FOEX Pulp & Paper Indices - April 3, 2012

HELSINKI , April 3, 2012 (press release) – US NBSK – The scheduled spring downtime at several BSKP mills reduces, once again pulp supply in late March/April. The improvement of the fluff pulp demand, after weaker moments around the turn of the year, continues to switch some of the southern BSKP from paper grades to fluff pulp. Recovery of the cartonboard markets and in tissue compensates for the pulp demand losses in the printing and writing paper sector. Even with shipments of market pulp to the North American market down (by over 3%) the market has continued sufficiently tight for the producers to aim for price hikes. Several of the pulp producers have announced price increases from April 1, in NBSKP typically by 30 USD. Based on quotes from the last week of March, our PIX US NBSK index was again flat at 870.00 USD/ton.

US Newsprint – Newsprint statistics, published by PPPC, showed the newsprint shipments up in February to North America against February 2011 by 2.6% but the average daily rate was still slightly down. Cumulative shipments were down by nearly 3%. Exports overseas continued to be below 2011 rates, now by 4% - and cumulatively by 11%. The shipping volumes have partly gone into increasing the stocks. Operating rates have been slightly above 90%, up by 4-5 percentage points from 2011 but this is after, once again, fairly large closures of capacity since early 2011. The PIX US Newsprint 30lb index remained unchanged at 623.12 USD/ton and the 27.7lb grade also unchanged at 663.88 USD/ton.

General economy: US – Optimism prevails and moderate recovery outlook was also supported by factual evidence. The near- and medium-term employment prospects have improved. Apart from some pressure from the rise of the price of oil, inflation is relatively subdued. The various PMI’s suggest further recovery. There have been improvements in expectations for sales of goods and services. The outlook for capital spending is up as well, even if not by a very large percentage. Companies also expect to be hiring more people during the next six months. The CEO Economic Outlook Survey Index rose to 97 points in Q1, compared to 78 points in Q4 2011. The number of requests for jobless benefits fell to the lowest number seen since April 2008. The US factory production rose by 0.3% (non- annualized) in February, the third monthly increase in a row, according to the Fed. With declines in mining and auto-making, the total industrial production in the US was, however, flat. Even if going appears to be pretty good, the US economy is not strong enough to be immune to downside risks from the outside (e.g. European debt crisis) or inside (banks’ credit ratings, still high unemployment).

Europe – The finance ministers agreed last Friday to create a permanent 800 billion Euro bailout fund for the Euro-zone. The most recent data confirms that the Euro-zone will be in a recession, with both Q4 2011 and Q1 2012 GDP-growth rates negative for the region. It will be also a tough struggle to avoid the recession continuing through Q2 as well. Inflation rate remains uncomfortably high at 2.6%. Further measures of stimulating the economic growth are unlikely. The confidence readings within the Euro-zone fell further in March. The just released Markit’s Flash Euro-zone PMI confirms the further downward slide in the European economy in March. The composite output index fell from the downward revised 49.3 in February to 48.7 in March, the lowest number in 3 months’ time. Both manufacturing and service sector outputs retreated. New business orders fell for the 8th consecutive month, retreating at the fastest rate since December. The rate of drop was also bigger than the declines registered for output. This meant yet another reduction in the backlogs of work. This puts more downward pressure on output levels also in April.

Japan – Month of March brought good news from Japan’s economy. In spite of downside pressures from the strength of the Yen and the rising cost of energy, manufacturers, especially the producers of investment goods, had a strong growth month, supported by the finishing stage of re-building of the supply side networks. The manufacturing PMI climbed only modestly, though, to 51.1 points, slightly on the positive growth side. New business rose at the fastest rate since summer 2011 when Japan had started recovering from the earthquake. The news was not all good, however. Spare capacity, shortening work backlogs and staff reductions were seen on the flip-side of the coin. Most of the growth reported came from a rise in the domestic spending. Export orders hardly moved.

China – While going got better in the neighboring Japan, China’s manufacturing output showed the second-largest drop in output volumes in three years. New orders were at a 4- month low. HSBC’s China composite PMI fell now to 48.3 points after the 5th consecutive month of deteriorating fortunes. The fall of new business was seen both in exports and in domestic demand. Employment was sharply down. Input prices moved up, even if rather moderately. Looking ahead, the increase in the backlogs of work was promising. But, there was a reduction in the stocks of finished goods as well as in the purchasing volumes. The weakened export as well as domestic growth is likely to bring the further easing measures in the forefront of the government policies.

Paper industry – Printing and writing paper sector experienced further declines, once again, in February. In North America, the monthly demand for printing and writing was down by 2.5% from February 2011 and even with one extra day constituted the lowest monthly number seen since the demand trend decoupled from the economic growth and turned downwards in mid 2000’s. Over the first two months the retreat was over 3%. This structural drop is also impacting the production capacity. AF&PA’s recent US capacity report over 2012 shows a decline of 1.2% for total paper and paperboard with tissue and packaging sectors growing moderately but with printing and writing paper capacity going down.

In Europe, similar declines were recorded in printing and writing papers. For February, the decline in shipments was 3% and for the first two months just over 2%. According to PPPC, the global demand in February was most marginally on the plus side with Asia, also Japan, and Latin America showing enough growth to compensate the declines in the Western industrialized economies.

Producers’ efforts to fill their order books in a weak demand environment has added to the competition and in printing and writing papers the increased fibre and other costs in Q1 have proved to be impossible to cover with price increases. Price hikes have been attempted but prices have either remained flat or declined, even if rather marginally, as also seen from our benchmarks. In packaging, both demand and price development has been more positive and, in recovered paper based grades, fibre cost increases have been at least partially covered by price hikes.

NBSK pulp Europe – The good February statistics hide the slowing down of the pulp purchasing activity in China in March. With difficulties also in finding containers for Asian exports, more producers started viewing the home market again and some additional spot volumes were offered. Further price increases have been announced for the new business from April 1. The quotes received were, however, still over March shipments and reflected the easier availability. Euro strengthened by 0.9% against USD from the previous week. Our PIX NBSK index retreated by 3.11 USD, or by 0.37%, and closed at 840.74 USD/ton. Converted into Euro, the strengthening of the currency caused the index to decrease by 7.77 euro, or by 1.22%, to 629.48 EUR/ton.

BHK pulp Europe – Several BHKP mills in Europe have been taking downtime, especially in the Iberian Peninsula and in Norway. The good volumes taken by the Asian markets and the lost volumes in Europe helped the BHKP market to remain more solid than the softwood. Reductions in market pulp demand by the printing and writing paper makers, especially in the publication papers, have been partly compensated by an increased use of BHKP in tissue papers. Euro strengthened by 0.9% against USD from the previous week. With the strength of the Euro, the index retreated by 2.43 Euro, or by 0.43%, and closed at 565.92 EUR/ton. The PIX BHKP index value in USD rose by 3.23 dollars, or by 0.43%, and closed at 755.84 USD/ton.

BHK pulp China – After high shipments in early part of the year and all-time record intake reported in February, pulp purchasing activity calmed down in late March, at least temporarily. Price increase efforts, typically by 30 USD to 670 USD/ton for BEKP April shipments by the producers have met more resistance than in February-early March. With continuing closures of some of the non-wood pulp based paper machines, the capacity utilization rates of the modern chemical pulp based machines have improved and a pulp import demand is projected to continue to grow also in Q2 2012. Downtime taken by the European BHKP producers and temporary (?) shortage of containers has reduced pulp offers to China, especially from the Iberian producers. Price data for this benchmark is from the last week of March. The PIX China BHKP continued to move up, this time by 5.13 USD, or by 0.81%, and closed at 640.14 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan resulted in an increase of 28.52 RMB, or by 0.71%, to 4030.30 RMB/ton.

NBSK pulp China – March-May is the normal season for taking maintenance downtime by the Northern Hemisphere softwood pulp producers after the mid-winter months when closures are avoided. Consequently, the offer of softwood pulp to markets like China tends to diminish, supporting the producers’ price hike initiatives, typically by 30 USD/ton for April shipments in China. But, the apparent rise of softwood pulp inventories after the record breaking deliveries of softwood pulp in January-February works against the producers’ intentions. Our PIX China NBSK index value increased by 7.16 USD, or by 1.03%, and closed at 703.91 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan meant an increase of 40.94 RMB, or of 0.93%, to 4431.80 RMB/ton.

Newsprint – February numbers from EURO-GRAPH showed a very nice increase in newsprint exports from the member countries to destinations outside Europe with a nearly 37% increase over February 2011 and with a 28% rise over the first two months. On the other hand, the regional European demand was again down, by 7% in February and by almost 8% over the first two months. Consequently, total shipments also continued to decline with a 1.5% retreat in February and with a nearly 4% decline over the first two months. Recovered paper prices have continued to rise, narrowing the margin between the raw material costs and flat or slightly lower newsprint prices. The EUR weakened against the weighted basket of non-EMU currencies by about 0.3%, which theoretically helped the benchmark higher. But, even with the support from the exchange rate movement, the PIX Newsprint benchmark lost 50 cents, or 0.1%, and closed at 506.76 EUR/ton.

LWC – Coated mechanicals have showed a performance quite similar to newsprint. In February, exports outside Europe were reported up by about 3% and cumulatively by nearly 15%. The estimated regional demand was, however down by 4% in February and by nearly 5% cumulatively which left the total shipments 2.5% down in February and by 0.7% over the first two months, according to EURO-GRAPH. The approximately 0.3% weakening of the EUR against the weighted basket of non-EMU currencies meant an upward pressure on the benchmark. The PIX LWC index value moved moderately higher, increasing by 97 cents, or by 0.14%, to 699.20 EUR/ton.

Coated woodfree – In the US, February shipments showed a rare increase with 1.5% gain over February 2011, which however had one day less. In Europe, the beginning of the year has been weak for CWF, in fact weaker than for coated mechanicals. In February, exports outside Europe were down by nearly 8%, regional demand by 4% and total shipments by over 5%. Cumulative numbers were almost identical to February with the exception that exports were down a bit less and regional demand and total shipments a bit more, for a 6% drop in total shipments over the first two months. Increased competition over decreased tonnage is pressing prices down at the same time as the fibre prices are heading higher. Since the start of the year, our CWF index is down by just under 2%. The 0.3% weakening of the Euro against the weighted basket of non-EMU currencies put a minor upward pressure on the benchmark. Nevertheless, the PIX Coated woodfree index retreated again, this time by 56 cents, or by 0.08%, to 704.23 EUR/ton.

Uncoated woodfree – Shipments in the US market were up in February by over 4% which meant that there was a minor increase also when taking into account the one extra day in February 2012. Also in Europe, uncoated woodfrees are doing better than the coated fine paper but both February and the cumulative numbers show a drop. Exports outside the region were up by 18% in February but down for the first two months. Estimated European demand was down in February by over 4% and by 2.5% cumulatively. For total deliveries those numbers were -0.2% and -2.3%, respectively. The currency impact from the 0.3% weakening of the Euro against the weighted basket of non-EMU currencies helped the benchmark value higher. The PIX A4 B-copy index gained 49 cents, or 0.06%, and closed at 856.83 EUR/ton.

Containerboard Europe – The demand for containerboards has softened in the US market, in spite of the improving economic outlook. Risen inventories are at least one of the reasons for this weakening. In Europe, the demand is not hot either but this was only to be expected when European economy fell back into a recession mode. Reduced availability of recovered paper material presses the OCC and mixed grade prices up and narrows the producers’ margins, creating price pressure mainly in RP-based grades. PPI reports the Norwegian linerboard producer Peterson Paper Moss applying for debt restructuring and the group having been taken over by Pemco.

Last week, the currency fluctuations had a mixed impact on our packaging benchmarks. Euro strengthened by 0.9% against the USD but weakened by about 0.3% against the weighted basket of the non-EMU currencies. The changes of our packaging benchmarks were this time upwards, with one grade flat. Rising raw material costs drove recovered paper based grades to a relatively strong rise. The PIX Kraftliner index headed higher by 2.85 euro, or by 0.55%, and closed at 517.37 EUR/ton. The PIX White-top Kraftliner remained absolutely flat at 757.89 EUR/ton. Our PIX Testliner 2 index headed higher by 5.98 euro, or by 1.37%, and settled at 443.15 EUR/ton. PIX Testliner 3 index value rose by 5.48 EUR, or by 1.29%, and landed at 429.50 EUR/ton. Our PIX RB Fluting index moved up by 4.41 euro, or by 1.07%, to 417.42 EUR/ton.

Recovered paper Europe – The Asian demand pull has abated a bit, at least temporarily. The difficulty of getting containers also reduces the OCC and other RCP exports. The supply potential is down, too, especially from the main exporter country UK where the start-up of Saica’s new large machine increases local demand and reduces export potential. Even if the paper and board demand is down in Europe, recovered paper supply/demand balance has therefore tightened and further price hikes have been reported, again during the last week of March.

The PIX OCC 1.04 dd benchmark moved up by 2.07 euro, or by 1.44%, and closed at 145.37 EUR/ton. The OCC’s price gaps to containerboards all widened. Against Testliner 2, the gap grew by 3.91 euro to 297.78 EUR/ton. Against Testliner 3, the difference was 3.41 euros wider than last week at 284.13 EUR/ton. Against RB Fluting, the gap widened by 2.34 euro to 272.05 EUR/ton.

Our PIX ONP/OMG 1.11 dd index headed clearly higher, as well, i.e. by 4.77 euro, or by 3.44%, and closed at 143.57 EUR/ton. The differential between newsprint and PIX ONP/OMG 1.11 shrank by 5.27 euro to 363.19 EUR/ton.

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