FOEX Pulp & Paper Indices - Jan. 10, 2012

Kendall Sinclair

HELSINKI , January 10, 2012 (press release) – US NBSK – The producer inventory decline by one day without seasonal adjustment and by two days including the adjustment in November was a positive sign for the market. On the other hand, the USD strengthening makes it tougher to get through price increase attempts. BSKP shipments to the North American market were weak in November and in this grade the producer stocks remained unchanged. NBSKP producers’ price announcements in the US market include both calls for a flat 890 and for a decline to 870. After withdrawing the top and bottom 10% of the price data received, our PIX US NBSK index retreated by 2,14 USD, or by 0.24%, and closed at 887.86 USD/ton.

US Newsprint – The potential restart of the earlier closed Port Hawkesbury mill under new owners is reported, by RISI, to apply only SC. The newsprint machine would remain idled. In November, the production of newsprint fell 5.2% from November 2010, according to AF&PA. The cumulative drop was 3.8% with domestic consumption down more but with exports up. The reports from the market suggest that no major change to the better was seen in December. The tip of the scale tilted in opposite directions for the two benchmarks, although in a very minor way. The PIX US Newsprint 30lb index gained 4 cents, or 0.01% to 623.85 USD/ton, while the 27.7 lb lost 2 cents, or 0.0%, settling at 664.57 USD/ton.
Jan 10, 2012

General economy: US – Economic news has continued to be predominantly positive. Global economy expanded a bit faster during Q4 than earlier in 2011, according to JP Morgan’s manufacturing and service PMI. In the US, the fourth consecutive monthly decline of unemployment rate brought it down to 8.5% after 212 000 jobs were added in the private sector. Public sector reduced the positive impact with the government employment falling by 12 000 jobs. Obama is pushing an extension of the payroll tax cut to cover the whole year to further support the recovery. Mild weather has helped by adding to construction activity and jobs in the sector. Average payrolls were on a small rise. Euro-zone crisis and tensions over Iran with a potential impact on oil-price remain the key threats. The growth appears strong enough for the Fed to stay on the side-lines. Buying more bonds or other further easing of the monetary policy can wait, should a real need arise.

Europe – is receiving more and more confirmation of sliding into a recession. The latest retail sales numbers for the Euro-zone are now 2.5% below Q4 2010 level. German industrial order books were down sharply in November. Construction PMI (by Markit) showed the third drop in a row. For the whole EU, Markit’s productivity PMI showed the fourth consecutive drop. Manufacturing and services were both down. The only clearly positive indicators were the growths shown by the German, French and UK service sectors. The near-term outlook for the EU is a mess. Not only are the key indicators of almost all sinking but the unity of the Union seems to be increasingly in jeopardy with the UK first deciding against joining the support fund and now saying no, even if for good reasons, to the plans to introduce a capital transfer tax in the EU. The divide widening between the Euro-zone and the UK increases the risk of an EU break-up if the financial crises of the Euro-zone cannot be solved.

Japan – The recent PMI data confirmed the expected weakness in the manufacturing sector. Other data from Japan showed stabilization of growth but on a slow rate of expansion. The all-industry activity index edged back marginally above 50. Service sector numbers were hesitantly positive. On the job front, the picture was opposite. Manufacturers added jobs while service sector employment was reduced. The high rate of retirement kept net job reduction very limited. Longer-term prospects in the service sector were more positive than the short-term ones. Input price inflation picked up speed but output prices continued to fall.

China – the joint plans by the World Bank and China call for strong measures to renew the economy. These recommendations target for a stronger internal growth and lesser dependency on exports. World Bank repeats the request for a freer floating of the Chinese currency which would most likely lead to an appreciation of the Yuan. In spite of the risk threatening the Chinese export industries as well as some of the Chinese financial institutions, the recent economic data remains reasonably good. E.g. the employment numbers improved and the all-industry activity indices moved back above 50, signalling a moderately higher rate of expansion.

Paper industry – Industry activity in the industrialized world remains weak. In the US, November statistics were less weak for the total paper and paperboard than many of the previous months but still showed further decline. But printing and writing, excluding newsprint showed a nearly 6% drop in shipments for the month of November and 5.3% decline cumulatively. Operating rates fell back below 90%, on average. Also, the printing and writing support index (by the Fed) keeps on heading down and approaches 70, the lowest index value in the history, including the worst moments of the 2008-2009 recession. Tissue sector, on the other hand, has climbed back up and the recent shipment and production data gives positive comparisons. Slightly better economic outlook should also support packaging and November data was already minutely on the plus side.
In Europe, combining the CEPIPRINT and CEPIFINE numbers received over November show the estimated demand for all printing and writing papers, including newsprint, down by 6.4% against November 2010. The cumulative 11-month number stands at -4%. Exports were up by 6.5% in November and 1.6% on cumulative basis. The positive export data reduced the declines in total printing and writing paper shipments but they were still down by 4.2% in November and 2.9% cumulatively. Also in Europe, tissue papers continue to do OK but packaging shows negative numbers during the fall months.

NBSK pulp Europe – BSKP market shipments were up in November from the previous months but still moderately lower than in November 2010. Producer stocks are slightly above normal. The outcome of the on-going price negotiations is not known. Several producers have announced a price increase. The strengthening of the USD makes the dollar-price hike challenging under the circumstances as the exchange rate movements have rapidly raised the Euro-price per ton, including the data reported to us over last week’s sales. EUR weakened again, this time by 1.3% against USD from the previous week. Our PIX NBSK index showed a small decline by 21 cents, or by 0.03%, and closed at 828.83 USD/ton. With the stronger USD, the PIX NBSK index, converted into Euro, moved up by 8.01 euro, or by 1.25%, ending at 648.74 EUR/ton.

BHK pulp Europe – The BHKP shipments were quite strong in November, in fact, it was one of the highest delivery months in history. This was most likely partly due to the low prices in Asia and partly to the downtime taken by the Asian mills (which are not part of the PPPC statistics) and imports from other regions replacing some of that tonnage. Producer stocks came down but port stocks in Europe are high. The high level of European stocks probably includes some Latin American pulp on its way to China as part of the shipments to China are first brought to Europe, containerized here and sent on to China. The price rise efforts appear to bear some fruit. EUR weakened by 1.3% against USD. With the dollar-strengthening, the PIX BHKP index-value in EUR moved up by 12.20 Euro, or by 2.43%, and closed at 513.67 EUR/ton. The PIX BHKP index value in USD gained 7.41 dollars, or 1.14%, and closed at 656.26 USD/ton.

BHK pulp China – After high November shipments, the pulp intake is rumoured to have weakened in December for a number of reasons. Firstly, high November shipments increased consumer stocks. Secondly, the approaching Chinese New Year holiday season reduces needs of pulp as January consumption will be lower. Thirdly, increased sales of domestic pulp from the new Shandong Chenming facility reduced the import needs. On the other side of the coin, the ordered closures of non-wood pulp based paper capacity improved the volumes of wood-fibre based paper production and the paper and board production capacity in China continues to grow rapidly. Pulp price increase efforts appear to be at least partly successful. The PIX China BHKP moved up by 6.46 USD/ton, or by 1.15%, and closed at 568.68 USD/ton. Yuan weakened by 0.2% against USD, compared to a week ago. The conversion of the USD value into Yuan resulted in an increase of 46.47 RMB, or by 1.31%, to 3591.60 RMB/ton.

NBSK pulp China – BSKP shipments did not surge the way BHKP did in November. Consequently, inventories were not built up. In this grade, December shipments appear to have continued more or less on the same level as those in November. Several producers have announced price hikes, typically to 670 but in some cases to 700, from a lower but not always specified prior level. The share of contract tonnage continues to grow. Chile, the 3rd biggest country of BSKP imports to China had some production losses in December. Our PIX China NBSK index increased by 3.86 USD/ton, or by 0.58%, and closed at 664.92 USD/ton. Yuan weakened by 0.2% against USD. The conversion of the USD value into Yuan meant an increase of 31.04 RMB, or by 0.74%, to 4199.42 RMB/ton.

Newsprint – The healthy rise in exports in November limited the drop of total newsprint shipments for the month but total deliveries of newsprint from CEPI member countries are still cumulatively down by nearly 3%. The structural decline in the consumption and the further weakening of Europe’s economic outlook are far the ideal setting for raising prices but price hikes with reportedly rather moderate targets are attempted with, so far, unknown results. The weakening of the Euro supports the price increase attempts; the drop in recovered fibre prices does not. The EUR weakened against the weighted basket of non-EMU currencies by about 0.9%, which helped the benchmark higher. The PIX Newsprint index moved up by 59 cents, or 0.11%, to 513.93 EUR/ton.

LWC – In coated mechanicals, 2011 was a year of good export performance all through the year but also a year of rapidly declining regional demand with another large drop of 7.5% in November. In North America, the demand has fallen even more, over 8% in January-November. Capacity closures are expected to improve the supply/demand balance in early 2012, especially in Europe, once the 2011 order backlogs have been delivered. Producers are reported to aim for price hikes and buyers to search for price declines. Time will tell the outcome. The approximately 0.9% weakening of the EUR against the weighted basket of non-EMU currencies meant an upward pressure on our benchmark. The PIX LWC index gained 58 cents, or 0.08%, closing at 705.27 EUR/ton.

Coated woodfree – CEPIFINE statistics over the November 2011 showed a 3.9% decline in the estimated regional demand against November 2010. Cumulative decline is still nearly 7%. Exports were weak, down 10% against November 2010. Decline in the total shipments was thus over 4% for the month and nearly 5% cumulatively. Over the course of the year, imports from outside Europe have grown smaller and after 11 months were down by about 180 000 tons against 2010. The 0.9% weakening of the Euro against the weighted basket of non-EMU currencies supported a rise on the benchmark. The PIX Coated woodfree index moved up by 86 cents, or by 0.12%, to 717.81 EUR/ton.

Uncoated woodfree – CEPIFINE numbers over November showed relatively uniform declines in regional consumption and in exports. Regional estimated demand was down by 6.6% in November and by 6.3% over the course of the year. In exports, shipments were down by 7.3% but still up by 7.4% cumulatively. In total deliveries, November was down by 5.5% against November 2010 and the cumulative decline over the first 11 months of the year by 2.7%. Also in this grade, imports from outside the region showed a clear reduction.
The roughly 0.9% weakening of the Euro against the weighted basket of non-EMU currencies meant an upward push on the benchmark. The PIX A4 B-copy index value increased by 46 cents, or by 0.05%, and closed at 866.70 EUR/ton.

Containerboard Europe – In the US, a slight improvement in November in both box shipments and containerboard deliveries gave some early hope that the improved outlook for the economy would have positive repercussions in the packaging sector. Further consolidation seen over the course of 2011 is expected to be a positive driver for the bottom lines of the now more limited number of players.
In Europe the going has gotten volume –wise rougher towards the year-end. Declining recovered paper prices would have, in principle, reduced the cost pressures and improved the profit margins, but in practice have led to similar price declines in the brown packaging grades.
The currency movements had this time a positive impact. Euro weakened by 1.3% against the USD and by about 0.9% against the weighted basket of the non-EMU currencies. Apart from white-top liner, all of our packaging benchmarks registered further decreases. The PIX Kraftliner index retreated by 5.46 euro, or by 1.02%, to 529.61 EUR/ton. The PIX White-top Kraftliner index moved back up by 1.47 euro, or by 0.19%, and closed at 773.55 EUR/ton. Our PIX Testliner 2 index showed also a relatively large drop of 5.12 euro or by 1.16% to 435.73 EUR/ton. PIX Testliner 3 index fell by 81 cents, or by 0.2%, and landed at 406.83 EUR/ton. Our PIX RB Fluting index declined by 1.62 euro, or by 0.41%, to 392.39 EUR/ton.

Recovered paper Europe – In China, the increases in recycled linerboard capacity continue to require more fibre. After the first 11 months, the imports of recovered paper were up considerably from 2010 and not all that far from the 2009 record volumes. The combination of higher import needs and the risk of declines in European and US collection volumes, at least longer term, have brought the prices paid in China again slightly up in the beginning of the year after a modest rise already seen in December. In Europe, the regional demand has weakened and therefore the prices are still on a declining trend.

The price retreat over last weeks’ business was, however, again quite limited. The PIX OCC 1.04 dd benchmark lost 7 cents, or 0.06%, and closed at 109.71 EUR/ton. The price gaps narrowed as containerboard prices retreated more. Against Testliner 2, the gap narrowed by 5.05 euro to 326.02 EUR/ton. Against Testliner 3, the differential narrowed by 74 cents to 297.12 EUR/ton. Against RB Fluting, the gap shrank by 1.55 euro to 282.68 EUR/ton.

Our PIX ONP/OMG 1.11 dd index retreated by 93 cents, or by 0.72%, landing at 128.72 EUR/ton. As the PIX Newsprint benchmark moved up, the differential to PIX ONP/OMG 1.11 widened by 1.52 euro to 385.21 EUR/ton.

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