FOEX Pulp & Paper Indices - Jan. 24, 2012

Kendall Sinclair

HELSINKI , January 24, 2012 (press release) – US NBSK – The attempts to deliver the tonnages agreed for 2011 before the turn of the year and/or the efforts to decrease the inventories brought the spot prices lower - and volumes up – in December. In January the spot volumes have been more limited and the lowest-priced volumes appear to have disappeared. The drop of the contract prices by most suppliers to 870 USD/ton, before sizeable discounts, shows in the PIX index development. Our PIX US NBSK index retreated again, this time by 5.04 USD, or by 0.57%, and closed at 871.86 USD/ton.

US Newsprint – Demand continues to fall, as does the supply. Restructuring talks involve, one way or another, most of the newsprint producers. Discussions with the Unions and/or Chapter 11 or Chapter 15 conditions cloud the path into the future in this grade more than in any other major grade of paper. Amidst all kinds of uncertainties, prices have remained quite stable, to a surprise of many analysts. The PIX US Newsprint 30lb index remained at 623.61 USD/ton, and the 27.7lb index at 664.32 USD/ton.

General economy: US – The rocky road of the US economy seems to be smoothing down. The troubles of Europe have helped the Americans to forget the large US fiscal deficit, even if the economics are, naturally, part of the presidential race topics. Most of the December data and January indicators have been positive. GDP-growth estimate for this year is now slightly over 2% with the most optimistic analysts predicting over 2.5%.

Europe – German employment numbers improved again, approaching the level when even shortages can occur in some sectors. Still, even Germany’s GDP appears to have contracted during the 4th quarter. This means that also the Euro-zone economy fell into negative growth. At present, all key elements, private consumption, public spending, industrial production and investments will be moderately on minus-side. Too severe austerity programs could deepen the double-dip. The lack of satisfactory solution for Greece remains another hurdle.

Japan – The month of December was a month of many marginal movements. Business activity returned to positive growth, but only marginally. Slight decrease in jobs was registered. Service sector reported positive results but only feebly. New business went down, marginally. Manufacturing output continued to fall but less than in November. Another worrisome feature is the continuing trend of downward revisions in the plans and profits of the corporate sector.

China – The key indicators, most notably the composite PMI, were more positive in December than in the previous 2-3 months. Maybe most importantly, the intake of new orders showed clear growth. Service component did better than the manufacturing. Europe’s problems pose a downside risk, however, as the EU remains a major export market. The rise in input prices continued but the rate slowed down. The indications continue to propose a “soft landing”, i.e. the GDP growth falling below 9% but not far below. China is becoming a high-cost country compared to some other Asian nations.

Paper industry – In Europe, the paper industry statistics over December are not out yet. In November, total paper and paperboard production (by CEPI) was down by 5.6% against November 2010 and by 1.7% over the first 11 months. December data is likely to be poor as well. The UTIPULP consumption numbers showed market pulp usage down by as much as 9% against December 2010. In the US, the printing and support industry’s activity index continued to descend. But in the US, it was not just bad news. In the ISM survey the print sector received a clearly better rating. Employment numbers were up as well. The US producers appear to have some hope for improvement in the domestic market if the economic growth picks up, as many expect.

NBSK pulp Europe – On the supply side the losses of production at Terrace Bay with a more permanent nature and the unscheduled down time seen in Chile has withdrawn volumes but the winter weather has stopped downtime efforts in the most northern mills. Demand in Asia is reported to have been relatively good prior to the Chinese New Year, compensating for the weakness of the European intake. EUR strengthened by 1.0% against USD from the previous week. After a small increase last week, our PIX NBSK index moved this time back down by 1.58 USD, or by 0.2%, and closed at 832.97 USD/ton. Converted into Euro, the index retreated by 7.86 euro, or by 1.2%, ending at 645.61 EUR/ton.

BHK pulp Europe – Consumption of hardwood pulps was down in December but not as much as that of softwood. Planned and unplanned downtime taken in December and in the first days of January in Latin America and in Indonesia and China reduced the supply. The common use of the baisse-clause in the contracts complicates the price discovery system. Average price, according to our specifications without the baisse-clause, remains considerably below 730 USD/ton announced by several producers. EUR strengthened by 1% against USD. With the dollar-weakening, the PIX BHKP index-value in EUR retreated by 4.54 Euro, or by 0.87%, and closed at 516.45 EUR/ton. The PIX BHKP index value in USD rose by 96 cents, or by 0.14%, and closed at 666.32 USD/ton.

BHK pulp China – The quieting down of China appears to have started only with the New Year. Pulp purchasing activity continued lively, especially in the hardwood grades, during the weeks preceding the holiday season. The reduced supply raised the prices of Russian hardwood pulp and other spot volumes close to the prices of the contract pulps. The earlier announced 580 for BEKP have been topped by a new announcement to 605 USD/ton by at least one producer from February 1. The PIX China BHKP moved up again but this time by only 21 cents, or by 0.04%, and closed at 575.00 USD/ton. Yuan weakened by 0.3% against USD, The conversion of the USD value into Yuan resulted in an increase of 12.77 RMB, or by 0.35%, to 3642.53 RMB/ton.

NBSK pulp China – The price differential between softwood and hardwood pulps is smaller in China than in other markets. The apparent further weakening of the demand pull for BSKP in the European and US markets in December and the closures at European graphic paper producers sent some of the tonnage to Asia instead. Our PIX China NBSK index increased by 1.86 USD/ton, or by 0.3%, and closed at 668.19 USD/ton. Yuan weakened by 0.3% against USD. The conversion of the USD value into Yuan meant an increase of 25.04 RMB, or of 0.6%, to 4232.87 RMB/ton.

Newsprint – Demand remains weak around the industrialized world. The decline in imports and better export volumes during Q4 has supported newsprint production in the CEPI-countries. In November, the production volumes fell by over 4% against November 2010. Still, the annual cumulative volume remained positive, even if by only 0.1%. The December data should be available from CEPIPRINT soon after this note has been published. The EUR weakened against the weighted basket of non-EMU currencies by about 0.1%, helping to lift the benchmark upwards. The PIX Newsprint index value headed higher by 30 cents, or by 0.06%, to 513.61 EUR/ton.

LWC – Coated mechanical grades have suffered more than coated woodfree from advertising declines. In US, the drop in shipments is approximately 8% for the year. In Europe, LWC will clear the year with a smaller drop than coated woodfrees but in the latest months, regional demand has fallen more against last year in LWC than in CWF. The narrow price differential between the two also impacts buyers choices in those end-uses where the two grades are in more or less direct competition. The approximately 0.1% weakening of the EUR against the weighted basket of non-EMU currencies gave, in theory, a small push upwards on our benchmark. But, the PIX LWC index still lost 1.04 EUR, or 0.15%, and closed at 703.12 EUR/ton.

Coated woodfree – In North America, coated woodfree shipments were almost flat in December, even though down by 4% over the year. Prices fell in the course of 2011 but less than in LWC. In Europe, demand will end up down more than in the US but be relatively less down in late 2011 than for the year as a whole. Still, the market remains weak and the economic outlook is not encouraging over 2012 either. Christmas season downtime extended in many cases well into 2012. Little has been heard from the price negotiations. The 0.1% weakening of the Euro against the weighted basket of non-EMU currencies had a mild upward impact on the benchmark. The PIX Coated woodfree index rose by 90 cents, or by 0.13%, to 715.47 EUR/ton.

Uncoated woodfree – In the US, uncoated free sheet prices fell in early January driven by a combination of persistently weak demand and falling fibre costs. In 2011, preliminary uncoated free sheet demand numbers show a 3.3% retreat. In Europe, the annual numbers are not yet known with December data not yet available. The drop is likely to be between 6-7%, or over 400 000 tons. Gains in exports and reduction in imports have not compensated the drop in regional demand and shipments. Price negotiations continue also in this grade. The approximately 0.1% weakening of the Euro against the weighted basket of non-EMU currencies helped a little in pushing the benchmark higher. The PIX A4 B-copy index moved up by 1.15 EUR, or by 0.13%, and closed at 864.22 EUR/ton.

Containerboard Europe – Containerboard demand in the US market, with a cautiously optimistic mood in the economy, has been relatively stable. This applies to both shipment volumes and to prices. In overseas markets, the economic growth is slowing down and active fight over the volumes has pressed the prices lower. In Europe, the outlook is weak and the production and delivery volumes show declines over the latest months. Last week, the currency movements had a mixed impact on the packaging benchmarks. Euro strengthened by 1.0% against the USD but weakened by about 0.1% against the weighted basket of the non-EMU currencies. Our PIX Kraftliner index moved up by 2.03 euro, or by 0.39%, to 527.83 EUR/ton. The PIX White-top Kraftliner index value recovered by 17 cents, or by 0.02%, and closed at 771.94 EUR/ton. Our PIX Testliner 2 index lost 6.46 euro, or 1.5%, and settled at 429.27 EUR/ton. PIX Testliner 3 index fell by 8.85 EUR, or by 2.2%, and landed at 395.76 EUR/ton. Our PIX RB Fluting index declined by 7.66 euro, or by 1.96%, to 383.51 EUR/ton.

Recovered paper Europe –Recovered paper prices have moved up moderately in China and elsewhere in Asia, especially in OCC, in spite of the downside pressures in linerboard prices. The export market pull has stopped or slowed down the price decline in Europe and in the US as well. In Europe, the price decline continued in ONP/OMG, however. Our PIX OCC 1.04 dd benchmark moved up by 1.05 Euro, or by 0.95%, and closed at 111.54 EUR/ton. The price gaps narrowed as recovered paper based containerboard prices retreated. Against Testliner 2, the gap narrowed by 7.51 euro to 317.73 EUR/ton. Against Testliner 3, the differential narrowed by 9.90 EUR to 284.22 EUR/ton. Against RB Fluting, the gap shrank by 8.71 euro to 271.97 EUR/ton. Our PIX ONP/OMG 1.11 dd index retreated by 1.89 euro, or by 1.47%, landing at 126.70 EUR/ton. As the PIX Newsprint benchmark moved marginally up, the differential to PIX ONP/OMG 1.11 widened by 2.19 euro to 386.91 EUR/ton.

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