FOEX Pulp & Paper Indices - March 13, 2012

Kendall Sinclair

HELSINKI , March 13, 2012 (press release) – US NBSK – While BHKP shipments to the North American market moved slightly higher, reflecting the increasing volumes of hardwood pulp used in tissue production, the deliveries of BSKP continued to head lower. Declines reported in graphic paper production are a logical explanation, together with furnish changes and basis weight reductions. Without an increase seen in the consumer stock levels, the declines of market pulp shipments to the North American market would have been more substantial. Reversal of that stock movement will one day reduce the market pulp needs. On the price front, things continued to be quiet. As far as we know, none of the producers have announced changes in their pricing over the month of March. Our PIX US NBSK index remained unchanged at 870.00 USD/ton for the fourth week in a row.

US Newsprint – Canadian dollar hovers very close to the one-to-one ratio against the USD. The CAD- strength adds to the cost pressures in USD-terms and has helped the newsprint producers’ resolve not to let the prices drop in spite of the structural demand weaknesses. From demand side, there is very little new that could be reported over the US/North American newsprint business. Consumption continues to fall quite fast, especially in the US dailies. The US Newsprint benchmarks showed the smallest possible declines from the previous week. The PIX US Newsprint 30lb index fell by one US cent, or by 0.0%, to 623.13 USD/ton. Equally, the 27.7lb index retreated by one cent, or by 0.0%, to 663.89 USD/ton.

General economy: US – The global growth in February appears to have been at its highest level in a year, according to J.P.Morgan’s global Manufacturing and Services PMI. On the downside, global inflation picked up last month as well. News on the US economy continues to be predominantly positive. Nearly 230 000 new jobs were added in February, together with an upward revision of the January job numbers. Unemployment rate held steady at 8.3%, instead of going up as was feared after the mid-month Gallup. The higher-than-earlier-expected trade deficit dampened the growth prospects somewhat, however. Housing sector remains muted, too, but the inventories of unsold units has come down and both housing permits and housing starts are up a bit. The Fed no longer sees a need to stimulate the economy but keeps the key interest rate at/near zero.

Europe – Euro-zone is breathing a little bit easier after a loan rearrangement agreement was reached also with Greece’s private sector creditors. Recent macroeconomic data is not good either, though. A clear drop in the service sector activity from above 50 points to less than 49 points suggests that after a positive surprise in January, Euro-zone economy was back in the contraction mode in February. New business was down for the 7th month in a row. While it is still too early to tell whether or not the real GDP will contract during Q1, the odds or a minor 0.1-0.2% recession are higher than the chances of avoiding a recession. The pieces of positive news are an increase of Euro-zone productivity for the 2nd month in a row and the likelihood of the UK holding on to a positive growth.

Japanese economy constricted by 0.7% during 2011, according to the final national statistics. In Q1 2012, a positive growth of about 1.5% is expected. After the decision to add stimulus through more bond purchases in mid-February, the Yen has weakened. This is beginning to benefit the exporters, after the record trade deficit seen in January. Order backlogs are down as are new export orders. Total order intake is, however, clearly up, supported by domestic demand. The post-earthquake reconstruction work supports economic growth as well. Government and international stock markets have been hoping for an even more active stimulation policy from the BoJ but the Bank has not promised any further action for the time being, hoping that the imports by the US and other key export markets will pick up during Q2.

China – Government has indicated of a shift of policy with more emphasis on steady domestic demand growth as opposed to high export-oriented expansion. Key piece of economic news in March was the clear drop of the inflation rate to just over 3% in February after 4.5% in January and over 5% in late 2011. Smaller hikes in food prices were the main contributor. The drop of the inflation well below the 4% target gives the government more room for the stimulation measures, should the slowdown of Europe continue to drag down China’s export growth. The most pessimistic forecasts have predicted that China’s GDP-growth will be cut to half, i.e. to 4-4.5% this year. The consensus remains at 8% or slightly higher, down less than 1% from 8.9% recorded during the final quarter to 2011.

Paper industry – Early 2012 data confirm that the downward trend in graphic paper consumption in the industrialized world continues. Declines in January were, however, down less than anticipated, at least in Europe where the general economic slowdown could have triggered a clearer drop than the 0.6% retreat from January 2011 when the economic growth was still relatively robust. In the US, the printing and support activity index by the Fed showed a very minor uptick but still at a depressed level. Advertising activity has continued to fall in March but clearly less than in January-February.

Similar patterns are seen in Europe. Order books are not good but they have no longer weakened. In some grades, most notably in uncoated woodfrees, the order books have improved, probably at least partly due to a rebuild of the inventories which were quite low at the turn of the year. Virtually all industry analysts predict declining annual consumption numbers for printing and writing grades in Europe. Those declines are, however, expected to be only minor during the 2nd half when the economic growth is, hopefully, positive again and when the numbers of comparison from 2011 are weak.

NBSK pulp Europe – Pulp market appears to have “normalized” with supply/demand balance neither excessively tight nor loose. With consumption in Western Europe and the US retreating with declining graphic paper production, the global demand is not good enough to match the production capacity, in theory. However, in practice, the supply has been soft as production losses have continued to occur, around the world for different reasons. With some announcements of higher prices, typically to 850, our

benchmark has crept above the earlier gross contract price of 830. Euro weakened by 0.2% against USD from the previous week. Our PIX NBSK index moved up this time by 5.41 USD, or by 0.65%, and closed at 835.68 USD/ton. Converted into Euro, with the minor further weakening of the currency, the index headed higher by 5.34 euro, or by 0.85%, to 633.52 EUR/ton.
BHK pulp Europe – The price gap between NBSKP and BHKP (euca/birch) has narrowed from over 180 USD/ton at the turn of the year to approximately 100 USD/ton after a period of rising hardwood and stagnant or even falling BSKP prices. Last week the price differential actually widened a bit with a slightly larger rise in NBSKP than in BHKP. At 100-USD price differential, there is still desire to compensate softwood with hardwood in the papermaking furnish but those pressures are not anywhere near as big as in 2011. With the seasonally normal maintenance downtime period approaching during April-May, the hardwood market appears to be in a good balance with demand increases in the emerging market outpacing the declines in the industrialized countries. EUR weakened by 0.2% against the USD. The PIX BHKP index-value in EUR headed north by 3.38 Euro, or by 0.61%, and closed at 555.05 EUR/ton. The PIX BHKP index value in USD rose by 3.03 USD, or by 0.42%, and closed at 732.17 USD/ton.

BHK pulp China – A part of the high deliveries at the end of 2011/early 2012 appears to have ended in replenishing the merchants’ and end-users’ stocks of pulp. Higher price levels could also slow down the pace of non-wood pulp facility closures or encourage some of the domestic producers, in non-wood or wood pulp, to increase the volumes which were reduced in Q4 2011-January 2012. The reduced rate of pulp intake from the ports, shown by the 65 000 reduction in January import statistics compared to December 2011 is one indication of either reduced stocking up or higher domestic supply, or both. Several BEKP producers have announced a hike of the list price to 640 USD/ton for March shipments. The PIX China BHKP benchmark value continued to move up, this time by 6.20 USD, or by 1.0%, with the index closing at 626.80 USD/ton. Yuan weakened by 0.2% against USD. The conversion of the USD value into Yuan resulted in an increase of 46.54 RMB, or by 1.2%, to 3954.91 RMB/ton.

NBSK pulp China – In softwood pulp, local production plays a limited role. Import statistics showed January intake 50 000 tons down from December and over 100 000 lower than in January 2011 when a relatively important tonnage of NBSKP was delivered to extend the dissolving pulp volumes needed by the textile industry. Some BSKP producers have announced limited price hikes for March shipments. Our PIX China NBSK index value increased by 1.38 USD, or by 0.2%, and closed at 691.95 USD/ton. Yuan weakened by 0.2% against USD. The conversion of the USD value into Yuan meant an increase of 16.97 RMB, or of 0.4%, to 4365.98 RMB/ton.

Newsprint – The business negotiations over the newsprint volumes and prices appear to finally draw closer to completion throughout Europe. Rising fibre prices oppose the downward pressures from the demand weakness. The message received from the market in early March has not changed much over the previous few weeks; the results of the negotiations have been either unchanged prices or moderate declines, especially in the UK where the pound has marginally strengthened in March against the Euro, compared to the February average exchange rate. The EUR strengthened against the weighted basket of non-EMU currencies by about 0.4 %, which meant a downward pull on the benchmark. The PIX Newsprint index moved down by 1.79 EUR, or by 0.35%, to 507.71 EUR/ton.

LWC – It remains to be seen whether the positive news from the battle against the Greek debt crisis will help to brighten the overall economic outlook and calm down the paper demand erosion. Fibre and chemical cost increases add to the producers’ resolve not to allow the prices to slip but the estimate consumption drop of 6% in Europe in January against January 2011, according to Euro-Graph statistics, works the other way. Order books appear a bit better in rotogravure than in offset grades. The approximately 0.4 % strengthening of the EUR against the weighted basket of non-EMU currencies had a negative impact on our benchmark. The PIX LWC index retreated by 2.78 EUR, or by 0.4 %, to 699.06 EUR/ton.

Coated woodfree –The market for coated woodfree printing papers is facing same challenges as those of mechanical coated paper grades. Raw material prices have started to head higher, and corrective paper price increase attempts have been voiced to safeguard business profitability. Order books were also mixed with both improving and retreating levels reported. The 0.4 % strengthening of the EUR against the weighted basket of non-EMU currencies was one of the drivers dragging the benchmark lower. The PIX Coated woodfree index inched downwards by 57 cents, or by 0.1 %, and closed at 708.71 EUR/ton.

Uncoated woodfree – Some improvement in the uncoated paper grades business and order books has been reported in late February/early March. January statistics from Euro-Graph still reported of a small, 0.5%, demand drop in Europe against January 2011. Some producers have been reported to have announced price hikes form mid-March, or, at the latest, from April 1.
The strengthening of the EURagainst the weighted basket of non-EMU currencies pressed the benchmark lower. The PIX A4 B-copy index headed down by 79 cents, or by 0.09%, and landed at 859.16 EUR/ton.

Containerboard Europe – The cost pressures were evidenced in the North American linerboard business with another 5 US dollar hike in the OCC prices. Activity has remained relatively good through January-February and both box and corrugated medium price hikes have been announced from April 1. In Europe, raw material costs have turned to a fairly clear increase since February. Consequently, the containerboard producers have announced considerable price increases to be effective from Feb-Mar, for both recycled and virgin fibre based grades even if the demand pull is not the greatest with the struggling general economy of the region.

The price quotes received by us were mixed this time as both higher and lower prices were registered, depending on the market. Also the currency movements had a mixed impact on our indices this time as Euro weakened against the USD by 0.2% but strengthened by about 0.4% against the weighted basket of the non-EMU currencies. The PIX Kraftliner index retreated by 1.05 euro, or by 0.2%, and closed at 512.87 EUR/ton. The PIX White-top Kraftliner index value fell by 3.07 euro, or by 0.4%, and closed at 758.36 EUR/ton. For Testliner 2, with the stronger Euro, the index dropped by 1.58 euro, or by 0.36%, and settled at 434.78 EUR/ton. PIX Testliner 3 index value rose by 3.33 euro, or by 0.8%, and landed at 418.00 EUR/ton. Our PIX RB Fluting index headed higher by 2.61 euro, or by 0.65%, and closed at 406.97 EUR/ton.

Recovered paper Europe – RCP market has continued to be impacted by conflicting price drivers. Demand for packaging materials in Europe is not strong but mills appear to have been building up raw material stocks. Increased sea freights and lack of containers have made exports to China difficult. With low regional demand for paper and board, the supply of recovered paper has been flat or has even retreated. The PIX OCC 1.04 dd benchmark moved up by 4.48 euro, or by 3.4 %, and closed at 136.20 EUR/ton. The price gaps to containerboard prices all narrowed. Against Testliner 2, the gap diminished by 6.06 euro to 298.58 EUR/ton. Against Testliner 3, the differential narrowed by 1.15 euro to 281.80 EUR/ton. Against RB Fluting, the gap decreased by 1.87 euro to 270.77 EUR/ton.

Our PIX ONP/OMG 1.11 dd index headed higher, too, but little less than OCC, i.e. by 1.15 euros, or by 0.9%, and landed at 127.36 EUR/ton. The differential of newsprint to PIX ONP/OMG 1.11 narrowed by 2.94 euro to 380.35 EUR/ton.

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