FOEX Pulp & Paper Indices - Feb. 14, 2012
February 14, 2012
– US NBSK – Fluff pulp demand has picked up again, after a weaker passage in December-early January which, together with some technical production losses, reduces pressure on supply of pulp on the normal paper grades side. Mercer has clearly outbid Resolute’s hostile take-over attempt of Fibrek and Fibrek’s board now recommends that the shareholders should accept the deal. This increases the concentration of the still quite fragmented market pulp production. The decline in the US NBSKP prices almost came to a halt. Still no public price announcements, as far as we know, have been made for February. Our PIX US NBSK index fell by 6 cents, or by 0.01%, and closed at 869.94 USD/ton, a fraction below the 870 USD price announced by most of the NBSKP producers.
US Newsprint – Newsprint demand remains depressed but prices have been holding reasonably flat for a quite long period already. Cost pressures on the producers are again increasing as the decline in recovered paper prices has turned into a rise. Also, the recent political pressures on Iran have sent the energy prices higher. Another indirect cost threat from the energy side is the proposed change in legislation which would take away the cellulosic biofuel tax credits from pulp and paper mills, received mainly in 2009 with a loophole in taxation. The PIX US Newsprint 30lb index edged down by 13 cents, or by 0.02%, and closed at 623.15 USD/ton. The 27.7lb index retreated by 12 cents, or by 0.02%, to 663.91 USD/ton.
General economy: US – Most of the recent economic indicators have been better-than-expected and the recovery thus appears to strengthen in the US. Still, the Fed does not see the pace of economic growth as quite sufficient or certain enough. A need for additional monetary easing was discussed at the Bank's meeting last month. Housing sector was signalled out as one of the key reasons for possible further stimulation of the economy. As one of the large sources for jobs it has kept the unemployment rate high and been a drag on the recovery process. So, in addition to the promise to leave the central bank interest rates at near zero “until at least late 2014”, some special stimulation measures targeted to housing can be expected. Further purchases of mortgage bonds are another potential measure of quantitative easing.
Europe – The situation in Greece is messy but the government did approve the further savings measures required for the additional funding; i.e. Greece chose severe budget cuts over the default, which would have followed had the funding been missed. That funding will now be available and more time has again been bought to solve the Euro-zone financial crisis. The problem for Greece – and for many other countries with stern austerity measures – is that the tightening of the belts is so severe that it will be extremely difficult to get a proper growth back again. And without that growth, the loan burden cannot be reduced. In fact, with GDP-growth declining, the share of loans of the GDP will grow, contrary to the targets.
Japan – GDP shrank by 0.9% in 2011, including a larger-than-expected contraction of 2.3% in Q4, against Q4 2010. The delay in getting a parliamentary approval for an over 150 billion USD extra budget for reconstruction reduced the public investments. The strength of the Yen and the generally weak export demand, due to the European debt crisis and Thailand floods were among other reasons for the weak performance. Early 2012 growth should be boosted by the tsunami reconstruction funding and by private consumption continuing to expand, even if only very slowly. Comparison numbers from Q1 2011 were affected by the natural catastrophes. Corporate capital investment is also expected to continue rising. U.S. recovery and better global business sentiment will also support Japan’s return to positive growth. BoJ has just decided to further stimulate the economy by an additional quantitative easing.
China – Government is planning to start fine-tuning China’s economic policies already during Q1. During the past few weeks, many signs have been seen indicating a slowing down of the growth. Domestic demand was weak in January and imports fell to their lowest level since 2009. Bank lending volumes were also below expectations. Government already injected more cash into the economy. Banks’ reserve requirements which some expected to be lowered already prior to the Lunar New Year, will most likely be the next tool to be used. Other pre-emptive steps are to follow. If the measures taken or those soon to be taken do not revive the growth, the present policy of moderate easing is likely to be quickly intensified. If the efforts to cool the housing market down are successful, inflation should not be too much of a problem, even if the oil price remains elevated.
Paper industry – The first news over the January paper and board market suggest that the improving economic growth in the US is bringing back some of the lost advertising volumes which is helping the publication paper industry from losing even more ground. Lower unemployment rate means more work in the offices, at home and outside, which supports the uncoated free sheet demand. The fresh ISM data from January shows that the publication paper sector order backlogs are up as well as the export-supported output. While nothing dramatically good, the start of the year appears to be clearly better than the 3-6% decreases recorded in 2011. European paper industry continues to drag its feet. Lengthy downtime taken in December by prolonging the holiday shutdowns and taking down some of the capacity for good brought the operating rates down to mid 70ies in all key printing and writing grades. The rates have been slightly higher in the packaging sector but also there well below the 2011 average. Early 2012 situation does not look promising either. Germany is one of the countries with, most likely, a positive economic growth during January. Even there the business climate in the paper and printing industry is heading lower. The Graphic Arts Industry Business Climate Index, which measures the industry expectations over the next three months, continued to fall sharply in January. Operating rates may inch up a bit though as the decline in supply is in some grades, with several major capacity closures, steeper than the anticipated decline in demand.
NBSK pulp Europe – Softwood pulp market remains softer than the rapidly improved hardwood pulp sector. Much of that softness is linked to the closures, or low operating rates of the European graphic paper producing mills. Another key driver is the supply which went up with the re-starts of production capacity in 2011 and through an increase of market pulp supply from companies with paper capacity closures. The wide price differential – even if now narrowing – between softwood and hardwood pulp is yet another driver. EUR strengthened by 0.2% against USD from the previous week. Our PIX NBSK index stopped sliding down and moved up by 1.94 USD, or by 0.23%, and closed at 828.40 USD/ton. Converted into Euro, the index rose very marginally, i.e. by 9 cents, or by 0.01%, to 628.10 EUR/ton.
BHK pulp Europe – Refilling or even maintaining of the raw material consumer stocks which were run down during the second half of 2011 when paper and board consumption decline steepened in Europe supported the hardwood pulp market in December. Switches to dissolving grade, unexpected production problems and the lengthier closure of some BHKP lines, such as Tofte, were another reason for the drop of producer stocks and, consequently, for the rapid tightening of the market over the past few weeks. Soft generation of pulp substitutes supports BHKP market as well. Speculative purchasing may also have added to the demand pull. EUR strengthened by 0.2% against the USD. The PIX BHKP index-value in EUR moved up by 10.63 Euro, or by 2.04%, and closed at 530.76 EUR/ton. The PIX BHKP index value in USD rose by 15.53 dollars, or by 2.27%, and closed at 700.02 USD/ton.
BHK pulp China – The downtime taken at the paper and paperboard machines during the Lunar New Year holiday season always reduces the pulp consumption at this time of the year. On the other hand, local pulp production volumes have been lower, partly due to the ordered closures of some of the non-wood pulp mills and partly because of low price – high cost driven margin problems. After the high pulp intake in December and January, purchasing activity was expected to show some decline after the Chinese New Year. The first news from the market report, however, that the activity remains good, both in virgin fibre pulp and in recovered paper procurement. The PIX China BHKP continued to move up, this time by 6.77 USD, or by 1.15%, and closed at 597.82 USD/ton. Yuan strengthened by 0.3% against USD. The conversion of the USD value into Yuan resulted in an increase of 33.11 RMB, or by 0.89%, to 3762.74 RMB/ton.
NBSK pulp China – As in Europe, the softwood pulp market is not as strong as the hardwood pulp market. Large intake volumes during Q4 (over 0.5 million tons in each of the three months) increased the tonnage available in the consumers’ stocks and placing new orders in January and early February has not been as lively as in hardwood. Consequently, the reactions to producers’ price initiatives have been slower. Some of the suppliers have not come out into the open with their price requests. Start-up of some new machines requires softwood pulp and this helps to keep the momentum going, as does the narrowing of the price differential between grades. Our PIX China NBSK index value increased by 1.88 USD, or by 0.28%, and closed at 676.13 USD/ton. Yuan strengthened by 0.3% against USD. The conversion of the USD value into Yuan meant an increase of exactly 1.00 RMB, or of 0.02%, to 4255.64 RMB/ton.
Newsprint – The negotiations over 2012 prices took this time exceptionally long. The first results filtering through the grapevine vary from one market to another and appear to be either unchanged or moderately down from the prices applied in December/early January over the last tonnage against the 2011 contracts. Some of these newly agreed prices have also finally started to “hit the index” as business deals for the New Year have been closed and also start to be delivered. The EUR strengthened against the weighted basket of non-EMU currencies by about 0.3%, which caused some downward pressure on the benchmark. The PIX Newsprint index slipped downwards by 1.03 EUR, or by 0.2%, and closed at 513.60 EUR/ton.
LWC – Demand for coated mechanicals has continued to shift lower on both sides of the Atlantic. In the US capacity utilization fell below 90% in December and the prices have been slipping down both in December and in January. In Europe, the operating rate was only about 75% in December, when taking still into account the capacity numbers of those units that were to be closed at the turn of the year. In 2012, supply will be clearly less. The big question mark is the size of the demand decline, which is expected to continue. Weak demand presses prices lower but the recent rise in energy costs gives counter-pressure to the other direction. The currency impact of an approximately 0.3% strengthening of the Euro against the weighted basket of non-EMU currencies gave a downward pull on our benchmark. In spite of the currency impact, our PIX LWC index moved up by 1.65 EUR, or 0.23%, to 705.16 EUR/ton.
Coated woodfree – In the US, demand was relatively good towards the end of the year, in December actually marginally higher than in December 2011. Still, prices came down – with pulp prices – by about 25 USD over December-January. Operating rate was at 90% for the year and marginally lower at 89% in December. In Europe, coated woodfrees were also one of the grades where the end of the year was better than the annual average. Still, a lot of downtime was taken in December with the capacity utilization rate well below 80%. The small strengthening of the Euro against the weighted basket of non-EMU currencies had basically a negative effect on the index, but, nevertheless, the PIX Coated woodfree index rose by 3.81 EUR, or by 0.54%, to 714.54 EUR/ton
Uncoated woodfree – Improving unemployment rate is likely to have some positive impact on the uncoated free sheet demand in the US. Operating rate in December was about 88%. Wausau’s Brokaw mill is on the list of closures by the end of Q1. In Europe, the order intake in January showed some promise after an operating rate of under 75% in December. In spite of the better order intake, the market remains over-supplied and price pressure remains downwards. On the other hand, the recent rise in hardwood pulp costs reduces the suppliers’ willingness to discuss price declines. The strengthening of the Euro against the non-EMU currencies meant a downward pressure on the benchmark. With the currency impact, our PIX A4 B-copy index retreated by 2.20 EUR, or by 0.26%, and closed at 859.06 EUR/ton.
Containerboard Europe – In the US, the end of the year was relatively positive as to the box shipments with only a very small 1.8% decline in shipments with one less working day. Inventories, however, continued to head higher and the combined increase of stocks in the supply chain in December was more than 5-fold compared to the normal seasonal change. In Europe, the market situation remains weak. Further downside pressures on the prices are counterbalanced by both the on-going restructuring and the tightening of the raw material availability which has sent the recovered paper prices back upwards and tightened the ratio between testliner/corrugated medium and OCC/mixed waste abnormally narrow. While prices of the virgin fibre grades still headed lower, the raw material cost increases led to price increase announcements of 40-60 euro in Continental Europe. Some of those price hike efforts were also visible on our benchmarks. Last week, the currency movements put a downward pressure on our packaging benchmarks. Euro strengthened by 0.2% against the USD and by about 0.3% against the weighted basket of the non-EMU currencies. Our virgin fibre packaging benchmarks continued to head south, whilst the recovered paper based grades headed north. The PIX Kraftliner index lost 41 cents, or 0.08%, and closed at 514.47 EUR/ton. The PIX White-top Kraftliner index retreated by precisely 1.00 euro, or by 0.13%, and closed at 761.26 EUR/ton. Our PIX Testliner 2 index moved back up by 4.31 euro, or by 1.05%, and settled at 414.35 EUR/ton. PIX Testliner 3 index value rose by 10.07 EUR, or by 2.63%, and landed at 392.90 EUR/ton. Our PIX RB Fluting index headed higher by 13.30 euro, or by 3.57%, to 385.65 EUR/ton.
Recovered paper Europe – Recovered paper demand in China appears to continue healthy also after the Lunar New Year, as already anticipated earlier. The reduced availability of recovered paper in Europe, coupled with the demand pull from China, Korea, India and some other Asian countries means further upward pressure on recovered paper prices, again most clearly in the largest export grade, OCC. In some of the countries, OCC price went already above the ONP/OMG quotes. The PIX OCC 1.04 dd benchmark moved up by 10.01 euro, or by 8.70%, and closed at 125.08 EUR/ton. The price gaps to containerboard prices showed a blended behaviour. Against Testliner 2, the gap tightened by 5.70 euro to 289.27 EUR/ton. Against Testliner 3, the differential widened but merely by 6 cents to 267.82 EUR/ton. Against RB Fluting, the gap grew by 3.29 euro to 260.57 EUR/ton. Our PIX ONP/OMG 1.11 dd index headed higher by 1.42 euro, or by 1.14%, landing at 125.53 EUR/ton. As the PIX Newsprint benchmark came moderately lower, the differential to PIX ONP/OMG 1.11 narrowed by 2.45 euro to 388.07 EUR/ton.