FOEX Pulp & Paper Indices - Nov. 22, 2011

HELSINKI , November 22, 2011 (press release) – Global chemical paper grade market pulp shipments in October/11 were 3.203 million tons, down by 16.8% from September/11 and down by 4.7% from October/10, at the delivery rate of 81% of the P.M.C. Inventories at the end of October/11 stood at 39 days, an increase by two days of supply from the end of September/11 and higher by five days than in October/10. Source PPPC (Nov 22)

Utipulp European pulp consumer October/11 figures; inventories 651 600 tons, a decrease by 67 100 tons or 9.3% from September/11, and down by 35 300 tons or 5.1% from October/10. In days the inventories were at 19 days of consumption, a decrease by two days from September/11 and down by one day from a year ago, too. Consumption in October/11 totalled 1 016 500 tons, an increase of 3 600 tons or 0.4% from September/11, but lower by 72 400 tons or by 6.7% than in October/10. Source: Utipulp (Nov 21)

Pulp inventories at European ports decreased in October/11 by 113 000 tons or 7.7% to 1 347 200 tons compared to September/11 inventories of 1 460 200 tons. Compared to October/10 the port inventories were higher in 2011 by 360 800 tons or by 36.6%. Source: Europulp (Nov 18)

US NBSK – The uncertainties over the paper demand outlook in the coming year spread uneasiness also among the pulp market participants. The continuing fall of prices in China and other export markets puts increasing price pressure also on the US market as spot volumes from North America are more easily directed to the regional market, instead of exports. The shipping logistics for export volumes also become more difficult (read costly) for some of the interior Canada producers during the winter months. The prices for normal contract volumes remain flat. Our PIX US NBSK index remained flat at 920.00 USD/ton.

US Newsprint – The continuing fall of the newsprint demand within North America, risen costs/ton due to the reduced overall production volumes & external demand for recovered paper and, more recently, the rapid fall of the export prices increases the number of victims of these trends. Yet another North American newsprint producer, this time SP Newsprint, has filed for Chapter 11 protection from creditors in bankruptcy court. The historically satisfactory looking price is not enough to make the ends meet. No easing of the situation is on sight. Recovered paper supply/demand outlook looks tight, longer-term, and all analysts project the newsprint consumption to continue to fall. However, the PIX US Newsprint 30lb index remained at 623.80 USD/ton, as did the 27.7lb index at 664.58 USD/ton.
Nov 22, 2011

General economy: US – The few positive news on the global and US economy get easily buried under the overall grimness of the Q4 2011 and year 2012 outlook. The US economy would probably benefit from the approaching presidential elections but the prevailing power split prevents the needed legislative measures, including the balancing of the budget. US economy is expected to show positive growth both during Q4 2011 and in 2012 but the 2.0-2.1% GDP growth forecast over 2012 is well below the pace needed to bring the unemployment rate down from the present 9.0%. Downside risks outweigh the upside ones. Consumer prices registered a small 0.1% decrease in October. Retail sales did OK with a 0.5% rise. Home construction begins to show some light at the end of a long tunnel with housing starts rising over 7% in September – to a still very feeble 630 000 units and sales of existing homes were also in a rise. In November, builder sentiment rose to the highest level seen since early 2010.

Europe – Q3 2011 shows still, according to preliminary data, minor growth. This could, however, be the last positive quarterly comparison for a while. The chances of a double-dip are very high in Europe. The rise of the interest rates in Italy, Spain and France makes it even more difficult for these countries to start reducing their debt loads. The lack of confidence weighs on all sectors of economy. New orders are not coming in and industrial production growth will fall from over 4% this year to less than 1% in 2012. Unemployment is likely to remain at around 10% over 2012, at least. The combination of the lack of jobs and tax hikes will stall private consumption further. Austerity programs will turn public investments to a minus and the private investments are not growing much either. ECB should lower the interest rates anew and do so fast.

Japan – After the rebound from the earth-quake provoked recession with a 1.5% (6% annualized) GDP-growth in Q3, the economic growth has weakened anew. Japan’s exports retreated by nearly 4% in October; to China they were down by almost 8%. With imports up, mainly in energy products, Japan’s trade surplus shrank again to a deficit. The growth momentum has been halted partly because of the strength of the Yen and partly because of the global slowdown in general. BoJ continues its efforts to stimulate the economy through increased asset purchases and other measures are becoming more and more likely as the shift of funds from Europe to Japan continues to put upward pressure on the value of Yen. Unemployment is down at only 4.1%. Still, private consumption was still negative in September. In spite of the on-going difficulties, Japan is expected to show at least 2% growth in 2012.

China – GDP-growth registered 9.1% during Q3. Difficulties in maintaining export growth have been almost totally overcome by the increases in domestic spending. Behind the curtain of solid growth, many problems are brewing. The fight to contain the risen inflation by tightening the money supply has brought with it a lack of cash and finance possibilities to the small and medium-size firms. Production is down because there is no money left to buy raw materials and L/C’s cannot be opened to sell more. Credit is still available from the informal lending systems but at a much higher rate. If Chinese economy would start slowing down more, the Government and the Central Bank are likely to untighten the credit facilities and use also other stimulation measures. Chinese Vice-Premier used a good wording to justify the measures soon to be taken: “An unbalanced recovery is better than a balanced recession”.

Paper Industry – After another poor month in September (e.g. the printing and support index by the Fed hit a new all-time historical low at only barely above 70 points), the preliminary data over the US shipments over October was at or even slightly better than expectations. Printing and writing paper shipments in the US were down by 3.4%. Box shipments probably reflected a small pick-up in the economic activity and came up by 0.9% from October 2010. Year-to-date the shipments are up by 1.0%. The bad news is that the exports of paper and board are becoming more and more challenging with prices falling and, with it, the desire to sell to off-shore markets.

European data over October will be made available only towards the end of this week. Order book situation remains discouraging. Regional shipments have been trending lower in almost all grades. Now the growing difficulties in the exports outside the region turn the situation even more precarious. The first major curtailment announcements have been published. The weakening economic outlook renders also the future over paper demand more questionable. Delays in agreeing on the volumes and other details of the long-term contracts in paper has also slowed down the process of signing the long-term contracts in pulp purchases, as we heard over the Pulp Week in London. UTIPULP statistics showed consumption of market pulp up marginally from September but down nearly 7% from October 2010 which indicates weak paper production numbers.

NBSK pulp Europe – PPPC-statistics, due out later today, are awaited with particular interest. Most analysts expect the stocks to move back up, after the drop in September as public notices on production downtime have been scarce and demand has apparently not been very strong as also indicated by the European market pulp consumption data. Other inventory development was better-than-expected. Consumer stocks in Europe were down from September by over 9% and declined also against October 2010 by about 5%. In spite of this positive news, prices continued to trend lower. EUR weakened by 0.5% against USD from the previous week. Our PIX NBSK index continued to fall, this time by 7.87 dollars, or by 0.89%, and closed at 874.92 USD/ton. The PIX NBSK index, converted into Euro, declined by 2.27 euro, or by 0.35%, ending at 644.46 EUR/ton.

BHK pulp Europe – Downtime announcements earlier made by the Asian producers in Indonesia and China were now joined by some European and Latin American downtime. At least in terms of public statements, this downturn has been quieter than some of the previous ones. The downtime taken in Latin America left a couple of shipments from the regular schedule, helping to reduce the port stocks in Europe by over 110 000 tons, or by about 8%, from the earlier above-average level. Transhipments to China helped as well. EUR weakened by 0.5% against USD from the previous week. The PIX BHKP index-value in EUR retreated by 5.13 Euro, or by 1.02%, and closed at 496.04 EUR/ton. The PIX BHKP index value in USD lost 10.68 dollars, or 1.56%, and closed at 673.42 USD/ton.

BHK pulp China – Several Chinese companies have decided to build more BCTMP/APMP capacity or are planning to do so. This trend is linked to a number of different drivers, such as the increasing demand and production capacity of multiply board, utilization of the growing poplar and eucalyptus plantation wood resources, reductions of non-wood pulp capacity and the risk of longer-term supply constraints of recovered paper. Short-term supply of pulp and RCP exceeds demand and prices have continued to trend down. Credit constraints limit buying. The PIX China BHKP index continued to retreat, this time by 9.38 USD, or by 1.61%, and closed at 573.12 USD/ton. Yuan weakened by 0.2%, against USD compared to a week ago. The conversion of the USD value into Yuan resulted in a drop of 52.26 RMB, or by 1.41%, to 3642.07 RMB/ton.

NBSK pulp China – The question always asked about China in a down market is: When are the prices low enough for the Chinese to start stocking up or for them to start replacing domestic pulp production, partly based on expensive imported wood, by more pulp imports? There seems to be more willingness to buy again in China. The analysis is being hampered by the continuing credit problems of the small and medium –sized buyers. Another question mark is the extent of the paper and board production downtime in China. The third unknown is the volume of pulp in Chinese ports, up from the strong shipments and low intake in September. Our PIX China NBSK index retreated by 12.85 USD, or by 1.82%, and closed at 693.85 USD/ton. Yuan weakened by 0.2% against the USD. The conversion of the USD value into Yuan meant a decrease of 72.74 RMB, or 1.62%, to 4409.29 RMB/ton.

Newsprint – The challenging market situation and grim demand outlook for newsprint has led to a number of decisions to either close down capacity or to try to increase competitiveness of the European newsprint machines which are both losing regional demand volumes and suffering set-backs in the export markets, partly, if not largely, because of the over-valued European currencies. Companies with recent streamlining decisions include UPM (capacity closure), Holmen and Norske Skog (reduction of personnel, quality improvements, other PM productivity increase measures). The EUR strengthened against the weighted basket of non-EMU currencies by about 0.3%, which led to a moderate drop in the benchmark value. The PIX Newsprint index dipped by 35 cents, or by 0.07%, to 510.81 EUR/ton.

LWC – After UPM’s final decision to remove a substantial volume of mechanical printing paper capacity from the markets by the end of this year, Stora Enso made public their decision to start negotiations over the need to lay off personnel temporarily and to take downtime on several paper and board machines, including coated mechanical paper capacity at Veitsiluoto. The reason given for the decision was to be able to adjust, if absolutely necessary, production to the reduced intake of new orders. Despite a small improvement of order books in October, LWC market remains, on average, quite weak and the further slowing down of the European economy risks reducing magazine advertising activity even more than already hereto. The impact of an approximately 0.3% strengthening of the EUR against the weighted basket of non-EMU currencies meant a downward pressure on our benchmark. Nevertheless, the PIX LWC index gained 49 cents, or 0.07%, and reached 700.04 EUR/ton.

Coated woodfree – The darkening of the advertising outlook over 2012 casts a deepening shadow also over the coated woodfree sector. According to RISI, APP is considering switching some of the capacity from the seriously over-supplied coated woodfree sector to uncoated woodfree. If this decision is taken, the pressures for China to export even more CWF would lessen a bit. While markets in Europe and US are protected from Chinese imports through the countervailing duties, the over-capacity problem remains also in Europe. Paper producers still have difficulties in making the ends meet and appear determined not to let the fibre price decline creep into the paper prices. Time will tell how successful those efforts are. The 0.3% strengthening of the Euro against the weighted basket of non-EMU currencies had a negative effect on the benchmark. Still, our PIX Ctd WF index went the other way and improved moderately, i.e. by 70 cents, or by 0.10%, to 715.12 EUR/ton.

Uncoated woodfree – StoraEnso’s decision to start layoff negotiations, mentioned under LWC-section, also applies to over 0.5 million tonnes of uncoated woodfrees. APP’s plans to switch from coated to uncoated paper production in China risk increasing China’s uncoated woodfree exports. On the other hand, that increase can also go partly, even largely, to the domestic market to replace some of non-wood pulp based printing and writing paper which capacity has been ordered to be closed at year-turn. In Europe, order books remain thin and production well under 2010 level. The approximately 0.3% strengthening of the Euro against the weighted basket of non-EMU currencies meant, in theory, some downward pressure on the benchmark. The PIX A4 B-copy index rose by 14 cents, or by 0.02%, and closed at 877.86 EUR/ton.

Containerboard Europe – In the US, October data on containerboard and box numbers were slightly better than expected. Shipments were up by about 1% against October 2010 and inventories moved down. Operating rates were down a bit but still at respectable 95%. Year-to-date, production is up very marginally, or by 0.2%. Prices of virgin fibre linerboard have been essentially flat for well over one year now. Analysts are expecting the producers to announce price increase attempts from January 2012. With the seasonal slow of the winter months approaching, with lower recovered paper prices bringing downside pressures on recycled grades and with export prices substantially lower, those attempts, if made, will face substantial challenges.

In Europe, the continuous weakening of the economic outlook is likely to lead to further reductions in the regional demand. Export potential to near-by markets in Eastern Europe and near East will help but most likely not enough to restore the weakened supply/demand balance. Export volumes from other sources, especially from North America, compete heavily with the European volumes. The situation is better for white-top grades as it is still also for paperboards. The currency movements meant mixed pressures on our packaging indices. Euro weakened by 0.5% against the USD but strengthened by about 0.3% against the weighted basket of the non-EMU currencies. Our PIX Kraftliner index retreated by 3.36 euro, or by 0.61%, to 551.64 EUR/ton. The PIX White-top Kraftliner index fell by 41 cents, or by 0.05%, and closed at 783.22 EUR/ton. Our PIX Testliner 2 index declined by 6.87 euro, or by 1.48%, settling at 458.57 EUR/ton. PIX Testliner 3 index came down even more, i.e. by 2.39 Euro, or by 0.56%, landing at 427.65 EUR/ton. Our PIX RB Fluting index declined by 5.21 euro, or by 1.23%, to 417.47 EUR/ton.

Recovered paper Europe – Demand pull from China for some of the recovered paper grades, including OCC, has started to improve, at least temporarily. At least part of the improvement appears to be linked to inventory re-build with volumes bought now arriving to China before the New Year holiday period. Inventory levels today appear to be a mix between normal and lower than normal. In European regional market, demand remains fairly weak in both of our benchmark grades as production volumes continue to fall and the seasonally slow period reduces the need for inventories. Consequently, while the prices paid in China for European RP have been creeping up for 3-4 weeks now, prices in Europe for locally sold volumes continued to head south. The PIX OCC 1.04 dd benchmark lost 5.60 euro, or 4.45%, and closed at 120.25 EUR/ton. As the testliners and RB-fluting prices also fell, the price differentials showed mixed results. Against Testliner 2, the gap narrowed by 1.27 euro to 338.32 EUR/ton but against Testliner 3 it widened by 3.21 euro to 307.40 EUR/ton. Against RB Fluting the differential also grew slightly, i.e. by 39 cents to 297.22 EUR/ton.

Our PIX ONP/OMG 1.11 dd index dropped by a substantial 8.31 euro, or by 5.45%, landing at 144,10 EUR/ton. As the PIX Newsprint benchmark fell only marginally, the differential to PIX ONP/OMG 1.11 widened by as much as 7.96 euro to 366.71 EUR/ton.

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