012.

Paper Industry – In the US, printing and writing activity continues to weaken. Shipments in the largest grade, uncoated woodfrees, are already down by almost 5% against 2010 which was not a very strong year of comparison, even if the re-build of inventories boosted the early 2010 numbers. With operating rates at mid-80’s, prices are slipping. In publication papers, the outlook is just as bad, if not worse. Magazine subscriptions and especially the sales at newsstands are falling down, month-by-month and the sales of the digital services are not doing all that well either. The good news is seen in packaging. Box shipments fell but only very slightly. Containerboard operating rates climbed to 97.5% and at the same time, inventories at the mills came down. In Europe, CEPI’s production statistics over July showed a drop of 2.8% against July 2010 with graphic papers down 2.9% and packaging by 2.6% but tissue up by 1.3%. Over the first 7 months, total p & pb was up by 0.1%. August numbers risk being weak as well. At least market pulp consumption by paper industry was sluggish, down by 6% against the already relatively weak August 2010. In early September, order intake appeared to be slower than the seasonal norm.

NBSK pulp Europe – With sluggish paper demand and production, pulp buying has been in a low gear as well. As already mentioned above, market pulp consumption was 6% lower this August than in 2010. UTIPULP also reported another marginal rise in consumer inventories, up by 1% against July and by 0.6% against August 2010. Stocks were up at European ports as well. EUROPULP’s statistics showed a 102 000 ton, or over 8% increase against July and a major 57% jump against August 2010. Production losses have increased with more downtime taken and with fire and boiler problem losses at Sodra’s mills. Prices remain under pressure, nevertheless. This pressure shows in the price risk management activity, too. The new Pulp and Paper Swap Market Report from Tradition (see: http://tradition.com/home.aspx) notes that “lower forward prices are bringing consumers back in the swap market. The USD strengthened slightly, or by 0.4% against EUR from the previous week. Our PIX NBSK index fell by 7.52 dollars, or by 0.78%, and closed at 960.23 USD/ton. With weakening Euro, the NBSK EUR index retreated less, i.e. by 2.57 euro, or by 0.37%, to 697.84 EUR/ton.

BHK pulp Europe – UTIPULP’s data showed August consumption of market BHKP in Europe at 100 000 tons, or 16.5% below the monthly average year-to-date. Much of this is seasonal, but compared to August 2010 there was also a 20 000 tons, or 4%, drop. Inventories at consumers did not go up, however, in fact they retreated marginally from end July while slightly higher than at the end of August 2010. Consumer inventories appear to have been coming down also elsewhere in the world but the high level of port inventories, weakness of woodfree paper demand and the speculation over another rise of producer inventories in August maintain downside pressure on prices. The 0.4% weakening of the EUR against the USD limited the fall of the benchmark in euro-terms. The PIX BHKP index-value in EUR fell by 2.06 euro, or by 0.36%, and closed at 576.38 EUR/ton. The PIX BHKP index value in USD lost 6.13 dollars, or 0.77%, and closed at 793.10 USD/ton.

BHK pulp China – The buying spree in China is not very strong but satisfactory volumes continue to be traded and shipped. Some pulp buyers still appear to be working down their stocks but the large number of new machines, woodfrees, paperboard and tissue, need increasing volumes and need to have pulp in stock already prior to the start-up. Lower paper prices are expected to speed up the closures of some of the non-wood pulp based paper capacity which has been ordered to cease production by the end of the year, or to install pollution control mechanisms. The PIX China BHKP index showed this time a minor increase as they rose by 86 cents/ton, or by 0.13%, and closed at 679.98 USD/ton. Yuan strengthened last week by 0.1%, against the USD. The conversion of the USD value into Yuan resulted in a rise of 2.24 RMB, or by 0.05%, to 4340.60 RMB/ton, precisely the number seen two weeks ago.

NBSK pulp China – The fall of the softwood pulp prices ended about a month ago with prices stabilizing and in some cases moving back up. The coast is not necessarily clear, though. While consumer inventories in China appear to have continued their downward trend, the present stocks are not very low. Lowest spot prices disappeared and the offered spot volumes do not appear very substantial as September-October maintenance stoppages and Sodra’s misfortunes remove supply from the market. Still, producer inventories are above average, demand pull in some other markets has been very weak and the large price differential between softwood and hardwood pulps promotes switches from BSKP to BHKP in the price-conscious and technically flexible Chinese market. Our PIX China NBSK index lost part of the gains over the previous 3-4 weeks by falling this time by 1.99 USD, or by 0.24%, and closing at 824.39 USD/ton. Yuan strengthened by 0.1% against the USD last week. The conversion of the USD value into Yuan meant a decrease of 16.66 RMB, or 0.32%, to 5262.44 RMB/ton.

Newsprint – Newsprint has been a very weak grade in the US but in Europe the good export performance has helped to maintain the production volumes above the weak 2010 levels. Over January –July, CEPI reported newsprint production up by 4.3% cumulatively with a 3.6% gain in the month of July. The global over-capacity persists and impacts also the European pricing. Production problems at Volga mill in Russia reduce temporarily the import pressures from outside EuropeThe EUR strengthened against the weighted basket of non-EMU currencies by about 1%, which pulled the benchmark lower. The PIX Newsprint index lost 17 cents, or 0.03%, and closed at 508.90 EUR/ton.

LWC – With good export performance over the year, LWC remains the only major printing and writing paper grade where this year’s production volumes exceed those of 2010. Over the first seven months, CEPI’s production statistics show a cumulative gain of 2.6%. One driver has been the desire of the paper buyers to reduce their costs and the widened price differential between CWF and LWC, compared to 2010, has allowed that through grade substitution. The countervailing duties in the US have supported exports to the North American market. The small increase has slightly alleviated but not removed the clear over-capacity problem, worsened by the economic slowdown. The approximately 1% strengthening of the EUR against the weighted basket of non-EMU currencies meant a negative impact on the benchmark. Our PIX LWC index moved down by 2.75 EUR, or by 0.39%, and settled at 696.18 EUR/ton.

Coated woodfree – In January-July, the production volumes in coated woodfrees were down over 3% against 2010 and the latest months have been worse than the annual average. Operating rates fell to 82% in July, and August is unlikely to have been much better, judging by the thinness of the order books. Those order books have not seen all that much seasonal recovery in early September either. Even if fibre prices are down over the past months, margins remain narrow and with other costs up from last year, producers badly need price increases which the market conditions do not easily allow. The 1% strengthening of the Euro against the weighted basket of non-EMU currencies pressed the benchmark downwards. The PIX Coated woodfree index retreated by 2.37 EUR, or by 0.33%, to 709.49 EUR/ton.

Uncoated woodfree – Demand remains weak, inventories are rather up than down and order books are below the seasonal norm in early September. With another month of a very low capacity utilization rate in July, the cumulative production numbers over the first seven months were down over 4% from 2010, as reported by CEPI. That weakness appears to have continued through August and September. Permanent capacity reductions in Germany and Switzerland will offer a chance of some utilization rate improvement over the remaining months of 2011. The 1.0% strengthening of the Euro against the weighted basket of non-EMU currencies tried to pull the benchmark lower. Despite of this technical downside pressure, our PIX A4 B-copy index inched up by 45 cents, or by 0.05%, and closed at 875.33 EUR/ton.

Containerboard Europe – Packaging and tissue are also affected by the downturn in the world economic growth. At least so far, the negative drivers have not led to any major decline in these grades. Cartonboard demand has even been reasonably strong. In brown packaging, US mills had a pretty good August. Box shipments were up from August 2010, partly due to one more week-day and operating rates rose high to 97%, above the annual average, in fact. Still, inventories at producing mills moved down. In Europe, going has been weaker than in the US but not as weak as on the paper sector. Production volumes in July fell clearly below last year’s which brought the cumulative production to the same as in January-July 2010. Together with the slackening of the demand volumes, the weakening of both pulp and recovered paper prices over the past weeks renders some downward pressure also on liner and fluting prices. The currency development had a mixed impact on the benchmark prices, at least from the producers’ point-of-view. The Euro weakened by 0.4% against the USD but, more importantly, strengthened by 1.0% against the weighted basket of the non-EMU currencies. All our benchmark prices in packaging grades headed down. Our PIX Kraftliner index fell by 4.04 euro, or by 0.70%, and closed at 570.78 EUR/ton. The PIX White-top Kraftliner index value retreated by 1.51 euro, or by 0.19%, and settled at 786.57 EUR/ton. Our PIX Testliner 2 index value headed south by 61 cents, or by 0.12%, and closed at 501.11 EUR/ton. PIX Testliner 3 index moved down by 2.39 euro, or by 0.50%, and closed at 472.73 EUR/ton. Finally, the PIX RB Fluting index value fell again more than the other case making material, i.e. by 6.78 euro, or by 1.46%, to 456.94 EUR/ton.

Recovered paper Europe – The prices of recovered paper are beginning to feel the impact of the economic and paper and board production weaknesses. While still well above the long-term average in real and in nominal terms, the trend over the past few weeks has been down. The demand pull from China and other Asia is actually presently quite good and even some price rises have been registered. That demand pull has helped the local prices to stay firm in the main export source, the UK. But, the demand slackness of the regional market as a whole is obvious now with collection organizations back from their holidays. Data over last week’s RP business in Europe shows that our OCC 1.04 index lost 62 cents, or 0.41%, and settled at 149.19 EUR/ton. With a bigger drop in liner prices, the price differentials to containerboards in most cases narrowed: against Testliner 2 the gap in fact widened by 1 cent to 351.92 EUR/ton but against Testliner 3 the differential narrowed by 1.77 euro to 323.54 EUR/ton and against RB Fluting by 6.16 euro to 307.75 EUR/ton. Our PIX ONP/OMG 1.11 dd index lost 93 cents, or 0.54%, and closed at 171.13 EUR/ton. As the PIX Newsprint index lost less, the differential to PIX ONP/OMG 1.11 widened by 76 cents to 337.77 EUR/ton.

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