FOEX Pulp & Paper Indices - March 6, 2012

HELSINKI , March 6, 2012 (press release) – FOEX Indexes Ltd - PIX Indexes – March 6, 2012

US NBSK – Market pulp shipments to the North American market were in January, according to PPPC, down by just under 2% against January 2011. This was a surprisingly good result compared to the over 4% drop in graphic paper and 1% decline in tissue paper production. Between the grades, BSKP shipments (including fluff pulp) were down and BHKP shipments marginally up from January 2011. Part of the recent shipments has gone to fill up consumers’ pulp stocks which came up by nearly 100 000 tons in two months (December + January). On the price front, things are quiet. As far as we know, none of the producers have announced changes in their pricing for March. Our PIX US NBSK index remained unchanged at 870.00 USD/ton.

US Newsprint – There is very little new that could be reported over the US/North American newsprint business. Consumption continues to fall quickly, especially in the US dailies. January statistics from PPPC showed total shipments to NA market down by 8%, exports down by 16%, mill inventories down by 12% and days of supply at US users down by 18%. Operating rate was pegged at 90% and prices remain very stable. The PIX US Newsprint 30lb index remained at 623.14 USD/ton and the 27.7lb index was unchanged at 663.90 USD/ton.

General economy: US – Following the declines in unemployment rate, the US households became more confident over the strength of the recovery in February. This was demonstrated by a small rise in consumer sentiment, but not fully back to the level seen in Q4. Corporate order books are pretty good looking at the domestic sales but have thinned as far as the exports are concerned. The manufacturing PMI decreased by 1.7 points to 52.4 in February. While the number is lower, it remains above 50, indicating that the growth in the manufacturing sector will continue. Drop in the order books causes concern even if the production volumes were still in a rise. Another negative piece of news is the further rise seen in energy and several raw material costs. Economists are predicting approximately 2% real growth (annualized) for Q1 and slightly higher, or 2.3-2.5% expansion for the year as a whole.

Europe – The solution reached over the 2nd support package for Greece helped to calm down the financial and stock markets but Greece still needs to find a solution over the private sector debtors. Euro-zone business activity slipped back into the contraction mode in February, according to the Markit’s Flash Euro-zone PMI. The composite output index retreated to 49.7. Unemployment rate in the EU hit an all-time high. Service sector continues to fall with constraints on public spending. New manufacturing orders fell for the 7th month in a row. Backlog of orders fell as well. Input prices increased while prices charged for sales of goods and services marginally fell. The latest estimates suggest that after the 1.5% (revised downwards) real economic growth for Euro-zone in 2011, the GDP growth for 2012 would average about -0.3%.

Japan – Growth of Japanese manufacturing output continued in February supported by improving domestic demand. There was also a small rise in the employment numbers. Exports are not doing well, however. New export orders headed clearly down and order stocks on existing business shortened. On the price front, oil and other raw material prices moved the input prices up. Output prices charged from the sales of goods and services still fell, even if only rather marginally. The consumer sentiment has been moving back and forth but the corporate sentiment has shown a more continuous deterioration. The weakening sentiment shows in the continuous contraction of the capital expenditures since late 2011. Backlogs of work shrank as stocks continued to be depleted. There is also a fair amount of spare capacity.

China – Economic growth continues to lose momentum, slowly but surely. The sharpest declines are taking place in investment growth – from a very elevated level. This decline is felt through the whole sector of investments, industrial, residential, commercial and public spending on infrastructures. New export order volumes are falling. On the positive side, domestic demand for goods and services continues to expand at a rapid pace. The manufacturing PMI of China actually moved up in February to 49.7 points, the highest level in four months. Manufacturing output numbers were even better at 50.1. Stocks of the finished goods were up, output prices down and input prices (=costs) rising again. The slowdown of the surrounding economies is not good news for China’s export-dependent economy. The growth in consumer demand is not sufficient to compensate fully the weaknesses experienced in the external demand.

Paper industry –Paper industry activity in January was not good but it turned out to be less bad than what was feared. Graphic paper demand still contracted by over 6% in North America and by about 2% in the CEPI-countries. US total paper production was down by 4.4% in January and paperboard by 1.6%, for a total of 2.7%. Total graphic paper deliveries from
CEPI-countries, including export shipments, were down by 1.6% from January 2011. Declines in printing and writing paper shipments from the US and Western Europe were largely offset by the growth in almost all other regions, most notably in Asia, including Japan. The further improvement in the US economic activity has started to support the packaging sector activity. On the other hand, January tissue paper numbers were weak in the US. From Europe, details outside graphic paper sector have not been published yet.

Paper and board pricing picture is a blend of ups and downs. Risen recovered paper prices have started pushing the RP-based packaging prices higher. This applies especially to the brown grades and the rises seen or announced are helping the virgin fibre based linerboard and medium prices higher as well. In graphic papers, prices in North America and Europe have been either flat or slipped further down during Q1, in spite of the recent turn-around in pulp prices.

NBSK pulp Europe – Paper pulp shipments to Europe were weak in January, down by 8.1%, according to PPPC. In BSKP-grade, the drop was over 10%. Similar size decline (-9.1%) was seen in UTIPULP’s consumption data. The weakness of demand was, however, compensated by increases of shipments to other regions of the world and the global supply/demand balance for softwood kraft market pulp was quite good in January and the market remained relatively firm also through February. At least one NBSKP producer has announced a price increase to 850 USD/ton for March shipments. Euro weakened by 1.5% against USD from the previous week. Our PIX NBSK index moved up this time by 17 US cents, or by 0.02%, and closed at 830.27 USD/ton. Converted into Euro, with the weakening of the currency, the index headed higher by 9.26 euro, or by 1.50%, to 628.18 EUR/ton.

BHK pulp Europe – In BHKP, the market pulp consumption numbers from UTIPULP show only a limited 2% drop. Shipment data to Western Europe from the PPPC statistics indicates a clearly larger decline of 6.9% against January 2011. Low actual production numbers have helped to keep the BHKP market firm, even if the theoretical shipment-to-capacity ratio fell to mid 80ies for the month. Several BHKP producers, mainly in BEKP-grade, have announced price hikes for the month of March, typically to 760 USD/ton. EUR weakened by 1.5% against the USD. The PIX BHKP index-value in EUR headed north by 13.12 Euro, or by 2.44%, and closed at 551.67 EUR/ton. The PIX BHKP index value in USD rose by 6.84 dollars, or by 0.95%, and closed at 729.14 USD/ton.

BHK pulp China – January pulp statistics over Chinese market were a blend of good and not- so-good news. PPPC showed shipments to China up 14% compared to January 2011. In hardwood, that increase was smaller at about 12%. Shipments were, however, substantially lower than in December 2011 and the lower intake, shown by the import statistics, suggests that the port stocks have risen. In paper sector, stocks are down at paper mills but up at merchants. Several BEKP producers have announced a hike of the list price from typically 605 USD/ton in February to 640 USD/ton for March shipments. The PIX China BHKP continued to move up, this time by 14.56 USD, or by 2.40%, and closed at 620.60 USD/ton. Yuan strengthened by 0.01% against USD. The conversion of the USD value into Yuan resulted in an increase of 91.47 RMB, or by 2.40%, to 3908.37 RMB/ton.

NBSK pulp China – It is a bit problematic to compare directly the BSKP shipments between January 2012 and January 2011 as there was quite a lot of BSKP pulp delivered last year for the use of the textile industry as an extension of standard dissolving pulp. Still, a bulk of the 90 000 ton increase in market pulp shipments to China in January was in BSKP and within BSKP in NBSKP grade. On the other hand, the import statistics showed a big drop in the actual intake. This means that a fair part of the BSKP increase was either still on the way to China or had ended up in building the inventories. Some BSKP producers have announced limited price hikes for March shipments. Our PIX China NBSK index value increased by 7.08 USD, or by 1.04%, and closed at 690.57 USD/ton. Yuan strengthened by 0.01% against USD. The conversion of the USD value into Yuan meant an increase of 44.34 RMB, or of 1.03%, to 4349.02 RMB/ton.

Newsprint – It may sound surprising but some of the price talks over 2012 contract prices are still going on. Sellers are unwilling to accept lower prices and buyers insist on some sort of a softening of the terms. Those contracts that have been concluded, the outcome is reported to have been either flat or slightly down, the latter applying particularly to the UK market. Producers have been able to compensate part of the fall in the regional demand by increases in export volumes. The EUR weakened against the weighted basket of non-EMU currencies by about 1.3%, which supported a rise in the benchmark. The PIX Newsprint index inched up by 9 cents, or 0.02%, to 509.50 EUR/ton.

LWC – The “heritage” of the UPM-Myllykoski merger and the ensued closure of some production units has led to some re-divisioning of the paper purchases with some buyers wanting to re-spread their paper sourcing between the producers. Due to this, the price negotiations have been livelier and the end results are also quite mixed. The decline of production capacity did not show in January delivery numbers which were marginally higher than in January 2011, largely due to good export volumes outside the region. The approximately 1.3% weakening of the EUR against the weighted basket of non-EMU currencies had a positive impact on our benchmark. Nevertheless, the PIX LWC index retreated by 49 cents, or by 0.07%, to 701.84 EUR/ton.

Coated woodfree – When price talks started, the price of pulp was going down. Before the price talks had ended – if they have ended – the tables had turned and the price of BHKP, the main fibre in coated woodfree paper furnish, had already started inching up and is now both in euros and in USD above the level at the turn of the year. Order book situation is mixed as well with both improving and weakening order levels reported. Some producers have now announced price hikes in CWF from March or April. The 1.3% weakening of the Euro against the weighted basket of non-EMU currencies helped to push the benchmark higher. The PIX Coated woodfree index advanced by 1.69 EUR, or by 0.24%, and closed at 709.28 EUR/ton.
Uncoated woodfree – This was the best printing and writing paper grade in the western world when comparing the combined US and European shipments to corresponding numbers in January 2011. With some exceptions, producers have been pleasantly surprised of the development of their order books, even if the demand for UWF was still down slightly in January. The drop was, however, smaller than feared. With BHKP price on the way back up, at least for the time being, the pressures to raise uncoated woodfree prices have increased and several producers are now out with price hike announcements, typically by about 50 EUR/ton. The approximately 1.3% weakening of the Euro against the weighted basket of non-EMU currencies gave the benchmark an upward lift. The PIX A4 B-copy index moved up slightly, i.e. by 15 cents, or by 0.02%, reaching 859.95 EUR/ton.

Containerboard Europe –January statistics from the US packaging markets were relatively good in the brown grades with US linerboard production falling by 0.9% but with corrugated medium, unbleached boxboard and liquid packaging board production up. In Europe, the weakness of the economic activity had softened the paperboard markets. Pricewise, however, the impact of that softness has been run over by the cost increases and by low inventory levels. With fibre prices moving up, producers have announced relatively sizeable increases. Those price hike efforts started with brown recycled fibre based containerboards and have then spread to virgin brown kraftliner. White-top liner prices have not been impacted much and in bleached paperboards prices are either flat or even further down in some individual grades & markets. Last week, the currency movements helped to push our packaging benchmarks higher. Euro weakened by 1.5% against the USD and by about 1.3% against the weighted basket of the non- EMU currencies. All our packaging benchmarks headed higher. The PIX Kraftliner index moved up by 20 cents, or by 0.04%, and closed at 513.92 EUR/ton. The PIX White-top Kraftliner index gained 1.54 euro, or 0.20%, and closed at 761.43 EUR/ton. Our PIX Testliner 2 index continued to head north, now by 9.51 euro, or by 2.23%, and settled at 436.36 EUR/ton. PIX Testliner 3 index value rose by 7.54 EUR, or by 1.85%, and landed at 414.67
EUR/ton. Our PIX RB Fluting index headed higher by 6.82 euro, or by 1.72%, to 404.36 EUR/ton.

Recovered paper Europe – Recovered paper market is volatile with conflicting price drivers. European internal demand is weak with the softness of the packaging material consumption. Demand pull from China has been pretty good but shipments have been recently disturbed by the lack of container space. While demand is soft, so is the supply, especially for those types of recovered paper which originate from printing and writing paper consumption. Export prices to China are down by a few euros in late February/early March but as they have been above the regional prices, the latter still have some catching up to do and our benchmark prices continued to edge higher, even if now only slowly. The PIX OCC 1.04 dd benchmark moved up by 1.45 euro, or by 1.11%, and closed at 131.72 EUR/ton. The price gaps to containerboard prices all widened. Against Testliner 2, the gap grew by 8.06 euro to 304.64 EUR/ton. Against Testliner 3, the differential widened by 6.09 euro to 282.95 EUR/ton. Against RB Fluting, the gap grew by 5.37 euro to 272.64 EUR/ton.

Our PIX ONP/OMG 1.11 dd index headed higher, too, but more marginally, i.e. by 43 cents, or by 0.34%, landing at 126.21 EUR/ton. The differential of newsprint to PIX ONP/OMG 1.11 narrowed by 34 cents to 383.29 EUR/ton.

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