FOEX Pulp & Paper Indices - Nov. 1, 2011

Kendall Sinclair

HELSINKI , November 1, 2011 (press release) –
US NBSK – When comparing the paper shipments to the market pulp demand, the latter showed surprisingly positive numbers in September with deliveries to the North American market up by over 7% against September 2010. The positive results did not remove the global downward pressure on prices, however. Lower demand for fluff pulp has apparently increased the volumes of southern pine offered as paper pulp and with a wider-than-average price differential to NBSKP. Several key producers have announced price declines for November, in NBSKP typically by 30 USD/ton. These prices published today cover last week’s sales/invoicing, i.e. are still from October. Our PIX US NBSK index retreated by 47 cents per ton, or by 0.05%, and closed at precisely 950.00 USD/ton.

US Newsprint – Newsprint demand remains weak. NAA reported the consumption of US dailies down by 18% in September against September 2010. Over the first three quarters of the year, shipments were down by 15%. Similar size declines (ranging between 9-22%, depending on publisher and/or newspaper category) have been reported in the advertising revenues, both over the 3rd quarter and year-to-date. Newsprint exports have continued to outpace 2010 quite clearly which has helped to keep the declines in production more limited than the drop in regional shipments. The PIX US Newsprint 30lb index remained at 623.81 USD/ton, as did the 27.7lb index at 664.58 USD/ton.

General economy: US – High unemployment numbers prompted Obama administration to introduce yet another measure of stimulation by increasing support to those households in risk to lose their homes. Little else remains feasible. The combination of fiscal and monetary measures has more or less exhausted the resources of the US macro policy to support the limping recovery process. Better-than-expected company results boosted stock-markets to a rapid rise in October and alleviated the problems following the earlier losses of household wealth. GDP-growth improved during Q3 after a very slow Q2 and Q4 growth estimates have been revised upwards. A multitude of risks clouds the 2012 outlook, however. First and foremost, if budget deficit issues cannot be solved, tax cuts and unemployment benefits expire and private consumption falls at the same time when the export outlook, at least towards Europe, weakens further.

Europe – “Much too little and especially much too late” are the words that describe well the accord that was financially reached last Wednesday in the attempts to solve the Euro-crisis. The combination of political indecisiveness, interest rates above other industrialized world and the austerity measures to contain budget deficits and high indebtedness of many EU-member states means that in spite of the accord over the Greek debts, EU-downturn continues also after the distressed month of October. The fears of stagflation (negative growth and high inflation) have strengthened. Yet, with Euro-zone inflation at 3% in October, ECB will, most likely, hold the interest rates unchanged at its policy meeting later this week. Easing of the monetary policy is badly needed. Euro-zone’s unemployment rate rose to 10.2% in September. PMI Composite output index (by Markit) fell to just 47.2 points, the lowest level since mid-2009. Next year looks even worse than this. E.g. OECD reduced their 2012 GDP-growth forecast over the Euro-zone from 2% to just 0.3%.

Japan – has been badly penalized in 2011 with massive earthquake, tsunami and nuclear disaster. The cost of the rebuild is likely to exceed 250 billion USD, a heavy financial burden even for Japan. Appreciation of the Yen has been close to breaking the camel’s back as the badly needed export revenues are “stolen” because of Yen’s record strength. The record low of the USD against Yen on Monday morning triggered substantial sales of Yen by the government in an effort to weaken the currency. At least in the beginning, the intervention seemed to pay off as the Yen weakened by about 5% against the USD. Manufacturing provided another ray of hope as the October output showed strongest growth since July, even if exports and new orders were in decline.

China – New orders, both from domestic and exports, showed growth in October. With them, work backlogs increased and inventories came down. After 9% growth estimated over Q3, Q4 outlook remains quite positive, even if inflation still runs high, especially for the output prices. The risk of a hard landing appears very remote, so remote that the pressures on allowing the Chinese currency to appreciate have risen. World growth is very lop-sided with industrialized countries hardly growing at all and China and some other BRIC-countries enjoying 6-9% real GDP expansions. Exchange rate appreciation would convert the weakening export possibilities into a stronger domestic growth. Another bird, the flying inflation, could be killed with the same stone.

Paper Industry – September turned out to be yet another very weak month in the North American printing and writing paper consumption with declines ranging from 1% in uncoated free sheet to 20% in uncoated mechanical shipments against last year. The packaging sector did much better, however. Also in these paper and board grades, shipments were typically weaker than in 2010 but the differences were rather marginal. E.g. the corrugated box shipments were down less than 0.5%. In Europe, September was also another weak month, as the lack of seasonal pick-up had already suggested. Adding up the printing and writing paper data, released by CEPIPRINT and CEPIFINE, showed that the total shipments were down in September by 3.5% against September 2010. The cumulative numbers also showed a growing deficit against last year with the shipments during the first nine months down by now nearly 2%. Exports were down the same 3.5% than the total shipments but here the cumulative comparison is still positive with this year’ exports up by 1.7% against 2010. Regional shipments fare thus worse than the total shipments with estimated consumption in September down by 4% and the cumulative demand down by 3.5%. Fibre costs have come down, globally. That and over-capacity have increased the price pressures. Those pressures have been well resisted in some grades and regions, much less well in some others.

NBSK pulp Europe – All in all, pulp shipments have been more positive than what the paper consumption numbers would suggest. Although printing and writing paper production is clearly down in the industrialized countries, market pulp shipments were up by nearly 5% over the first 9 months, according to the PPPC. Including shipments from non-PPPC member countries would rather increase than decrease that growth rate. There are several reasons for the seemingly controversial results, including the growth of paper production in emerging economies with limited fibre resources, growth in packaging and tissue sectors and the growth in port and, in some cases, consumer stocks. September shipments represented 100% of the production capacity but markets continued to weaken pricewise as consumer stocks rose marginally and port stocks were high, especially in Europe. EUR strengthened by 2.6% against USD from the previous week. Our PIX NBSK index continued to fall, this time by 7.95 dollars, or by 0.86%, and closed at 914.08 USD/ton. The PIX NBSK index in EUR retreated by 22.69 euro, or by 3.4%, ending up at 645.54 EUR/ton.

BHK pulp Europe – The September statistics showed BHKP shipments from the PPPC member countries finally above BSKP delivery volumes, even if only very marginally. Shipments to Europe were good, especially to Eastern Europe and the deliveries to Europe grew more than the total shipments. Delivery-to-capacity ratio fell only slightly short of 110%. Producer stocks fell by six days, without seasonal adjustment. A risk of rising port and consumer stocks is high, however, as especially in Europe, true final consumption hardly grew as much as the BHKP shipments to Europe. EUR strengthened by 2.6% against USD from the previous week. The PIX BHKP index-value in EUR fell by 28.91 euro, or by 5.41%, and closed at 505.51 EUR/ton. The PIX BHKP index value in USD lost 21.59 dollars, or 2.93%, and closed at 715.80 USD/ton.

BHK pulp China – Pulp intake to the Chinese market was, according to custom statistics, up less than the PPPC numbers showed the shipments towards China. In fact, whilst PPPC delivery numbers for September were 21% up against August, custom statistics showed September intake down by 2.5%, partly because early October holidays. Prices continued to fall with buyers making use of low spot offers at well under 600 USD/ton whilst resisting the price levels offered by the producers with longer-term contracts with Chinese buyers. The PIX China BHKP index continued to plunge, this time by 28.87 USD, or by 4.53%, and closed at 608.19 USD/ton. Yuan strengthened by 0.4% against USD compared to a week ago. The conversion of the USD value into Yuan resulted in a drop of 200.44 RMB, or by 4.93%, to 3868.11 RMB/ton.

NBSK pulp China – Also in BSKP, the number of spot offers has increased and the prices quoted have continued to fall. Ilim Pulp appears to have published an 80-dollar price drop for their BSKP. Spot offers for Western NBSKP are, at least in some cases, well below 700 usd/ton. In spite of the wide price gap between softwood and hardwood, the imports of BSKP pulp were, according to custom statistics, marginally below the 2011 annual average in September but over the first 9 months, BSKP intake was up by more than 50%, as opposed to only a 10% gain in hardwood pulp. Our PIX China NBSK index retreated by 33.34 USD, or by 4.19%, and closed at 762.71USD/ton. Yuan strengthened by 0.4% against the USD. The conversion of the USD value into Yuan meant a decrease of 233.06 RMB, or 4.58%, to 4850.86 RMB/ton.

Newsprint – Statistics from CEPIPRINT showed the total deliveries down by 7.5% over the month of September and by -2.7% in the year-to-date comparison. Estimated European demand was 5.2% below the September 2010 level, bringing the nine month cumulative change to -1.1%. Deliveries to Europe declined by 6.0% in September but the cumulative 9-month volume was only marginally below 2010 volumes. Newsprint overcapacity problem will be alleviated at the turn of the year with UPM shutting down the Ettringen newsprint mill in Germany, earlier owned by Myllykoski. The EUR strengthened against the weighted basket of non-EMU currencies by about 0.7%, which pulled the benchmark lower. The PIX Newsprint index lost 32 cents, or 0.06%, and closed at 509.79 EUR/ton.

LWC – Exports of coated mechanical papers continue to do well. CEPIPRINT statistics showed the exports of coated mechanical reels (mainly LWC) up 12.6% in September and over 16% cumulatively. Regional shipments were, however, down by 4.0% for the month and by 1.8% over the first nine months. The mid-year price increase attempts for these grades had limited success, as our index improved by about 10 EUR during the course of 3Q. The currency effect of a roughly 0.7% strengthening of the EUR against the weighted basket of non-EMU currencies tried to pull the benchmark lower. The PIX LWC index moved up by 92 cents, or by 0.13%, reaching 699.52 EUR/ton.

Coated woodfree – The latest CEPIFINE statistics showed declines in September in all CWF categories. Total shipments slipped by 7.4% for the month, regional shipments dropped by 2.6% and export volumes plummeted by 23.4%. The nine month change was -4.7% for the total deliveries, -4.6% for the estimated regional demand and -5.2% in the exports outside the region. Coated woodfree paper prices have not changed much over the year with index values remaining, with few exceptions, in a narrow range of 710 -720 EUR/ton. The 0.7% strengthening of the Euro against the weighted basket of non-EMU currencies had a negative effect on the benchmark. The PIX Coated woodfree index retreated by 3.37 EUR, or by 0.47%, to 710.26 EUR/ton.

Uncoated woodfree – September shipment volumes from CEPIFINE members showed finally a positive change as the total shipments in September were up by 0.9%, compared to September 2011. This was due to the export volumes growing by 21 000 tons (nearly 22%), which more than compensated the 15 000 ton, or 2.8%, decline in the regional shipments. This was less than the declines in the previous months and the nine- month comparison improved slightly to -4.4 %. Imports to Europe were down and the estimated European demand fell more than the CEPIFINE member shipments, i.e. by 4.8% for September and by over 6% cumulatively. The roughly 0.7% strengthening of the Euro against the weighted basket of non-EMU currencies pulled the benchmark lower. The PIX A4 B-copy index fell by 2.01 EUR, or by 0.23%, closing at 875.84 EUR/ton.

Containerboard Europe – The slowdown of the world economy impacts the volumes and prices of packaging materials, even if less than in printing and writing papers. Earlier strong demand in Latin America and in Middle East and much of other Asia has been cooling off since summer. This impacts the exports from North America and Europe. The month of September was not bad in the US market with box shipments down by just 0.4%. Inventories did go up, however. In Europe, demand has been dwindling especially in the Mediterranean countries. The falling of both virgin fibre and recovered paper prices adds to the downside pressures on prices. Declines reported for October were about 10-15 euro for unbleached kraftliner and 20-30 euro for testliners and recycled based fluting. Data received over the last week of October brought also the white-top kraftliner price southwards. The currency movements meant a downward pull on our benchmarks as the Euro strengthened against both the USD (by 2.6%) and the weighted basket of the non-EMU currencies (by about 0.7%). Our PIX Kraftliner index lost 3.95 euro, or 0.7%, and closed at 559.76 EUR/ton. The PIX White-top Kraftliner index retreated by 3.32 euro, or by 0.42%, to 783.79 EUR/ton. Our PIX Testliner 2 index fell by 3.84 euro, or by 0.8%, to 474.75 EUR/ton. PIX Testliner 3 index lost 2.71 euro, or 0.61%, settling at 440.95 EUR/ton. Finally, our PIX RB Fluting index fell by 3.11 euro, or by 0.71%, to 432.86 EUR/ton.

Recovered paper Europe – Gradual weakening of the demand growth rate for the various RCP grades in China and in other export markets has led to price declines which amounted to typically about 10-20 euro, depending on the market, for October shipments. The export price slide and the risen inventories in Europe have impacted the price levels also in Europe. The quotes received over the last week of October sent our OCC 1.04 index further down, even if by only 43 cents, or by 0.32%, to 135.30 EUR/ton. The price differentials to containerboards all narrowed this time: against Testliner 2 the gap was reduced by 3.41 euro to 339.45 EUR/ton, against Testliner 3 the differential shrank by 2.28 euro to 305.65 EUR/ton, and against RB Fluting the gap narrowed by 2.68 euro to 297.56 EUR/ton. Our PIX ONP/OMG 1.11 dd index declined by 79 cents, or by 0.49%, to 159.74 EUR/ton. As the PIX Newsprint benchmark retreated more marginally, the differential to PIX ONP/OMG 1.11 widened by 47 cents to 350.05 EUR/ton.

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