FOEX Pulp & Paper Indices - Dec. 13, 2011
December 13, 2011
US NBSK – The already seen and announced closures of paper capacity in North America are largely integrated units but still have some negative impact on market pulp demand, at least indirectly. Also in the US, large price differential between softwood and hardwood pulp keeps on substitution pressures in favour of hardwood pulps. Production costs are at levels which, in theory at least, would not allow much further price decline, taking into account the large discounts granted from the gross contract prices. The suppliers have been reluctant in giving in to the downside price pressures. Still, most producers have announced lower prices for December, typically down by 30 USD at 890 USD/ton from December 1. Our PIX US NBSK index fell by 6.92 dollars, or by 0.77%, and closed at precisely 890.00 USD/ton.
US Newsprint – The market in North America has continued to grow weaker over the year, especially as also the earlier good pull from the export markets has been withering away over the past couple of months. There is no reason to believe that the declining trend in demand would change in 2012, even if the presidential elections and Olympic Games may slow down the decline. Supply/demand balance may not necessarily weaken, though, as more closures have either been announced or planned. The PIX US Newsprint 30lb index moved up by one cent, or by 0.00%, to 623.81 USD/ton while the 27.7lb index remained again flat at 664.58 USD/ton.
Dec 13, 2011
General economy: US – The political deadlock continues in the US. Almost 25% of jobless benefit receivers risk losing their income unless a last minute agreement to extend those payments is reached. The consequent loss of private consumption recovery, European recession and the slowing down of the growth in Canada and in many emerging economies, including China and especially Brazil, are issues which make the US economy vulnerable. The Fed appears ready to act, if the situation worsens significantly for internal or external reasons, but obviously wants to see if the recovery can persist without further bond purchases or other such tools to strengthen the economy. Job creation and rebuild of low-level inventories help during Q4. US appears unwilling to back up the financing of the Euro-zone problems – even through IMF.
Europe – ECB lowered the key interest rate last week by 25 basis points to 1%, unfortunately not by 50 points which would have given more chances to avoid the second phase of a recession. After all the big four Euro-zone countries recorded PMI-values in contraction territory, real GDP-decline is evident during Q4 2011; the question is can it be any more avoided during Q1 2012? After the interest rate decision, the Union leaders closed their two-day summit with an agreement over a closer integration and control. While taking this step is a move into the right direction, it takes time to get this through the national legislators and at least in Finland the move from uniform to majority decisions is strongly opposed. The UK did not want to join the agreement. Further integration within Euro-zone means thus less integration within the whole EU.
Japan – Q3 GDP growth number was revised down to 1.4%. The number shows that while Japan continues to recover from the recession, caused by the earthquake and tsunami, the recovery is slower than expected, largely due to the strength of the Yen which hampers exports to the overseas economies where import demand growth was weak, as such. During Q4, growth in Japan will, most likely, slow down further. The fall of business activity index below 50, suggests that Japanese recovery is now seriously tapering off. Another clear sign of that was the consumer confidence data over November. The sentiment index for general households, including outlook on both incomes and jobs, was only 38.1 in November, slightly down from the already low October number.
China – The general output index eased below 50 also in China. The economic strategy planning session strives for stability. The worsening economic and political crisis in Europe, the weakness of the U.S. and Japanese recoveries, coupled with cooling off of the domestic economy pressure China to move faster in shifting the economy towards more dependency on the local household demand and away from the more fragile looking exports and investment prospects. Another worrying sign was the major decline in housing and other property prices in November. Good news was that the Chinese inflation continues to slow down with November’s 4.2% as the lowest rate since September 2010. Once inflation falls below 4%, it will be safer for the government to re-start stimulating the economy. Tax cuts and loosening of the presently tight credit availability are the most likely tools.
Paper industry – In the US, the preliminary data suggests that declines in printing and writing paper demand were smaller in November than what they had been in the previous months. Weaker comparison numbers from a year ago are one explanation. Another is the pick-up of the economic growth and the fall of unemployment rate during Q4. While the rate of decline appears to have slowed down, the fall of the consumption continues. In October, the printing and support index by the Fed hit a new all-time low. In November, print output and the number of new orders fell again but the order backlogs remained unchanged. The outlook remains sombre over early 2012. Mail volumes, including big items like catalogues, are expected to fall 5-6%. On the other hand, advertising and newsprint and magazine sales are likely to get some boost from several major events, such as presidential elections and Olympic Games taking place the same year.
In Europe, the impact of the looming recession will negate the few positive drivers. Paper exports could be easier with weaker Euro and with Russia probably entering the WTO, but the weakness of the global economic growth and the Chinese over-capacity will make it difficult to even defend the 2011 export volumes. Some companies have already published plans for production downtime during the first half of 2012, as they expect that the permanent capacity closures will not be enough to keep the supply and demand for paper and paperboard in balance in 2012. The negotiations over 2012 volumes and early 2012 prices have started out slower than usually, due to the number of major uncertainties.
NBSK pulp Europe – Price differential between BSKP and BHKP grades has hovered at/near 200 USD/ton over several months now. With the economic impetus for the buyers to continue to substitute softwood with hardwood and for the suppliers of both grades to maximise the softwood share, the supply/demand situation is, not surprisingly, switching in favour of hardwood pulps. That shows already clearly in the pricing of spot volumes where the price differential between BSKP and BHKP is around 100 USD/ton, rather than the 195 dollars recorded now in the contract business. EUR weakened by 0.9% against USD from the previous week. Our PIX NBSK index continued to fall, this time by 6.95 dollars, or by 0.81%, and closed at 846.38 USD/ton. With the stronger USD, the PIX NBSK index, converted into Euro, moved up by 80 cents, or by 0.13%, ending at 632.38 EUR/ton.
BHK pulp Europe – The now more likely entry of Russia into WTO will facilitate the wood exports which have traditionally been mainly pulpwood for BHKP production. While this may support BHKP production in the course of 2012, at present the supply of market BHKP in Europe is falling. In addition to the downtime taken by several pulp lines, Sodra is switching production into dissolving pulp from December. Similar change is taking place by Fortress Paper at Thurso, in Quebec, Canada. These supply reductions, higher demand in China, further switches from BSKP to BHKP and a price increase announcement by Fibria probably all played some role in slowing down the pace of the price decline trend considerably. EUR weakened by 0.9% against USD from the previous week. With the dollar-strengthening, the PIX BHKP index-value in EUR moved back up by 3.79 Euro, or by 0.79%, and closed at 485.79 EUR/ton. The PIX BHKP index value in USD lost 1.05 dollars, or 0.16%, and closed at 650.18 USD/ton.
BHK pulp China – Part of the local hardwood pulp capacity is just being converted from paper grades to dissolving pulp by Sun Paper and by Lee & Man. This, lower stocks and low prices for hardwood pulp helped to boost the sales of BHKP market pulp in China in November. According to the latest news from the market, the December shipments have not been as good any more. Fibria’s price increase announcement, the disappearance of the lowest spot offers and the threat of closures of non-wood pulp based paper capacity in China were not enough to turn the prices to a rise, at least not yet. The PIX China BHKP retreated further, this time by 2.47 USD/ton, or by 0.44%, and closed at 562.84 USD/ton. Yuan strengthened by 0.1% against USD, compared to a week ago. The conversion of the USD value into Yuan resulted in a drop of 18.88 RMB, or by 0.53%, to 3566.95 RMB/ton.
NBSK pulp China – Chinese purchases of market pulp appear to have been good in November. Purchases are typically good in China in November and then slow down in December/early January before the Chinese New Year holiday period. The low price levels were probably one of the key drivers, in addition to the seasonality issue. Many NBSKP suppliers have publicly or quietly quoted 680 in early December. Our benchmark price has been already below that level. The good activity in November in China and in some other Asian countries helped our index marginally higher. Our PIX China NBSK index moved back up by 45 US cents, or by 0.07%, and closed at 669.62 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan meant a decrease of 0.97 RMB, or 0.02%, to 4243.66 RMB/ton.
Newsprint – Although newsprint production in CEPI-countries was up by 1.7% over the first three quarters of the year against 2010, the regional demand as well as the Q3 production were down. As the October statistics were considerably weaker than the 2011 average, the cumulative shipments over the first 10 months were down by nearly 3% and the regional demand by 1.6%, according to CEPIPRINT. The outlook over 2012 remains negative in terms of consumption. With permanent closures of capacity, the supply/demand ratio could improve marginally, if European exports outside the region can be maintained or increased. The EUR weakened against the weighted basket of non-EMU currencies by about 0.8%, which helped to push the index higher. The PIX Newsprint benchmark inched further up by 55 cents, or by 0.11%, to 511.53 EUR/ton.
LWC – In North America, the still preliminary shipment numbers show that the deliveries of coated groundwood paper fell in November by just over 6%, little less than the cumulative fall of over 7% in January-November. Verso and New Page are reducing their production capacity in North America. In Europe, UPM has announced both permanent and temporary shutdowns in order to help to restore a better balance between the production capacity and order inflow. The 0.8% weakening of the EUR against the weighted basket of non-EMU currencies meant a positive effect on our benchmark. The negative and positive price drivers offset completely one another and the PIX LWC index remained unchanged at 701.04 EUR/ton.
Coated woodfree – In North America, coated woodfree demand decline continues but at a slower and slower pace. October was already a relatively better month than most of the prior months and the preliminary November numbers showed shipments still down by 2.7% but clearly less than the cumulative drop of 4.5%. In Europe, the competition against the Chinese volumes in the export markets has reduced the total shipments considerably during the 2nd half. October was a particularly difficult month and the order books were not good in November either. The 0.8% weakening of the Euro against the weighted basket of non-EMU currencies helped to push the benchmark slightly higher. The PIX Coated woodfree index inched up by 20 cents, or by 0.03%, to 712.52 EUR/ton.
Uncoated woodfree – The rate of consumption decline continues to slow down in North America. The preliminary November data shows it down by 1.3% against November 2010, again less than the cumulative decline of 3.1%. One more uncoated free sheet mill has been announced to be closed down, this time at Brokaw, Wisconsin. In Europe, the annual drop in the regional demand is bigger than in the US, reflecting well the more severe problems in the general economy. Exports outside the region have continued to grow at about 10%/annum rate which has limited the total cumulative decline in shipments to just over 2% over the first 10 months. The 0.8% weakening of the Euro against the weighted basket of non-EMU currencies helped the benchmark slightly higher. The PIX A4 B-copy index recovered by 95 cents, or by 0.11%, and closed at 871.86 EUR/ton.
Containerboard Europe – In the US, preliminary November data is not yet available. In October, the corrugated box inventories declined less than the seasonal norm but the box shipments were slightly (by 0.9%) higher than in October 2010. Capacity utilization rate weakened but was still at respectable 95%. Prices of containerboard have remained stable. In Europe, the weakness of the demand has worsened the over-capacity situation in containerboards in the western half. Saica’s new large machine, starting up in the UK in January will increase the over-capacity. Order books of the box plants have come slightly down, as have the prices. In Eastern Europe, however, overall demand trend remains upwards, even if it is weaker in 2011 than in 2010. Exports from Western Europe eastwards are likely to grow in 2012. The currency movements reduced this time the downside pressures on our packaging indices. Euro weakened by 0.9% against the USD and by about 0.8% against the weighted basket of the non-EMU currencies. In spite of the help from the exchange rate front, all our packaging benchmarks continued to head further down. The PIX Kraftliner index retreated by 5.04 euro, or by 0.92%, to 542.52 EUR/ton. The PIX White-top Kraftliner index fell by 1.26 euro, or by 0.16%, and closed at 778.12 EUR/ton. Our PIX Testliner 2 index declined by 1.46 euro, or by 0.32%, settling at 452.02 EUR/ton. PIX Testliner 3 index fell more, i.e. by 3.11 euro, or by 0.73%, landing at 420.32 EUR/ton. Our PIX RB Fluting index declined by 4.92 euro, or by 1.19%, to 407.23 EUR/ton.
Recovered paper Europe – RP prices have been quite volatile – once again – in 2011, both in Europe as well as in the US. High and rising prices through the first half of the year were replaced by rapid declines during the 2nd half. Reduced demand in the regional markets and the weaker pull from China have left supply above demand, even if the recovery potential has also weakened. In early 2012, UK consumption will go up with the new machine, leaving less for exports. As possibilities of increasing collection in Europe will be limited in 2012, supply/demand situation in export markets could change at some point during the 1st half. Some sign of this could already be seen in December with stocks of OCC down and with demand and prices in China picking up, at least temporarily. In Europe, recovered paper prices have fallen more during the second half of the year than what they gained during the first. The PIX OCC 1.04 dd benchmark lost 3.40 euro, or 2.93%, and closed at 112.51 EUR/ton. The price gap movements between end product and raw material were mixed. Against Testliner 2, the gap widened by 1.94 euro to 339.51 EUR/ton and against Testliner 3 it grew by 29 cents to 307.81 EUR/ton. Against RB Fluting the gap declined by 1.52 euro to 294.72 EUR/ton. Our PIX ONP/OMG 1.11 dd index retreated by 1.58 euro, or by 1.14%, landing at 136.92 EUR/ton. As the PIX Newsprint benchmark inched up, the differential to PIX ONP/OMG 1.11 widened by 2.13 euro to 374.61 EUR/ton.