FOEX Pulp & Paper Indices - Oct. 4, 2011

Kendall Sinclair

HELSINKI , October 4, 2011 (press release) – US NBSK – With US paper and board production down by 3% in August against August 2010 and with pulp production running at high level, the supply/demand balance for pulp continued to deteriorate in late September. Spot volumes were increasingly offered, some of it in form of pulp in reels from the fluff pulp producers, most of which are in the US south. Several producers have come out with an official announcement of reducing prices in October, typically by 20 USD/ton to 950 USD. The data for our benchmark value today is from the last week of September but the October price decline announcement already appeared to have some minor impact. Our US NBSKP benchmark headed thus down again. Our PIX US NBSK index retreated by 1.16 USD per ton, or by 0.12%, and closed at 969.77 USD/ton.

US Newsprint – The drop in the newsprint production over the first 7 months was only 2% and thus more limited than in most other printing and writing paper grades. In August, production fell more, or by 4%. This was largely due to the drop in the US exports, after a predominantly positive performance in those exports until August. The “list” prices for newsprint have remained basically flat for more than a year now and our benchmark values have remained a bit below the official list price of 640 for the standard news grade. The PIX US Newsprint 30lb index improved by 93 cents or 0.15% and reached 623.99 USD/ton and the 27.7lb index added 98 cents, or 0.15%, and closed at 664.79 USD/ton.

General economy: US – The economic growth keeps on slowing down. The first monthly income reduction after mid-2009, even if by just 0.1%, was registered in August. Consumer spending slowed down to just 0.2% in August. The quarterly forecasts over private consumption show a decline in every quarter since Q4 2010. One positive piece of news was that the factory production improved in September. Also, somewhat surprisingly, the consumer confidence index climbed higher even if the inflation was still running high and unemployment numbers remained bad at over 9%. Total inflation rate ran at 2.9%, compared to August 2010. Core inflation was up less, or by 1.6%. The Fed claims they will act, should the economy weaken even further. After several downward revisions, the US economic growth is expected to be a shade over 1.5% this year and little more than 2% next year. Downside risks appear bigger than the upside ones.

Europe – The battle over the Euro-zone financial crisis continues. In the latest act, Greece was, once more saved from defaulting in the last minute when Germany ended up approving the plan to increase the size of the bailout fund. Europe also just barely avoided falling back into a recession as the Q2 2011 economic growth was positive, even if by just 0.2%. The risks of a double-dip remain. Household spending was negative with a 0.2% drop. Euro-zone’s unemployment recorded a full 10% in August. The only thing that did save Europe was the strength in exports outside the region. That strength seems to be fading fast though. Hopes that ECB would try to ward off the possible recession by cutting interest rates already in October received a blow with the Euro-zone inflation jumping to a full 3% in September.

Japan – The recovery process had a good start during the summer but the growth has stalled over the past few weeks and the first preliminary economic data over September is not encouraging. The seasonally adjusted Markit/JMMA Purchasing Managers’ Index™ (PMI™) retreated below the 50-point threshold level in September. New order intake was weak. Yen’s strength persists and Japanese firms have an increasingly tough time in trying to compete in the export markets. August was still a positive month also in terms of job creation and Japan's unemployment rate fell to 4.3%. But, private spending was weak again with a drop of over 4% from last year. With capital spending down by nearly 8% in Q2, the future outlook is relatively dim.

China – Business and consumer sentiments have weakened in China as well. September was already the third month in a row with the PMI-value lower than 50 points. China's factories ran a bit better in September and the level of export orders improved but they still remain below 50, for the fifth month in a row. The delayed impact of the earlier credit tightening measures will continue to slow down the industrial activity over the coming months, but only relatively slowly. The number one concern is still the high inflation. Input costs continue to rise and this typically means even more pressure on consumer inflation. In spite of the repeated efforts to bring the rate down, inflation has continued to gallop at levels near 6.5%. In spite of all these negative pieces of news, the analysts believe that China's annual economic growth in Q3 surpassed still 9%, after recording 9.5% in Q2.

Paper Industry – Printing and writing paper shipments are down against 2010 throughout the industrialized world over the first 8 months of the year. The decline averages about 4%/month for the year as a whole. August was not much different with a 3-4% retreat against August 2010. In the US, somewhat unexpectedly and also in contradiction with the publication paper shipment numbers, the number of advertising pages in magazines was actually up during the first half year by about 1.5%. Still, the printing and writing paper production was down by about 5% over the first 8 months. Packaging grades were still marginally positive for the year but the latest months have been weaker than those early in the year. Tissue paper production was slightly down for the year and flat in August. Combining all paper and board showed a 3% drop in August and 1.4% retreat for the first eight months, according to AF & PA. European numbers are similar with a little less than 2% drop in August shipments (regional + exports) and a 1.2% drop over the first eight months for all printing and writing. Both in Europe and in North America, increasing amounts of downtime are being taken and not only in printing and writing papers but also in packaging grades. This downtime reduces the demand for market pulp and is one of the reasons for the weakening of the pulp market further through September.

NBSK pulp Europe – Shipping volumes were good in August but not good enough to stop inventories from rising further. A lot of pulp was sent to China and deliveries to Japan were also on their way up. But, tonnage to other regions was either down or, at best flat. BSKP shipments were up by 7% over the first 8 months but the widening price differential to BHKP and risen stocks deteriorated the market in September. The weakening of the supply/demand balance in the hygiene products has apparently led to production of some paper pulp in rolls at fluff pulp lines with weakened capacity utilization rate. With stocks up in the supply chain and with USD strengthening, the price pressures continue to be on the downside. Some buyers have officially announced price reductions for October shipments and the downside pressure was already seen in the price data received over the last week’s sales, still within September. USD weakened by 0.5% against EUR from the previous week. Our PIX NBSK index fell by 15.40 dollars, or by 1.61%, and closed at 942.91 USD/ton. With slightly stronger Euro, the NBSK EUR index retreated by 15.26 euro, or by 2.14%, to 698.30 EUR/ton.

BHK pulp Europe – High producer and port stocks and weakness of the woodfree paper sector, together with the recent weakening of the Euro against USD have put continuing price pressure on BHKP. BHKP shipments to Europe were up, while softwood pulp sales retreated. The weakening of the Euro and of Brazilian Real against USD has added to the price pressures. Deals concluded in Euro have again increased. The 0.5% strengthening of the EUR against the USD pushed the benchmark value down in euro-terms. The PIX BHKP index-value in EUR fell by 23.74 euro, or by 4.04%, and closed at 563.68 EUR/ton. The PIX BHKP index value in USD lost 27.77 dollars, or 3.52%, and closed at 761.14 USD/ton.

BHK pulp China – Looking at the data from PPPC, deliveries of market pulp to China were strong in August, but the gains were small in BHKP. Chinese import statistics showed August intake up almost 200 000 tons from the very weak July and 9.6% higher than in 2010 over the first eight months. In September, demand cooled off anew, especially towards the end of the month. Holiday period in early October limited further the pulp intake. As producers and traders have growing needs to move volumes, downside price pressures strengthened again in China. The weakened paper prices in Asia and the strengthening of the USD against most producer country currencies, including Brazilian Real, adds to the buyers’ resolve to get the prices lower. The PIX China BHKP index fell by 14.79 USD/ton, or by 2.21%, and closed at 653.12 USD/ton. Yuan strengthened last week by 0.1%, against the USD. The conversion of the USD value into Yuan resulted in a drop of 97.51 RMB, or by 2.29%, to 4169.70 RMB/ton.

NBSK pulp China – The August BSKP delivery volumes to China and other Asia were strong according to PPPC, up almost 38% compared to August 2010. But, the intake of BSKP was not very strong according to Chinese import statistics which showed August as the 3rd weakest month of the year so far, even if the total intake over the first 8 months was still nearly up 42%. Tighter credit conditions, weakened operating rates at paper mills, offers of BSKP in reels and the over 160 USD price differential between NBSKP and BEKP, together with the risen producer stocks all add to the downside pressure on prices but the producers try to resist the pressure. Our PIX China NBSK index retreated by 91 cents, or by 0.11%, and closed at 816.73 USD/ton. Yuan strengthened by 0.1% against the USD last week. The conversion of the USD value into Yuan meant a decrease of 9.59 RMB, or 0.18%, to 5214.24 RMB/ton.

Newsprint – Newsprint demand weakened in August in Europe more than in the previous months. The weakening of the demand is apparent also in some overseas markets. Exports from Europe to the markets outside the region were down by 12% in August, against August 2010. The so far strong newsprint exports from North America to overseas markets fell even more, or by 14%. Still, North American producers have initiated price hikes in some of those export markets. The strengthening of the dollar, together with the trending down of the demand, make the task challenging. In Europe, downtime continues to be taken to match the production to the reduced regional consumption and export volumes. The EUR weakened against the weighted basket of non-EMU currencies by about 0.5%, which meant an upward effect on the index. The PIX Newsprint index moved up by 61 cents, or by 0.12%, and closed at 509.61 EUR/ton.

LWC – Over the first 8 months of the Year, European printing and writing shipments are up by 2.1% against 2010. In North America, the shipments have come down by 7.3% during the same eight month period. High energy costs remain a problem to the producers’ margins. The recent weakening of the Euro has meant that the price decline in pulp in USD-terms has not helped the European producers when converting the prices into euro. The LWC-price increase efforts during Q3 were at least partly successful. The downside is that the gap between CWF and LWC prices has narrowed again which could impact the demand pull over the remainder of the year. The approximately 0.5% weakening of the EUR against the weighted basket of non-EMU currencies helped to push the benchmark higher. The PIX LWC index headed up by 1.86 EUR, or by 0.27%, settling at 698.87 EUR/ton.

Coated woodfree – In coated woodfree shipments, August proved to be a better month than June or July, both in North America and in Europe. Still, the CWF shipments, year-to-date, were down in Europe by 4.3% and in North America by almost 6% against 2010. With operating rates globally in low/mid 80’s, export demand has been weak and downside pressure on prices has persisted, also in Europe. However, the recent weakening of the Euro supports the efforts of the paper producers to stop the earlier seen slippage lower. The 0.5% weakening of the Euro against the weighted basket of non-EMU currencies helped to move the benchmark higher. The PIX Coated woodfree index advanced briskly, i.e. by 4.79 EUR, or by 0.67%, to 715.20 EUR/ton.

Uncoated woodfree – Shipments of uncoated woodfrees slipped down by more or less the same amount in Europe and North America in January-August with a 3.5% decline in Europe and with a 3.1% retreat in North America. Contrary to coated woodfrees, August was the weakest of the three summer months on both continents and the news from the market over the September months are not encouraging, either. Capacity is on the way down in Europe which should gradually start helping the supply/demand balance in this grade. The 0.5% weakening of the Euro against the weighted basket of non-EMU currencies contributed some upward push on the benchmark. The PIX A4 B-copy index advanced by 1.69 EUR, or by 0.19%, and closed at 876.50 EUR/ton.

Containerboard Europe – With the weakening of the economic outlook, especially in the industrialized world and with tepid consumer spending cooling off the growth in world trade, the demand for boxes and containerboards has first levelled off and in the most recent months, it has fallen already below the 2010 level. In the US, industrial production and consumer spending was flat against 2010 in Q3. Linerboard production showed still a 0.2% increase cumulatively over the first 8 months but in August alone, production was down by 1.1% for linerboards and by 2.1% for corrugating medium, according to AF&PA. In Europe, the demand – internal and external - has also fallen below the production potential and downtime announcements have started to come out. For instance Hamburger took about 10 000 tons of production off in September. M-real has a regular maintenance stoppage at Kemi. Supply potential has risen, on the other hand, by the re-starts of BMs by Varel and by Smurfit Kappa/Piteå. In October, further downtime is widely expected. The impact on pricing remains to be seen. The price trend has been down over the recent weeks, in spite of the weakening of the Euro. Lower prices continued to be reported to us in all grades, even if the drop was smaller this time than last week. The currency development had a mixed impact on the benchmark prices. The Euro strengthened, possibly only very temporarily, by 0.5% against the USD but weakened by about the same 0.5% against the weighted basket of the non-EMU currencies. All our benchmark prices in packaging grades headed down again, even if only rather modestly. Our PIX Kraftliner index fell by 21 cents, or by 0.04%, and closed at 567.96 EUR/ton. The PIX White-top Kraftliner index value retreated by 84 cents, or by 0.11%, and settled at 784.79 EUR/ton. Our PIX Testliner 2 index value headed south by 2.26 euro, or by 0.46%, and closed at 490.83 EUR/ton. PIX Testliner 3 index moved down by 59 cents, or by 0.13%, and closed at 465.01 EUR/ton. Finally, the PIX RB Fluting index value fell by 17 cents, or by 0.04%, to 451.00 EUR/ton.

Recovered paper Europe – The demand for recovered paper has been relatively good in China and other Asia over the recent weeks. The holiday period in China limits the intake in late September/early October, though. Prices of RP have moved up a bit in the Asian markets but the combination of re-activated recovery after the summer months and the weakness of the seasonal upswing have continued to erode prices within the European market. Data over last week’s RP business in Europe shows that our OCC 1.04 index lost 66 cents, or 0.45%, and settled at 145.84 EUR/ton. The price differentials to containerboards moved up in most grades. However, against Testliner 2 the gap shrank by 1.60 euro to 344.99 EUR/ton. Against Testliner 3, the differential widened by 7 cents to 319.17 EUR/ton and against RB Fluting by 49 cents it grew to 305.16 EUR/ton. Our PIX ONP/OMG 1.11 dd index lost 30 cents, or 0.18%, and closed at 170.12 EUR/ton. As the PIX Newsprint index rose slightly higher, the differential to PIX ONP/OMG 1.11 widened by 91 cents to 339.49 EUR/ton.

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.