FOEX Pulp & Paper Indices - Nov. 8, 2011

Kendall Sinclair

HELSINKI , November 8, 2011 (press release) – US NBSK – The North American pulp market has continued soft and prices have remained under pressure. Spot prices have continued to slide in November. The weakness of the US paper demand shows there also in market pulp shipments, which were down by nearly 3% over the first nine months to North America even if up by as much as 7% for the month of September, against September 2010. NBSK pulp producers have announced a 30 USD/ton price declines for November. Our PIX US NBSK index followed precisely the announced price cut and dropped by 30.00 USD/ton, or by 3.16%, to 920.00 USD/ton.

US Newsprint – The consumption by the US dailies declined again in September. The situation is slightly better but still weak with the other end-uses of newsprint. Good export performance with a cumulative growth of over 9% against 2010 has helped but with the weak domestic shipments, the total volumes are still down by nearly 9% against 2010 in the US and more in Canada. The strength of the Canadian dollar and other cost-related drivers have helped to keep newsprint prices relatively stable for a full year now. The PIX US Newsprint 30lb index lost a minor 1 cent, or 0.00%, and settled at 623.80 USD/ton, while the 27.7lb index was not affected and remained unchanged at 664.58 USD/ton.

General economy: US – US economic outlook is turning hesitantly more optimistic, at least over Q4 2011. Q3 GDP-growth rate was revised upwards to 2.5% (annualized). Corporate profits have improved. This will support also the 2012 growth. Inventory levels came down during Q3 leaving room for expansion in coming months. The Fed has promised to keep the key interest rate at 0.0-0.25% until early 2013. Year 2012 remains still shaky for the US, however, both politically and economically. Growth rates of 3.5-4.0%, i.e. big enough to start reducing unemployment in a meaningful way, remain a distant dream. Inflation has been running fast through early 2011 but appears to be finally cooling off. Still, this year’s CPI estimate remains at just over 3%. Next year, it is forecast to fall to 2.0%.

Europe – Politicians finally reached a compromise mid last week as to how to build up the rescue fund. Euro-zone’s economic growth actually contracted by about 0.5% in October and the outlook for 2012 has been getting dimmer. If the 1st quarter of 2012 is also negative, that means that Europe would have slid into a double-dip. Fortunately, the ECB lowered the key interest rate last week by 25 basis points to 1.25%, starting to correct the earlier mistake of raising them. The latest Consensus Economics data shows now a 1.6% real economic growth rate forecast for this year. Over 2012, the GDP forecasts have now been revised down to 0.6% for the average, with the recent OECD forecast at just 0.3%.

Japan –Recovery process, which had stalled in Q3, appears to have picked up pace in October. While news from the rest of the world was predominantly negative, the forecasts over Japan painted a more positive picture. Downside risks remain in the export sector but the active measures taken to stop the strengthening of the Yen have given some positive results. The key driver is clearly the pick-up of the reconstruction work. The business activity index of the service sector marked the first positive reading since the recession and manufacturing readings were also positive. Still, the 2012 GDP-forecast has been revised downwards to 2.2% with the worsening outlook of Japan’s key export partners.

China – The economic outlook is a blend of very mixed signals. The key problems are linked to the fiscal tightening and to the high debt positions of the local governments. However, most of the news remains quite positive. After declining through most of 2011, China’s composite output PMI (by HSBC) turned into a sharp rise in October, even if remaining still slightly below the long-term average. The service sector growth was supported by the increases registered in the numbers of new orders. China’s GDP-growth estimate for this year now stands at 9.0-9.1%. After a “soft landing”, next year’s growth is projected at 8.5%.

Paper Industry – The industry statistics received over the month of September confirm, once again, the continued slowing down of the demand momentum. There are sectors with actual volume losses, too, most notably in the printing and writing paper sector in the industrialized world. Printing and writing papers were weak already during the first half but packaging compensated. During Q3, the growth in packaging paper and board demand has also tapered off, as one would expect with the rapid weakening of the general economic growth. In September, the printing and writing paper numbers from Europe and the US were again quite weak; packaging showed a minor 0.8% retreat and tissue sector was more or less flat. In the US, the production of printing and writing papers (excluding newsprint) fell by 5.7% over the first nine months against 2010 and by 8.1%, in September, according to AF&PA. The slowdown in the economic activity is likely to continue to cool off the demand for both containerboards and boxboards in Europe as well as in the US. The annual total paper and board production in the industrialized world risks falling slightly below the volumes produced in 2010. The inventories at the producing mills and elsewhere in the supply chain have risen and do not promote the production activity.

NBSK pulp Europe – The weakening of the economic activity and with it paper demand in North America and Western Europe have started to deteriorate also the pulp market. The deterioration shows more in prices than in volumes. The main driver for the weakening, in pricing terms, has not been the lack of demand as such but rather the large increase in actual production volumes. BSKP market shipments, including fluff pulp and including also the so-called exports from the countries reporting their data to PPPC, were up in September by 4%, against September 2010. EUR weakened by 2.7% against USD from the previous week. Our PIX NBSK index continued to fall, this time by 20.59 dollars, or by 2.25%, and closed at 893.49 USD/ton. The PIX NBSK index in EUR appreciated by 3.19 euro, or by 0.5%, ending up at 648.73 EUR/ton.

BHK pulp Europe – The market continues to be less strong than in BSKP. This applies mainly to the cumulative performance. In September, BHKP market shipments reported to PPPC (which represents only about 70% of the total market capacity in this grade) were strong and up by nearly 9% against September 2010 and 19% above the BHKP shipments in August 2011. Over the first nine months, the gain was 3.2% but, as already said, would have been clearly bigger, had the data from the non-PPPC countries been available and included. EUR weakened by 2.7% against USD from the previous week. The PIX BHKP index-value in EUR rose by 90 cents, or by 0.2%, and closed at 506.41 EUR/ton. The PIX BHKP index value in USD lost 18.32 dollars, or 2.56%, and closed at 697.48 USD/ton.

BHK pulp China – The first signs of the price deterioration were seen in China already back in April/May, or nearly half a year ago. In the Western world, prices started truly weakening only in the beginning of Q3. Our BHKP (euca and birch) benchmark price for China has been weakening since mid May. Total drop since the peak was at the end of October well over 100 USD/ton. The PIX China BHKP index continued to retreat, this time by 8.76 USD, or by 1.44%, and closed at 599.43 USD/ton. Yuan strengthened by 0.3% against USD compared to a week ago. The conversion of the USD value into Yuan resulted in a drop of 67.71 RMB, or by 1.75%, to 3800.39 RMB/ton.

NBSK pulp China – The market sentiment has again deteriorated. In addition to the overcapacity in printing & writing papers, one of the key problems in the Chinese market recently has been the lack of credit. Sales activity has been slowing down when L/C’s have been difficult and at least slow to obtain. Our PIX China NBSK index retreated by 26.87 USD, or by 3.5%, and closed at 735.84 USD/ton. Yuan strengthened by 0.3% against the USD. The conversion of the USD value into Yuan meant a decrease of 185.62 RMB, or 3.8%, to 4665.24 RMB/ton.

Newsprint – The newsprint sector grew again weaker in September with now both the regional demand and exports outside the region down substantially, exports dropping by 15.5% for the month. The EUR weakened against the weighted basket of non-EMU currencies by about 1.2%, which had a positive impact on the benchmark. The PIX Newsprint index recovered 85 cents, or 0.17%, and closed at 510.64 EUR/ton.

LWC – Order books at LWC paper mills seem to have improved in Europe during October. Like in newsprint, producers of coated mechanical printing paper grades are on a quest for improved prices as of the new year. The currency effect of a roughly 1.2% weakening of the EUR against the weighted basket of non-EMU currencies gave a push-up effect to the index. The PIX LWC index appreciated modestly by 49 cents, or by 0.07%, reaching 700.01 EUR/ton.

Coated woodfree – The Cepifine statistics recorded decline in European demand for coated woodfree paper grades in September, and we read about a continued similar sentiment, although not yet backed up by statistics in October. Pricing intiatives this autumn have had a mixed outcome, mostly mediocre. The roughly 1.2% weakening of the EUR against the weighted basket of non-EMU currencies contributed to an uptick of the index this week. The PIX Coated woodfree benchmark improved by 4.18 EUR, or by 0.6%, to 714.44 EUR/ton.

Uncoated woodfree – Order intake of woodfree uncoated grades appears to be unsatisfactory from the paper mills´ point of view. The first nine months’ Cepifine estimated demand for these grades is down by 6% in Europe, and the direction in October is said to be similar in this sense. The weakening of the EUR against non-EMU currencies had a positive impact on the index.The PIX A4 B-copy index gained a shy 74 cents, or 0.1%, and settled at 876.58 EUR/ton.

Containerboard Europe – Weakness of the world economy has its effects also on packaging materials demand. US containerboard production was down a bit in September but year-to-date output was still up from last year and operating rates have remained high. In Europe, containerboard demand has been slowing down and over capacity and declining raw material (OCC) costs have been pulling prices down. The currency movements meant a small upward push on our packaging indices, though, as the Euro weakened against both the USD (by 2.7%) and the weighted basket of the non-EMU currencies (by about 1.2%). Our PIX Kraftliner index notched down by 32 cents, or 0.06%, to 559.44 EUR/ton. The PIX White-top Kraftliner index fell by 46 cents, or by 0.06%, closing at 783.33 EUR/ton. Our PIX Testliner 2 index declined by 2.00 euro, or by 0.4%, settling at 472.75 EUR/ton. PIX Testliner 3 index went down by 81 cents, or by 0.2%, landing at 440.14 EUR/ton. Last but not least, the PIX RB Fluting index declined by 63 cents, or by 0.15%, to 432.23 EUR/ton.

Recovered paper Europe – Demand has continued to soften in China and export prices have declined. Prices are down also in the continent. Based on quotes received from the first week of November both our indices continued their way down: the PIX OCC 1.04 dd benchmark lost 5.25 euro, or 3.9%, landing at 130.05 EUR/ton. As the related containerboards declined less the price differentials widened: against Testliner 2 by 3.25 euro to 342.70 EUR/ton, against Testliner 3 by 4.44 euro to 310.09 EUR/ton, and against RB Fluting by 4.62 euro to 302.18 EUR/ton. Our PIX ONP/OMG 1.11 dd index went down by 4.33 euro, or by 2.7%, closing at 155.41 EUR/ton. As the PIX Newsprint benchmark gained this time the differential to PIX ONP/OMG 1.11 widened by 5.18 euro to 355.23 EUR/ton.

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