FOEX Pulp & Paper Indices - May 15, 2012
May 15, 2012
– US NBSK – The hostile bid by Resolute over Fibrek shares appears to have succeeded with over 63% of the shares now in its possession and with Fibrek’s board resigned. Over Q1, Fibrek reported a loss in its financial results. Market pulp demand in the US market remains lacklustre with declines continuing in graphic paper production. With demand pull from China also down, at least temporarily, and with difficulties in finding advantageous freight rates, supply pressure has increased in the regional North American market. Consequently, spot volumes have been offered at reduced prices even if those volumes have not been all that substantial. The downside pressures impacted also our contract price benchmark. The index value retreated by 71 cents, or by 0.1%, to 899.29 USD/ton.
US Newsprint – After a number of closures, the North American supply is expected to go back up in June with the planned re-start of the earlier closed Stadacona mill, owned by White Birch. Exports from Europe have shown a healthy increase of over 20% during Q1. Exports from North America have shown a very similar 20% drop. Within the regional demand, consumption of the US dailies continues to fall at a rapid pace but otherwise the retreat in demand has slowed down. Total North American demand of newsprint was down by “only” 1.7% in March and by 2.6% cumulatively. Both mill and publisher inventories fell in March. The PIX US Newsprint 30lb index retreated by 43 cents, or by 0.07%, settling at 621.76 USD/ton, and the 27.7lb index fell by 46 cents, or similarly by 0.07%, and closed at 662.43 USD/ton.
General economy: US – IMF’s latest report expects global economy’s real GDP to grow by 3.5% this year and by 4.15% in 2013. In spite of the concerns over the European recession, US economists are turning more optimistic rather than increasingly pessimistic. This applies, in particular, to manufacturers of industrial goods. The corporate revenues were up during Q1 and margins improved even more through higher efficiency. Most importantly, over 80% of manufacturers expect to invest more in 2012 than what they did in 2011. This supports longer- term growth. Already during Q1, investments rose to 6% of total sales. Positive Q1 results in the US were, however, partly accounted for by stock-building and partly due to seasonally favorable weather. April data was subdued, especially in terms of employment data, retail sales and across the service sector, which has clearly more impact on US GDP than manufacturing.
Europe – Election results dampened the mood even further in Europe. Incapability to form a government in Greece will lead to new elections and paves the way for Greece’s increasingly likely exit from the Euro-zone. Results of the other elections (France and Germany) split opinions further between those supporting stimulation and those believing that fiscal tightness is the way to start reducing the excessive indebtedness. It is very difficult to both reactivate growth and stabilize the Euro-zone’s economies. While productivity is rising in the US, it sinks lower in Europe. Markit’s Euro-zone composite PMI fell to 46.7 points, the lowest level since mid-2009. The likelihood of the third consecutive quarter of negative growth is high and rising. Each day, the ongoing recession looks deeper and longer than earlier projected. The already seen and anticipated further social unrest will darken the outlook further.
Japan – The various indices over the economic activity have continued to improve. Exports have recovered moderately, due to an improvement in the sales to the US market. Industrial production and earnings have been relatively flat as export growth to Europe and China came to a halt or even declined. Housing remains in doldrums but employment has shown improvement, especially in the private sector. With higher total revenues, household spending has continued to recover, partly due to government support to buy eco-cars. Government spending is heavy also on reconstruction and especially on energy infrastructure after the closures of the nuclear power stations. That spending is bad news for the nation’s indebtedness but supports economic growth. The European debt crisis remains, however, the biggest risk for the Japanese economy.
China – The recent economic data from China over the activity in April was very disappointing. Retail sales headed clearly lower. The drop in industrial production was even sharper. Exports retreated. Money supply headed further south. The rise in the preliminary composite output index (by HSBC) turned out to be smaller than anticipated. Some growth momentum remaining on the service sector and the drop in the inflation rate were the only positive numbers. The Beijing government reacted very quickly with a shot of monetary easing medicine. The reserve requirement ratio is to be reduced by 50 basis points starting on May 18th, just a few days away. While this helps, short-term, more measures are likely to be needed soon. An interest rate drop could help Chinese economic slowdown to bottom out during Q2 and trigger a new recovery during the 2nd half of the year.
Paper industry – The publication sector speakers in the PWC conference in Vancouver sounded more optimistic over the future of printed media than what most of the audience had expected to hear. Maybe part of that was just pep talk in front of an audience which badly needed encouragement. Yet, there is some data that backs up that cautious optimism. The general downturn trend of the graphic paper sector has not reversed. But, it appears to have slowed down. In the US, the preliminary data from April suggests that the decline in coated and uncoated free sheet was “only” little over 2% in March. In newsprint, the total shipments to North America were down by just 0.8% in March and 2.2% on cumulative basis. Book sales were actually up in early 2012 from early 2012, in spite of the double-digit growth continuing in the sales of electronic reader devices.
Ad spending is still down, though. The preliminary May numbers suggest a 6% drop in ad pages, according to PIB. In early 2012, advertising is, however up in niche areas, such as Spanish-language magazines. The printing and support index by the Federal Reserve slowed down in March but remained above the all-time lows. In April, new orders were up, even relatively strongly. In Europe, the situation is worse with the recession pushing also paper industry activity even lower. Capacity closures have been fairly substantial. But, the demand drop has been even faster. Consequently, the operating rates, instead of improving, were actually lower during Q1 2012 than what they had been in Q1 2011. At 87% for printing and writing papers, excluding newsprint, they were also a full 5 percentage points lower than the 92% operating rate recorded in North America.
NBSK pulp Europe – March statistics came out positive with good shipment data and flat or marginally lower inventories in the supply chain, apart from the unknown stock volumes in China. Q2 downtime, mainly for maintenance purposes reduces supply in April-June. This positive news is counter-balanced by the reduced purchases in China in April/early May and by the fairly substantial volumes of pulp which have to find room from the market following the closures of graphic paper capacity in North America as well as in Europe. The jury is out as to the outcome of this “battle”. Euro weakened by 1.4% against USD from the previous week. Some retreat in spot quotes were reported from the market. However, our PIX NBSK index for contract business moved up by 1.77 USD, or by 0.21%, and closed at 853.91 USD/ton. Converted into Euro, the clear weakening of the currency led to an increase by 10.80 EUR, or by 1.66%, with the index closing at 659.70 EUR/ton.
BHK pulp Europe – While BHKP market pulp shipments were down in March 2012 against March 2011 deliveries, they were good enough to bring the producer stocks further down. Supply switches from integrated to market pulp have been seen also in this grade. But, switches from paper grades pulp to dissolving, fairly substantial Q2 maintenance downtime and some other losses in production have kept the hardwood pulp market more firm than softwood. The price gap between BSKP and BHKP has continued to narrow in all markets, most in Asia but also here in Europe. Euro weakened by 1.4% against USD from the previous week. With the Euro-weakening pushing the benchmark higher, the index rose by as much as 19.64 Euro, or by 3.39%, and closed at 598.37 EUR/ton. The PIX BHKP index value in USD rose by 14.54 dollars, or by 1.91%, reaching 774.53 USD/ton.
BHK pulp China – Major increases in tissue paper production capacity will, if running even nearly full, require substantial volumes of market pulp over the remainder of the year. But, at present, Chinese pulp buyers and trading houses are depleting their risen stock levels. Buying activity was reduced during April and only limited volumes appear to have been bought in early May. Margins between pulp and paper prices are very tight and over-capacity in the paper sector does not allow paper price hikes, at least until further non-wood pulp based paper supply closures have been seen. Most of the softening of the Chinese market has been seen in softwood and BEKP suppliers have reportedly stood firm behind their price targets. Lack of container space and higher freight rates have limited the supply push. Higher integrated needs have reduced the net impact of local hardwood pulp (BHKP & BCTMP/APMP) supply increases. The PIX China BHKP continued to move up, this time by 5.01 USD, or by 0.76%, and closed at 664.11 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan resulted in an increase of 34.39 RMB, or of 0.83%, to 4190.76 RMB/ton.
NBSK pulp China – Chinese buyers’ efforts to bring the prices lower has had some success in BSKP with at least two producers announcing lower prices in May. Early 2012 intake of BSKP was quite good with China’s import statistics showing 17% increase during Q1 against 2011. But, according to local sources, the consumer stocks have risen mainly in softwood pulp and the buying has subsided more in BSKP than in BHKP. In the spot market, the price differential has vanished between softwood and hardwood grades and it has continued to narrow also in the normal contract business. Historically, buyers in China have been relatively quick to switch to more softwood once the price gap narrows sufficiently. We may be close to that point again. Our PIX China NBSK index value decreased again, this time by 12.44 USD, or by 1.76%, and closed at 695.13 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan resulted in a retreat by 75.52 RMB, or by 1.69%, to 4386.50 RMB/ton.
Newsprint – The recent newsprint statistics have shown different paths for North America and Europe. In North America, the declining trend has shown signs of flattening out but exports have a weakening track record. In Europe, exports outside the region are up considerably (over 20% during Q1) but the regional demand declines even faster than a year ago, driven by both structural trends and by the recession. The financial results of the specialized global newsprint producer, Norske Skog, came out weak. The company has reduced its debt but the revenue stream is down as well through closures and asset sales and the net loss exceeded 10% during Q1. The 0.6% weakening of the EUR against the weighted basket of non-EMU currencies had a positive impact on the benchmark. The PIX Newsprint index moved up by 1.22 EUR, or by 0.24%, to 508.05 EUR/ton.
LWC – In North America, the coated paper demand decline was smaller during April than the cumulative volume drop over the first 4 months (2.2% against 4.7%, respectively). European consumption continues to decline but coated mechanical reel exports outside the region have continued to grow. They represented already 23% of the total shipments of the European (CEPI-country) producers during Q1. Downtime taken to adjust the supply to the falling regional demand has still kept the capacity utilization rate below 90% in Europe, against 91% in North America. The 0.6% weakening of the EUR against the weighted basket of non-EMU currencies helped the benchmark higher. The PIX LWC index advanced by 54 cents, or by 0.08%, and closed at 703.23 EUR/ton.
Coated woodfree – Cost pressures have triggered a round of price increase announcements in coated woodfree papers. The price initiatives cover all markets and both reels and sheets. The announced hikes vary mainly between 5-8%, depending on the producer, on the market and on the grade in question. Producers’ fibre costs are up, as well as chemicals, energy and lately especially the transportation costs. The weakness in demand, nearly 5% cumulatively and over 10% in March, is seen on the other side of the coin. The price increase initiatives include also announcements by some merchants. The 0.6% weakening of the Euro against the weighted basket of non-EMU currencies pushed the benchmark upwards. The PIX Coated woodfree index rose by 3.13 EUR, or by 0.44%, landing at 711.08 EUR/ton
Uncoated woodfree – Uncoated free sheet demand in the US was down in April by nearly 5%, according to the preliminary data. This was clearly more than the 2% retreat seen during Q1. During Q1, the differential in operating rates between North America and Europe was larger than in other graphic paper grades, 93% in North America vs. 86% in Europe. Despite the weakness of demand, at least one producer has announced a price increase from June. The positive currency effect of the 0.6% weakening of the Euro against the weighted basket of non- EMU currencies gave the benchmark an upward push, but our PIX A4 B-copy index still retreated slightly with a 16 cent, or 0.02%, fall to 858.97 EUR/ton.
Containerboard Europe – North American containerboard and box demand and inventory data will be published tomorrow. Much followed analyst Mark Wilde from Deutsche Bank expects the shipments to be flat or up slightly and anticipates the inventories to go down a bit more than the seasonal average for April. Further minor reductions in RP-costs should help to improve the financial results.
In Europe, demand continues to be weak. One small testliner/fluting mill was again closed (Meldorf by the Panther Group) in Germany. Also in Europe, OCC prices have been drifting lower in May, following the drop in the export prices to China. In the UK, price increases have been announced to SC fluting. In general, while prices of virgin fibre based linerboards continue to head higher, the prices of RP-based linerboard and medium feel clear downside pressure as a combination of weak demand and lower raw material costs.
Last week, the exchange rate changes were, at least in theory, clearly positive for Euro-prices. Euro weakened by 1.4% against the USD and by about 0.6% against the non-EMU currency basket. Our virgin fibre based packaging product benchmarks headed moderately higher whilst the RP-based benchmarks were all down. The PIX Kraftliner index moved up by 97 cents, or by 0.18%, settling at 528.90 EUR/ton. Our PIX White-top Kraftliner index value, gained 48 cents, or 0.06%, and closed at 760.31 EUR/ton. The PIX Testliner 2 index lost 4.48 euro, or
0.99%, ending at 450.06 EUR/ton. PIX Testliner 3 index value retreated by 4.8 euro, or by 1.09%, to 434.47 EUR/ton. Finally, our PIX RB Fluting index fell by 3.84 euro, or by 0.90%, to 421.95 EUR/ton.
Recovered paper Europe – The recovered paper prices have declined over the past couple of weeks in all key markets, even if in some grades/regions only rather moderately. The retreat is mainly driven by the weakness of the demand. The softening started from China and other Asia. The export prices from Europe to the Asian destinations have fallen, in spite of increasing freight costs, by about 15 EUR/ton for OCC and little less, 5-10 euro, for old news and mags. As almost always in the past, the momentary differences between the prices for regional sales and for exports have started to narrow. Lower price quotes were again received by us for corrugated recycled material and our PIX OCC 1.04 dd benchmark ended up losing as much as 6.61 euro, or 4.49%, closing at 140.69 EUR/ton. The price differences between containerboards and OCC all increased: against Testliner 2 by 2.13 euro to 309.37 EUR/ton, against Testliner 3 by 1.81 euro to 293.78 EUR/to and against RB Fluting by 2.77 euro to 281.26 EUR/ton.
Our PIX ONP/OMG 1.11 dd index turned also down, retreating by 47 cents, or by 0.32%, to 148.18 EUR/ton. As our PIX Newsprint index headed higher, the price differential widened by 1.69 euro to 359.87 EUR/ton.