FOEX Pulp & Paper Indices - Jan. 3, 2012

Kendall Sinclair

HELSINKI , January 3, 2012 (press release) – US NBSK – The overall positive PPPC market pulp statistics over November 2011 performance included fairly downbeat data over the industrialized world shipments. Decline in deliveries to the North American market was as much as 10%, which made the pulp shipment decline larger than what the paper and paperboard numbers would have suggested. Downtime announcements include both BSKP and other market pulp grades. No official price changes have been announced from January 1 but reduction promises in the individual buyer/seller discussions/correspondence are rumoured to have been made. The benchmark value here reflects sales prices applied on the last week of 2011. After withdrawing the top and bottom 10% of the price data received, our PIX US NBSK index remained again unchanged at 890.00 USD/ton.

US Newsprint – While presidential elections, Olympic Games and some other major happenings in 2012 may well help to support newsprint demand development in 2012, the structural decline continues as readers, especially the young ones, migrate from the use of printed media into the digital forms of readership. Good export performance to offshore markets, showing a 9.4% cumulative gain over the first 10 months, has helped a little but nowhere near enough. Reductions of demand continue to be met by further capacity closures and the downside pressures in the prices did not materialize over 2011. The PIX US Newsprint 30lb index remained unchanged at 623.81 USD/ton, and the 27.7lb index at 664.59 USD/ton.


Pellet Continental - In December 2011, FOEX started publishing this new pellet index for medium-scale users in Continental Europe, i.e. in Germany and Austria. That index will be published on 1st Tuesday of each month.

This winter has been relatively mild in Europe. Consequently, the demand for pellets, while up, has not been growing as much against the previous winter than what the investments to new installations might have projected. The world supply of pellets, both consumer and industrial variety, grew faster than the demand in 2011. The capacity utilization rates have not been full with the producers operating on an average level of about 90%. Germany, the largest consuming and also the largest producing country exports about 40% of its production, mainly to the neighbouring countries. The prices of consumer pellets for private household use crept up slightly during the fall but less than gas or oil.

Similar development has been seen in the prices for medium-scale users. The 2nd continental pellet benchmark value reflected the mildness of the winter and, while heading higher, the rise from November to December prices, published here, was only moderate. Our PIX Pellet Continental Europe price index moved to 215.86 EUR/ton, up by 1.07 euro, or by 0.5%, from the November values published in the beginning of December.
Jan 3, 2012

General economy: US – Economic outlook has turned a bit more optimistic even though the Q3 GDP growth rate was revised rather sharply downwards from 2.5% to just 1.8% (annualized). But, expectations are now better over Q4 and have been revised slightly upwards over the year 2012. Jobless claims have come down over the past few weeks. Consumer confidence index was up by nearly 10 points at 64.5. A major plunge in Europe could still spoil the party also for the US, of course, but a clear downturn risk in the US economy has diminished. Many obstacles remain, though. Housing has shown some small signs of the doom and gloom nearing the end but the activity is still very low. Stronger USD will reduce the rate of export growth. Analysts expect the US consumer to be the key driving force in the 2012 recovery, but it is not at all evident that he will assume that role as the average wage growth has been dismal, for blue-collar workers actually down. The latest GDP-growth projections for 2012 are now at about 2.2%.

Europe – is looking into another year of a very dim economic performance in 2012. It is becoming certain that the Euro-zone real economic growth was negative during Q4 2011, will be negative in Q1 2012 and could very well be negative also still through Q2 2012 and possibly even longer. Will Euro survive? Half of the economists believe that the Euro-zone will remain intact. The other half expects some changes within the next 12 months. Another crucial question is: Are there ways and means to stimulate more growth? The Euro-zone leaders’ cannot reduce taxes or increase the already high debt load by borrowing money to step up the public spending with. The ECB could and should lower the key interest rates further. With Euro-Zone’s internal demand tapering off, more income is needed from the exports outside the region. As long as the Euro remains over-valued, that success will not be seen. Euro has taken steps to the right direction and just did fall below 1.3 USD/EUR rate. The 2012 real GDP forecasts have been revised to a marginally negative number of – 0.1% which includes two or three negative quarters.

Japan – Q4 performance has been clearly weaker than hoped for. Industrial activity is stalling with manufacturing PMI falling below the 50-point line signalling recession. New machinery orders, industrial production, exports as well as household spending all showed declines in November. Unemployment rate started rising. The most recent December data has actually been better, signalling a slight improvement. Manufacturing activity declined again, but at a slower rate. Job growth continued. The purchasing managers’ index (PMI, by Markit) pulled back above 50, even if only marginally. The expectations over 2012 are for the pick-up continuing but at a slow pace. On a more positive note, Japan and China agreed to start formal talks next year on a free trade pact. The 2012 annual growth is projected at 2% with more downside than upside risk.

China – The recent economic data continues to support the “soft landing” option. The on-going Euro-zone crisis, potential restlessness in the Korean Peninsula and the further weakening of the many other important export markets for China pose increasing downside risks. Capital which used to fly into the country has more recently been flowing out. These risks are most likely to be combated against by a further loosening of the monetary policy. December economic indicator data showed that the manufacturing sector was still deteriorating but at a slower pace than in November. Order backlogs, employment and domestic orders contracted but export orders improved and delivery times were getting longer. Inflation rate showed a nice drop which allows the government to be aggressive, case need, with their fiscal as well as monetary easing. The real GDP growth in 2012 is projected at 8.5% with more downside than upside risk.

Paper industry – The industry statistics received over the month of November show that in the US, the slight improvement in the economic growth and especially in the near-term economic outlook has started to support the paper industry as well. The shipment and production data was for most grades still negative against November 2010 but the rates of decline were smaller than the cumulative average over the year. In some individual grades, such as tissue and containerboards, small gains were even registered. Production data for paper and paperboard, by the AF & PA, shows that the November volume was 1.0% down against November 2010. Once again, the total printing and writing paper production was the weakest major sector, down by 3.9% for the month. Packaging boards, combining containerboard and paperboards registered a 0.5% gain and tissue production was up by 1%, against November 2010. Order books improved in November and appear to have been OK also in December, especially in the packaging boards, taking into account the seasonal pattern.

In Europe, both the economic performance and the paper and paperboard statistics have weakened further. All the numbers are not yet available over November but those published show November losses bigger than the average monthly loss so far in 2011. E.g. the European estimated consumption for the total of wood-containing publication papers was 7% lower than the demand recorded in November 2010. The lengthening of the normal Christmas season downtime by several days at some of the mills suggests that also the December production volumes continued to be quite weak. Tissue has been the only sector with (minor) positive growth, cumulatively, over the corresponding period in 2010.

NBSK pulp Europe – BSKP market shipments, including fluff pulp, were down in November by 2.4%, against November 2010. Cumulative gain over the first eleven months came down to 3.7%, representing an increase of about 700 000 tons. The proportionally largest BSKP gains, cumulatively, were seen in China. Deliveries were up also to Other Asia, Japan, and Oceania. Shipments of BSKP were down to North and South America as well as to the EU. The delivery/capacity ratio was back up at 90% for the month of November but cumulatively still at the long term average of 93% over the first eleven months. The strengthening of the USD continues to pressure the price of pulp lower in dollar-terms. EUR weakened again, this time by 0.9% against USD from the previous week. Our PIX NBSK index continued to fall, this time by 4.67 dollars, or by 0.56%, and closed at 829.04 USD/ton. With the stronger USD, the PIX NBSK index, converted into Euro, moved up by 2.21 euro, or by 0.35%, ending at 640.73 EUR/ton.

BHK pulp Europe – The BHKP market was weaker than that of BSKP through most of 2011but now the things appear pretty equal between the two grades. If anything, the BHKP market is turning slightly stronger of the two. In November, BHKP market shipments reported to PPPC were up by 7.7% against November 2010. Over the first eleven months, the gain was 3.5% but would have been bigger, had the data from the non-PPPC countries been available and included. EUR weakened by 0.9% against USD. With the dollar-strengthening, the PIX BHKP index-value in EUR moved up by 2.23 Euro, or by 0.45%, and closed at 501.47 EUR/ton. The PIX BHKP index value in USD lost 3.01 dollars, or 0.46%, and closed at 648.85 USD/ton.

BHK pulp China – A lot more pulp was sent to China in November than in October when looking at the producers’ deliveries from the PPPC statistics. November shipments were up 41% against October and by 27% against November 2010. The cumulative gain over the first eleven months stood at 32%. The picture is little less bullish when looking at the import statistics. The cumulative gain in the pulp intake was somewhat smaller than in the PPPC numbers, even if still impressive 27% for the grand total and 16.5% for BHKP. The PIX China BHKP came this time back down by 31 cents/ton, or by 0.06%, and closed at 562.22 USD/ton. Yuan strengthened by 0.5% against USD, compared to a week ago. The conversion of the USD value into Yuan resulted in a decline of 19.62 RMB, or by 0.55%, to 3545.13 RMB/ton.

NBSK pulp China – BSKP intake, according to Chinese import statistics was 0.5 million tons in November, slightly above the 2011 average. Cumulatively, softwood market pulp imports were up by 49%, or over 1.7 million tons over the first 11 months of the year. The latest news from the market suggests that the sales into China were fairly active still in early December. Typically, the purchasing activity always slows down substantially in late December/early January, i.e. just prior to the Chinese New Year when many of the Chinese pulp and paper operations close down for the two-week holiday season. Some suppliers have announced price increases but those did not show, at least not yet, in our benchmark value. Our PIX China NBSK index fell by 2.99 USD/ton, or by 0.45%, and closed at 661.06 USD/ton. Yuan strengthened by 0.5% against USD. The conversion of the USD value into Yuan meant a decrease of 39.70 RMB, or by 0.94%, to 4168.37 RMB/ton.

Newsprint – Exports of newsprint from the CEPIPRINT member countries are moving up after a weak performance early in the year. With a hefty 38% increase in exports in November, cumulative numbers still show a nearly 9% drop. Imports are down, too. After 11 months, total European demand was estimated down by 180 000 tons against 2010. Of this drop, imports represented 50 000 tons and were only little more than 250 000 tons. Price negotiations over the 2012 sales continue with very little published over the targets or of the present status of the talks. The EUR strengthened against the weighted basket of non-EMU currencies by about 0.3%, which pulled, in theory, the benchmark lower. However, our PIX Newsprint benchmark inched further up, even if by only 7 cents, or by 0.01%, to 513.34 EUR/ton.

LWC – In coated mechanicals, all of the consumption of the CEPIPRINT member countries is from the regional sources. With those down by more than 3% cumulatively and as much as 7.5% in November, against November 2010, the good export performance has “saved the year”. Over the first 11 months, exports outside the region were up by nearly 250 000 tons, or by 16%, bringing total shipments marginally above the 2010 level. As in newsprint, little is known of the present situation in the on-going price negotiations. The approximately 0.3% strengthening of the EUR against the weighted basket of non-EMU currencies had a negative impact on our benchmark. The PIX LWC index slid down by 29 cents, or by 0.04%, and closed at 704.69 EUR/ton.

Coated woodfree – CEPIFINE statistics over the November 2011 volumes are not out yet. In this grade, volumes are down against 2010 in both regional shipments and in exports. Exports towards Eastern Europe will be more difficult, temporarily, from March 1st when the import duties to Russia rise from the present 5% to 15%. With the likely entry of Russia into WTO in the summer, the duties will drop back to 5%, however. Market situation remains weak in Europe but has shown some recovery back closer to last year’s volumes in the US. The 0.3% strengthening of the Euro against the weighted basket of non-EMU currencies was the main cause in the benchmark value decline. The PIX Coated woodfree index lost 22 cents, or 0.03%, landing at 716.95 EUR/ton.

Uncoated woodfree – CEPIFINE has not yet published the November statistics for woodfree papers. The hefty drop of about 7% in the BHKP market pulp consumption against both October 2011 and November 2010, reported by UTIPULP, suggests that the weakness in uncoated woodfree demand in Europe has continued. Market-related downtime continues to be taken, e.g. by UPM at their large Nordland mill in Germany. Exports have been the positive part with 9% growth over the first 10 months. The entry of Russia to WTO will lower the import duties in this grade from the present 15% to 5%. The roughly 0.3% strengthening of the Euro against the weighted basket of non-EMU currencies meant a downward pressure on the benchmark. The PIX A4 B-copy index retreated by 2.92 EUR, or by 0.34%, and closed at 866.24 EUR/ton.

Containerboard Europe – In the US, November box shipments as well as the containerboard production and delivery numbers were among the most positive this year with a small increase shown against 2010 data. In Europe, market weakness persists with the deterioration of the general economic environment. Longer-than-normal Christmas time production stoppages were seen and other market-related downtime is planned to be taken during Q1 2012 in order to reduce the present over-capacity problem. The Russian entry to WTO – presumably in June 2012 – includes a reduction of import duties also in containerboards but, according to RISI, only after a 3-4 year transition period.

Further reductions in fibre prices continue to exert downside pressure on the containerboard prices across Europe. The currency movements had a mixed impact. Euro weakened by 0.9% against the USD but strengthened by about 0.3% against the weighted basket of the non-EMU currencies. Almost all of our packaging benchmarks registered further decreases but this time the retreats were quite limited. The PIX Kraftliner index retreated by 7 cents, or by 0.01%, to 535.07 EUR/ton. The PIX White-top Kraftliner index moved down by 1.39 euro, or by 0.18%, and closed at 772.08 EUR/ton. Our PIX Testliner 2 index showed no change whatsoever and remained thus at 440.85 EUR/ton. PIX Testliner 3 index fell by 10 cents, or by 0.02%, and landed at 407.64 EUR/ton. Our PIX RB Fluting index declined by 7 cents, or by 0.02%, to 394.01 EUR/ton.

Recovered paper Europe – The reductions in the consumption of printing and writing papers, in containerboards and some other key recovered paper end-use grades, cut into the supply potential of recovered paper. The demand fall precedes, however, the supply losses leading often to a temporary over-supply of recovered paper in the early phase of an economic downturn. This is, once again the situation in Europe. The relatively active imports of recovered paper by China and the other Asian markets have not fully compensated for the losses in the Western European market. This oversupply, coupled with the weaknesses in the end-product pricing have meant a long down-hill slide of the recovered paper prices. In the beginning of the year 2012, prices of recovered paper, which rose substantially during the early months of 2011, are now well below the early January 2011 levels, in OCC by 12% and in ONP/OMG by 15%.

The PIX OCC 1.04 dd benchmark lost just 1 cent, or 0.01%, and closed at 109.78 EUR/ton. The price gaps narrowed slightly in most cases. Against Testliner 2, the gap, however, widened by 1 cent to 331.07 EUR/ton. Against Testliner 3, the differential narrowed by 9 cents to 297.86 EUR/ton. Against RB Fluting, the gap shrank by 6 cents to 284.23 EUR/ton.

Our PIX ONP/OMG 1.11 dd index retreated by 2 cents, or by 0.02%, landing at 129.65 EUR/ton. As the PIX Newsprint benchmark inched up, the differential to PIX ONP/OMG 1.11 widened by 9 cents to 383.69 EUR/ton.

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