FOEX Pulp & Paper Indices - July 3, 2012

HELSINKI , July 3, 2012 () – US NBSK – While market pulp shipments to North America shrank by over 3% during the first five months of 2012, according to the PPPC statistics, producer and consumer stocks moved up in May and prices have started to slip down in June also in North America, the market fundamentals are not catastrophically weak. Against the weakness of the paper industry statistics, market pulp has fared maybe even better than have been feared. Several producers have published their plans for a 20-dollar price drop from July 1 in BSKP grades in the US market, after having held firm for quite some time whilst prices elsewhere were already falling. The index value dropped further by 1.35 dollars/ton, or by 0.15%, with the NBSKP benchmark closing at 897.62 USD/ton.

US Newsprint – North American newsprint statistics over April came out with positive surprises. In May, newsprint demand was down by 2.3% against May 2011. While overseas exports were down again by about 1/4 both for the month and first five months, the regional shipments showed less movement with a decrease of 1.9% in May, compared to May 2011. The cumulative shipment data was still slightly negative, showing a drop of 1.4% over the first five months. Most news from the North American newsprint market have lately dealt with various possible start-ups of idled newsprint capacity, as some contractual matters have stood in the way of re-starting those machines/mills. Other news speak of indefinite closures of newsprint capacity, e.g. Resolute’s Mersey newsprint mill. The PIX US Newsprint 30lb index remained at 620.97 USD/ton, and the 27.7lb index at 661.36 USD/ton.

General economy: US – US economic growth seems to be slowing down even more. The Fed Chairman promised that the Bank will take more action if labor market doesn’t start picking up soon. In April-May, the rise in the employment fell to a mere 73000 jobs/month. Unemployment rate rose to 8.2%. At this rate also the US economy could enter a recession at or even before the turn of the year when the combination of tax hikes and spending cuts, mentioned above, forms a sort of a “fiscal cliff”. That cliff can still be lowered or even removed, but that could require new legislation which is slow and difficult to pass under the present split legislative powers. All is not just darkness, though, there are more and more signs that the long-lasting slump of the housing market shows finally some real signs of getting over it. Prices are rising and sales are increasing.

Europe – Austerity programs cannot correct Europe’s problems, that much is clear. Stimulation of growth alone cannot correct those problems either. What is needed and what would work is a combination of stimulus which does not hurt the budgets and the reduction of the different kinds of barriers of trade and development that make Europe uncompetitive. The stimulus would come from the ECB lowering the interest rates to zero. Spain and Cyprus became the 4th and 5th nation asking for help. The flash PMI composite output index for June (by Markit) for the Euro-zone total remained at the 46.0 level after the big drop recorded in May. These numbers suggest that the whole Q2 downturn was the steepest quarterly drop in three years.
Japan’s economic development was a positive surprise through April-May. BoJ went and upgraded its economic assessment. Through May, the stronger-than-expected domestic demand compensated for the impact of the weakening of the overseas economies. After positive numbers in April-May, the first data over June was clearly more subdued. Another factor pulling the growth down is the slowing down of the 2011 earthquake-related reconstruction activity. Japan’s latest GDP growth forecast at 2.5% for 2012 carry more downside than upside risk.
China – China's annual growth target of 7.5% for 2012 looks still possible but increasingly challenging. Domestic demand, which should be the key growth driver now that the export growth hopes are dimming, appears to be faltering as well. The Flash Manufacturing PMI by HSBC retreated again, this time to 48.1, the lowest value this year. The key forward looking indicators were also weaker than hoped for. Backlogs of work, which has so far been lengthening, contracted. Suppliers’ delivery times were shortening. Also the domestic order volumes headed lower. Both the weak forward looking indicators and the faltering growth of the main export targets suggest that the bottom in the manufacturing activity and the overall economic growth have not yet been seen.


NBSK pulp Europe – The recently published May statistics showed a better performance than what the paper industry numbers would have suggested, supported by the fibre needs of the Paper industry – Just as in 2009, the weakening of the economic conditions appears to speed up the structural decline in the paper demand, most notably, of course, in the graphic paper sector. Looking at the latest statistics, the US paper and paperboard industry activity has retreated again in May but it appears that the contraction could be flattening out. The data for tissue has been better than last year all through the early 2012 and in May also the box shipments were up. In Europe, the situation and the near-term outlook is different from the US market, probably largely explained by the recession speeding up again the structural declines. As to the total graphic paper shipments or the estimated consumption in Europe (in CEPI member countries), they were again worse in May than what they had been in January-April.

tissue sectors and by the paper and paperboard production growth in the emerging economies. Still, the situation is deteriorating also in market pulp. Production downtime continued to be taken in June, even if not as actively as what had been seen in May. Euro strengthened by 0.4% against USD from the previous week. Our PIX NBSK index fell by 10.84 dollars, or by 1.3%, and closed at 820.36 USD/ton. Converted into Euro, the strengthening of the currency caused the index to drop by 11.29 EUR, or by 1.7%, with the index closing at 651.60 EUR/ton.
BHK pulp Europe – In June, the supply/demand balance for hardwood pulp continued to be better than for softwood. May statistics from PPPC showed both softwood and hardwood pulp global producer stocks up by one day from end April, without seasonal adjustment. The price gap between BSKP and BHKP has continued to narrow in Europe and all other large markets, too. Euro weakened by 0.4% against USD from the previous week. The PIX BHKP index decreased by 5.11 Euro, or by 0.82%, and closed at 620.44 EUR/ton. The PIX BHKP index value in USD fell by 3.25 dollars, or by 0.41%, to 781.13 USD/ton.

BHK pulp China – Chinese market pulp purchasing activity slowed down, already in late April and then through all of May, as both the PPPC statistics as well as the Chinese import statistics for May showed a minor drop from the April 2012 numbers. But, comparing May 2012 over May 2011, PPPC’s chemical market pulp shipments to China increased by 20% and the Chinese import statistics pegged the pulp intake growth for all pulp grades at 23%. One BEKP producer has announced unchanged price for July business in China. The rising downside pressures were seen, in a modest way, in our benchmark value. PIX China BHKP retreated by 3.47 dollars, or by 0.52%, and closed at 659.91 USD/ton. Yuan strengthened by 0.2% against USD. The conversion of the USD value into Yuan resulted in a decrease of 28.51 RMB, or of 0.68%, to 4193.81 RMB/ton.

NBSK pulp China – According to the Chinese import statistics, BSKP intake grew between May 2012 and May 2011 by 23% whilst in BHKP the growth was “only” 9%, most likely much due to the disappearing of the price differential between these two grades in China during May. The slowdown in sales to China in Q2 is a reflection of having had high stocks and of the Chinese pulp buyers using the market power in their hands to press the prices lower. Our PIX China NBSK index value decreased again, this time by 4.53 USD, or by 0.69%, and closed at 650.97 USD/ton. Yuan strengthened by 0.2% against the USD. The conversion of the USD value into Yuan resulted in a retreat of 35.17 RMB, or by 0.84%, to 4136.99 RMB/ton.
Newsprint – The Euro-Graph figures for May showed a 9.1% drop in estimated demand for newsprint in Europe, in line with the first five month cumulative change of -9.6%. Exports have done better than last year, up 34.6% for the month, and +27.0% year to date. Exports have so far accounted for about 19% of total European newsprint shipments by Euro-Graph members. The approximately 0.3% strengthening of the EUR against the weighted basket of non-EMU currencies caused a negative effect on the index. The PIX Newsprint improved, however, by 40 cents, or 0.08%, to 506.90 EUR/ton.

LWC – European estimated consumption for coated mechanical reels was again very weak, down by 11% in May against May 2011 and by 8.4% over the first five months. In comparison, demand for SC was down by 2.7% for the month of May but still up by 0.9% for the 5-month cumulative total, according to Euro-Graph. The currency effect of a roughly 0.3% strengthening of the EUR against the weighted basket of non-EMU currencies had a down- pulling impact on our benchmark. The PIX LWC index dropped by 0.50 EUR, or 0.07%, and landed on 701.74 EUR/ton.

Coated woodfree – May figures from Euro-Graph show estimated demand for coated woodfree paper in Europe to have dropped by 1.1% and cumulatively for the first five months by 1.5%. Total European shipments dropped, with both regional shipments and exports showing declines. Supply is still strong, and the need for production capacity cuts to meet the mediocre demand prevails. News has it that Burgo is halting production temporarily in this respect on one PM at its Avezzano mill in Italy. The 0.3% strengthening of the Euro against the weighted basket of non-EMU currencies impacted our index downwards. The PIX Coated woodfree index dropped by 2.50 EUR, or 0.35%, to 703.37 EUR/ton.

Uncoated woodfree – European estimated demand for uncoated woodfree paper grades was down by 5.6% in May, and down by 4.6% in the January-May period, according to Euro- Graph. A bit steeper than for coated woodfrees. The changes in shipment figures were approximately in the same ballpark for uncoated and coated grades, with exports dropping relatively more than regional shipments for both grades. The currency effect of the strengthened Euro against the weighted basket of non-EMU currencies gave a downward pull to the PIX A4 B-copy index. In spite of this, the benchmark crept up by 2.87 EUR, or 0.33%, closing at 862.98 EUR/ton.

Containerboard Europe – In Europe, the demand for containerboards and especially for boxboards has been sluggish, obviously linked to the worsening state of the European economy. Losses of production e.g. through closures in Norway, strikes in France and some technical problems elsewhere have helped the practical supply/demand balance, as have the risen export volumes outside the region. The impact of the exchange rate changes on the PIX indices was negative as the EUR strengthened by 0.4% against USD and by 0.3% against the basket of non-EMU currencies. The PIX Kraftliner index slid down by 2 cents, or by 0.00%, settling at 539.48 EUR/ton. Our PIX White-top Kraftliner index value moved down by 4.05 euro, or by 0.53%, closing at 756.10 EUR/ton. The PIX Testliner 2 index headed down by 74 cents, or by 0.17%, and settled at 436.32 EUR/ton. Our PIX Testliner 3 index value dropped by 0.03 euro, or by 0.01%, to 413.88 EUR/ton. Our PIX RB Fluting index retreated by 0.26 euro, or by 0.07%, and closed at 395.43 EUR/ton.

Recovered Paper Europe – Since mid-May and all through June, the recovered paper prices have headed further down. Also, until very recently, there have been difficulties in finding enough container space to ship recovered paper from Europe and the US to China. As the regional demand has not been very good either, especially in Europe, the earlier price rise movement in recovered papers stalled in late April and turned into a gradual decline in May which has continued also in the US as well as in Europe through June. Consequently, the recovered paper cost increases have also come to a halt. Our PIX OCC 1.04 dd benchmark retreated this time by 1.55 euro, or by 1.27%, and closed at 120.20 EUR/ton. The price differences between containerboards and OCC grew bigger. Against Testliner 2, the differential increased by 0.81 euro to 316.12 EUR/ton and against Testliner 3 the gap grew by 1.52 euro to 293.68 EUR/ton. Compared to RB Fluting, the differential widened by 1.29 euro to 275.23 EUR/ton.

With the weak demand for recovered paper from the graphic paper producers, our PIX ONP/OMG 1.11 dd index moved lower as well, now by 0.79 euros, or by 0.56%, to 139.77 EUR/ton. With the PIX Newsprint index improving, the price differential widened by 1.19 euros to 367.13 EUR/ton.

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