FOEX Pulp & Paper Indices - July 17, 2012
July 17, 2012
– US NBSK – Summer time typically affects pulp demand less in the US than in Europe. The downtime announcements have also been limited at the North American mills, at least for the time being. Graphic paper demand drop and increased imports of pulp, mainly from the Nordic countries, have weakened the supply/demand balance. Price fall in other parts of the world in April-May and the strengthening of the USD value have increased the downside price pressures as well. Several North American producers recognized the pressures by reducing their gross contract price quote in the US market for NBSKP by 20 dollars to 880 USD/ton (metric ton/delivered) from July 1. The benchmark value showed another retreat dropping by 3.43 dollars/ton, or by 0.39%, with the NBSKP index closing precisely at 880.00 USD/ton, or at the recently announced new “list” price.
US Newsprint – The latest announcement by White Birch has the Stadacona newsprint mill, closed since December 2011, restart now pegged on August 2, 2012. Apparently the company and employees have been able to agree on a sustainable operating plan. Quebec government has provided provincial support. While waiting for the final decision of the re-start, including some “false starts” the newsprint prices held steady through most of this period, in spite of the weak demand and downside price pressures and over the first six months of the year prices retreated only by a few dollars/ton. It remains to be seen what the impact of the re-start, coupled with the strengthening of the USD will be. The benchmarks ended up moving to opposite directions. The PIX US Newsprint 30lb index moved back up by 51 cents, or by 0.08%, closing at 621.09 USD/ton, but the 27.7lb index lost 64 cents, or 0.10%, and settled at 660.33 USD/ton.
General economy: US - Retail sales in the US fell again in June, this time by 0.5%. This means that the Americans cut their retail spending for the 3rd consecutive month, contributing to the growing concerns over a slowing down of the US economy. The economic recovery was slow already during Q1, and has obviously turned even slower over Q2. Is this just a temporary pause or a signal of the recession spreading from Europe to the US? This is still an open question. The growth of inventories and the weakness of the job market support the notion of further weakening. The likely rise of the food prices, due to bad weather driven losses of crop is yet another threat as it will add to the cautiousness of the consumers. On the other hand, the construction business is clearly improving, interest rates will remain low and in some sectors, especially in automobile, the sales are quite good, up over 20% from early summer 2011.
Europe – Markets have very little confidence on Europe. In spite of the deal agreed upon to support Spain, the “euro-gloom” is getting worse and worse. The level of confidence of the business sector as well as of the private consumers nears the lowest level since the 2009 recession. The falling demand for goods within the Zone and low growth in exports are sending the already record-high unemployment level even higher. Higher unemployment means automatically a rise in social costs and weakened possibilities of the nations to reduce their debt-loads. The recently introduced measures of stimulation, drop of interest rates by ECB and 50 billion GBP quantitative easing by the BoE have not yet had time to help. The deepening recession is driving political concessions but the decisions over the ways and means to solve the Euro-zone debt-crisis are still coming too slowly to revive the confidence on European economy. GDP forecasts for Euro-zone for this year have been revised downwards to -0.5% or even lower.
Japan’s economic sentiment remains split between optimistic service sector and growing amounts of pessimism among the manufacturers. The latter were again disappointed when the industrial production numbers over May came out weaker-than-expected, partly due to longer Golden Week holiday this year than in May 2011, however. Two important industry sectors, automobiles and chemicals showed both disappointing statistics. Housing starts were also lower than anticipated. Exports and imports both grew at/near 10% rate in May, with imports again larger than exports leading to a trade gap of over 900 billion Yen. The service sector, expecting to profit on new businesses linked to media and other information as well as to the services of the elderly, is enjoying the highest confidence in the history of the index. This is quite remarkable in a situation where the Japanese and global confidence is otherwise slipping lower.
China – China's GDP growth during Q2 is estimated to have been only 7.6%. Recent purchasing manager indices came out with mixed values, depending on which index and which source to look. Official government numbers were, as expected, more positive. The private firms show weaker PMI estimates with service sector positive but less than officially and with manufacturing actually in the contraction territory. The continued loss of momentum has already lead to lower Central Bank key interest rates and reduced banks' reserve requirement ratio. The latter is a fairly effective stimulation tool as just one percentage point reduction releases over 100 billions USD to the market. More of the same can be expected in a very near-term future. China’s GDP forecast for this year remains at about 8% and next year’s at 8.5%. Inflation is calming down and CPI-estimates have been revised downwards for both 2012 and 2013.
Paper industry – The value of Euro against the USD is approaching the level where it was launched in late 1990’s and simultaneously the long-term trend level of the basket of the European currencies against the USD in decades prior to Euro. Over the past two weeks, Euro has depreciated almost 3.5%. Together with the economic development and long-term structural changes in paper demand, these currency movements have clear repercussions on pulp and paper pricing and, through pricing on demand and regional competitiveness. Pulp prices in dollars are under more down-side pressure. Paper producers in Europe, selling in Euros see the fibre price in Euros moving up, although the dollar-price of pulp is falling. This helps, in principle, in the efforts to prevent the on-going downside pressures on paper prices, driven by weak paper demand. That demand, in turn, may be supported by improving competitiveness of European paper exports outside the region.
But the pressure of the European paper outside the region meets head-on with the efforts of the North American and China to sell more of their paper outside the region as well. Consequently, the over-supply of paper has continued to drive e.g. the prices of paper and board in China lower and lower over the past few weeks and months. This has speeded up the closures of non-wood pulp based paper capacity. Paper prices have fallen also in Japan and the pressure is on in the US as well. One exception to the general trend is the price of linerboard in the US. Encouraged by lengthening order books and lower stocks, at least one producer has announced a 50-dollar price increase for brown virgin kraft linerboard.
NBSK pulp Europe – Pulp market fundamentals were not bad looking at the end-May statistics, the main positive feature being that shipments to China have been higher than what the talk of the “seriously reduced purchasing activity” would have indicated. June numbers may, or may not, show different outcome. Price pressures are still on, though, coupled with the changes in the exchange rates. The typical summer lull in demand appears today bigger than the published downtime numbers. Higher BSKP supply in late Q3/Q4 (e.g. new line in Bratsk and Terrace Bay scheduled re-start) adds to the worries. And the Euro-softening has sent the pulp prices up in Euro-terms. Euro weakened by 1.6% against USD from the previous week. Our PIX NBSK index fell by 2.65 dollars, or by 0.33%, and closed at 809.49 USD/ton. Converted into Euro, the rapid weakening of the currency caused the index to move up by 8.16 EUR, or by 1.24%, with the index closing at 664.33 EUR/ton.
BHK pulp Europe – Graphic paper downtime typically reduces market BHKP demand in Europe during the summer months. On the other hand, market pulp demand by the tissue industry continues to be good and more and more of that pulp is BHKP. In fact, the share of recovered paper in tissue may have declined over the past 12 months with much of the new tissue capacity in the world in fibre-short regions and with most of the tissue demand growth in the high-end, chemical pulp based products. All in all, market balance in BHKP remains better than in BSKP but the narrowing (and in China negative) price differential between softwood and hardwood is likely to slow down the furnish changes favouring BHKP. Euro weakened by 1.6% against USD from the previous week. The PIX BHKP index headed higher by 8.69 Euro, or by 1.38%, and closed at 639.72 EUR/ton. The PIX BHKP index value in USD fell by 1.53 dollars, or by 0.20%, to 779.50 USD/ton.
BHK pulp China – The preliminary estimates suggest that in June, the pulp imports to China finally showed some levelling off. Still, even with the assumed weakening in June, the average month imports this year, compared to the first half of 2011, are likely to be up well over 15%. Lower paper prices are speeding up the closures of non-wood pulp based paper mills. This helps to maintain the capacity utilization rates at those new machines which use chemical market pulp. But with BSKP available at lower prices than BHKP, downside price pressure persists for BHKP. Also, the local prices in Yuan are well below the import price in USD, further impacted by the USD-strengthening against the Yuan. The stronger downside pressures were now clearly noticeable in our benchmark value. PIX China BHKP retreated by 9.25 dollars, or by 1.41%, and closed at 649.06 USD/ton. Yuan weakened by 0.4% against USD. The conversion of the USD value into Yuan resulted in a decrease of 43.69 RMB, or of 1.04%, to 4146.79 RMB/ton.
NBSK pulp China – The closure list of small pulp and paper mills, much but not all of it in the non-wood pulp based industry, totals nearly 9 million tons. These closures are to be carried out within the present 5-year plan (2011-2016). In practice many of those lines are already off, at least for part of the year. The closures of non-wood pulp based paper capacity are a double-edged sword for market BSKP in China. They support the needs of new PM’s and BM’s to buy BSKP-pulp but remove the sales of BSKP as a reinforcement pulp to the units which use integrated or, in few cases, purchased non-wood pulps. Present pricing of BSKP below BHKP supports, obviously, BSKP purchases. Our PIX China NBSK index value decreased again, this time by 8.42 USD, or by 1.30%, and closed at 636.89 USD/ton. Yuan weakened by 0.4% against the USD. The conversion of the USD value into Yuan resulted in a retreat of 38.69 RMB, or by 0.94%, to 4069.04 RMB/ton. For the first time in weeks, BSKP price was down less than BHKP-quote.
Newsprint – With several publishers reporting double-digit decline in their newsprint consumption during the first half of 2012 against the corresponding period last year, it is obvious that the market conditions remain challenging. The hopes of the suppliers to raise prices in mid-year have been buried and the first news coming out of the mid-year negotiations suggest that the results vary between no change and small downward corrections. With the annual contract prices unchanged, the impact on our benchmark has been limited, at least as far as quotes received from last week were concerned. Still, the direction was downward, in spite of the Euro-weakening supporting the average price in Euro-terms. The approximately 1.0% weakening of the EUR against the weighted basket of non-EMU currencies tried to push the benchmark value higher. Despite the currency support, the PIX Newsprint index fell by 3.14 euro, or by 0.62%, to 504.55 EUR/ton.
LWC – With demand for graphic papers down again this year (European estimated demand for graphic papers total was down by 5.5% over the first five months, according to Eurograph) the battle between the grades is intensifying. At least early in the year, LWC appears to have lost volumes to SC as the regional demand for coated wood-containing reels (mainly LWC) was down by 8.4% as opposed to a 0.9% gain shown by SC. Good export performance has alleviated the pain a bit but LWC has still been, together with newsprint, the grade with relatively largest drop. In this grade, the results of the mid-year price talks are not out yet and our benchmark show little change apart from exchange rate driven movements. The 1.0% weakening of the EUR against the weighted basket of non-EMU currencies compared to the previous week had again a positive impact on our benchmark. The PIX LWC index inched up this time by 41 cents, or by 0.06%, and reached 702.60 EUR/ton.
Coated woodfree – In CWF, some of the European producers, together with Chinese and US sellers, have been hit by anti-dumping duties by Argentina. While sales to Argentina represent only a small fraction of the total deliveries of the CEPI-area producers, this decision shows how strong the pressures are in a shrinking demand in the industrial countries to increase exports of paper outside the region and how strong are the pressures to protect the domestic paper production. And, in coated woodfree that international competition is probably the fiercest with Chinese and European over-capacities clashing. In this grade, regional demand is down only little from 2011 but exports from Europe over 9% below 2011 volumes over the first 5 months. The 1.0% weakening of the Euro against the weighted basket of non-EMU currencies gave another lift to the benchmark. The PIX Coated Woodfree index moved up by 1.69 euro, or by 0.24%, to 705.25 EUR/ton.
Uncoated woodfree – Pulp price hikes in early 2012 brought up the cost pressures in uncoated woodfree production. Those pressures have alleviated somewhat but over the past month, the weakening of the Euro has raised the euro-price of pulp while the dollar-prices of pulp have retreated, first in BSKP and then also in BHKP, the main raw material for uncoated woodfree. Some increases in prices were seen during Q2, even with demand for UWF’s down by 3-4% from last year, supported also by the improving order books in April-May. In June and early July the order intake has weakened again, maybe even more than what the typical seasonal decline suggests. Consequently, the downside price pressures are back on, even though the pulp prices have risen in Euro-terms over the past few weeks. The 1.0% weakening of the Euro against the weighted basket of non-EMU currencies tried to push the benchmark higher. Nevertheless, the PIX A4 B-copy index retreated by 2.42 euro, or by 0.28%, and closed at 865.15 EUR/ton.
Containerboard Europe – Conflicting price drivers prevail in the containerboard business. Recovered paper demand has fallen below supply, even if the latter has softened, too. Consequently, the costs of the recycled fibre are down in China, US, as well as in Europe. In OCC, the drop has been quite significant since May, even if the prices still remain marginally above the level at the beginning of the year. The weakening economic outlook is another negative driver. Industrial production growth is weakening and in many countries negative against 2011 and industrial production and containerboard demand have a high correlation between them.
On the other hand, news is positive from North America. In spite of the decreased growth in US economy, and in the exports of manufactured goods, the order books for boxes and containerboard moved up in May and June. At the same time, the combined inventories at box plants and at board producers came down more than the seasonal long-term average. Encouraged by the firmer market, at least one producer (KapStone) has announced a 50 USD/ton price increase for their containerboard grades, effective from mid-August. Will other follow and can this price increase, if successful, be pushed further on in the value chain remain open questions. June numbers from the US are out later today. They are followed very keenly and pricing decisions, positive or negative, of some other producers are expected later this week after those numbers are out. In Europe, the supply/demand balance is not as positive as in the US. Finally, a piece of news with some direct or at least indirect impact on prices longer-term; the European Court of Justice has annulled the 80+ million euro subsidy granted by the European Commission to Propapier’s containerboard facility in former East Germany.
The impact of the exchange rate changes on the PIX indices was again positive with the Euro weakening both against USD (by 1.6%) and against the basket of non-EMU currencies (by about 1.0%). With the USD-strength the brown virgin fibre linerboard moved up as did the white-top liner. The other packaging indices were either flat or further down from last week. The PIX Kraftliner index rose by 47 cents, or by 0.09%, settling at 541.28 EUR/ton. Our PIX White-top Kraftliner index value moved up by 1.16 euro, or by 0.15%, closing at 756.11 EUR/ton. The PIX Testliner 2 index showed no change at all and remained thus at 431.09 EUR/ton. Our PIX Testliner 3 index value weakened by 1.56 euro, or by 0.38%, to 404.59 EUR/ton. Our PIX RB Fluting index retreated by 1.74 euro, or by 0.45%, and closed at 387.84 EUR/ton.
Recovered Paper Europe – The demand for recovered paper remains muted in China and it is not strong in the regional European market either. With exporters trying to find more places for their volumes in the regional market in the summer lull, price pressures remain downwards. The situation may change rapidly one day if the Chinese re-start purchasing larger volumes at the same time when the board consumption and, with it, recovered paper collection volumes weaken further in Europe. Until then the pressures are on the downside. Even if the prices of RP-based liners have declined less than the recovered paper prices, the profit margins of the containerboard producers are not good and the weakening of their production volumes lifts the total costs/ton.
Our PIX OCC 1.04 dd benchmark retreated this time by 1.61 euro, or by 1.43%, and closed at 110.84 EUR/ton. The price differences between containerboards and OCC mostly grew again. Against Testliner 2, the differential increased by 1.61 euro to 320.25 EUR/ton and against Testliner 3 the gap grew by 5 cents to 293.75 EUR/ton. Compared to RB Fluting, the differential actually narrowed by 13 cents to 277.00 EUR/ton.
With the weak demand for recovered paper from the graphic paper producers as well, our PIX ONP/OMG 1.11 dd index also moved lower again, this time by 40 cents, or by 0.29%, to 135.36 EUR/ton. With the PIX Newsprint index sinking more, despite the euro weakness, the price differential narrowed by 2.74 euros to 369.19 EUR/ton.