FOEX Pulp & Paper Indices - Aug. 7, 2012

HELSINKI , August 7, 2012 (press release) – General economy: US – Weak but still positive global growth in manufacturing appears to have continued in July. In the US, 163,000 new jobs were added in July, many of them in manufacturing. Even though the gains were smaller than in Q1, they were much better than the Q2 average. While the unemployment rate inched higher to 8.3%, the job growth was above economists' expectations and boosted the stock markets. Most other indicators continued to suggest that the US recovery is faltering. Markit’s US Manufacturing PMI ended at 51.4, lower than the preliminary estimates and down from the June reading of 52.5. New orders still rose but at the lowest rate since September 2009. New export orders and work backlogs contracted. Most other sub-segments were still expanding but at a reduced rate. Both input and output prices fell. Unless a pick-up of demand is seen quite soon, US manufacturing production risks falling in Q3.

Europe – After 0.0% growth in Q1, the Euro-zone economy declined clearly in Q2. In July, the downturn continued at a similar pace as in June. The Final Eurozone Composite Output index (from Markit) inched up from 46.4 to 46.5 points, still well within the contraction territory. Manufacturing was, once again, weaker than the also contracting service sector. Both incoming orders and order backlogs had very sharp reductions, the worst since mid-2009. Input prices moved up while the selling prices declined, meaning narrower corporate profit margins. According to the analysts, the numbers indicate a 0.6% contraction of quarterly growth rate. Productivity decline and worsening downturn in Germany are among the most negative drivers while the pace of contraction in countries like Italy and Spain appears to be flattening out.

China – The recently introduced measures of monetary easing and other stimulation appear to start bearing fruit in China. July’s business activity, combining the inputs from both service and manufacturing sectors, rose at a relatively good pace. HSBC’s Composite Output Index moved up from 50.6 points in June to 51.9 points in July. Manufacturing posted the first gain since February 2012. Inflow of new orders supported the growth in the service sector. This was seen in HSBC’s Business Activity Index which rose even higher than the Composite Output numbers to 53.1 points. Going is still slow but the slowdown appears to have been brought under control. The growth is not, however, high enough to create enough new jobs to reduce the unemployment rates which are quite high in some regions and sectors. Consequently, more measures of easing are still likely, especially as the decline in inflation leaves more and more room for them.

Japan’s moderate recovery appears to be running out of steam. The difficulties of exporting Japanese goods and services are taking a serious toll on Japan’s general economy. The domestic demand continues to grow, but at a slower pace now than on Q1 & Q2. This is partly due to the comparison numbers from 2011 being better than what they were in Q2. Japan’s Business Activity Index fell clearly to a 10-month low of 47.5 in July. The Composite Output Index (by Markit) fell by 1.7 points to 47.4 in July, bringing now also Japan’s output into a contraction mode. With both manufacturing and service sectors retreating, this softness will easily prevail through the whole quarter. Contraction of the private sector activity is, however, partly compensated by the increases in services and infrastructure investments seen in the public sector.

Paper industry – The continuing slowing down of the global economic growth suppresses also paper and paperboard demand expansion, or, in many grades and regions, aggravates the demand decline. US half-year production numbers, released by AF&PA, showed paper production down in June by 5.7%, paperboard by 0.7% and total paper & paperboard by 2.8% against June 2011. Cumulatively, production over the first half were -3.1% for paper, +0.2% for paperboard and -1.2% for the total. With imports dropping more, US apparent consumption fell more than the production, or by -1.6% for the total over the first six months. Printing and writing papers had a very large drop in June. North American graphic paper demand (number excludes newsprint) was down by as much as 11.7% for the month. This collapse increased the cumulative decline over the first half of the year to almost 8%.

In Europe, the graphic paper numbers from EUROGRAPH (these numbers include newsprint) were also very weak over June, and for the first half as a whole. As already shown a week ago, the total European demand (estimated) for the total of graphic papers was down in June by nearly 10%. This brought the cumulative drop to 6.7% against January-June 2011. Exports outside the region were down in June but remain positive for the cumulative total. Imports to Europe are clearly down. Consequently, the total shipments from the European producers show smaller declines than the regional demand but even there the cumulative drop already approaches 5%. There is nothing suggesting any major change in these trends, on either region, over the month of July.

NBSK pulp Europe – The weakness of the paper and pulp demand in Europe prevailed in July. The weak June statistics came out before the end of the month and impacted the monthly price talks. BSKP shipments to the European market were not all that bad with a slightly more than 3% decline for the month. The cumulative drop for softwood pulps was, however, over 8% and probably even more for normal paper grades pulp as changes in fluff pulp shipments, included in the BSKP market pulp, tend to change less. Our PIX NBSK index fell by 10.75 dollars, or by 1.34%, and closed at 789.20 USD/ton. Converted into Euro, the index moved down by 4.96 EUR, or by 0.76%, with the index closing at 644.51 EUR/ton.
BHK pulp Europe – In market BHKP, June shipments were weak, down globally by as much as 11.4% compared to June 2011. Deliveries to Europe showed much less decline. The retreat has been estimated at about 2.5% for the month and little more than 5% year-to-date. The increase in the producer stocks and the narrowing price differential between softwood and hardwood pulps put a lot of downside pressure on BHKP prices. Consumer and port stocks in Europe were down in June but the latter are expected to have risen in July with some delayed shipments from Latin America having come in in early July. Euro weakened by 0.6% against USD from the previous week. The PIX BHKP index headed down by 1.27 Euro, or by 0.2%, and closed at 628.14 EUR/ton. The PIX BHKP index value in USD fell by 6.08 dollars, or by 0.78%, to 769.16 USD/ton. These numbers narrowed the gap to NBSKP to just 20 dollars.

BHK pulp China – China’s purchasing activity continued to be muted over July. Pulp import statistics of China showed that the pulp intake weakened again in June, with a drop of about 140 000 tons from May 2012 for the total pulp imports including all grades. BHKP imports were clearly up against June 2011, but declined against May 2012, even if only quite marginally, or by 1.4%. Cumulatively, BHKP imports to China were still up by 23.4%, or by more than 600 000 tons. Producers have resisted hard the buyers’ continued pressure to bring the prices down. However, through July prices gradually fell. This time a minor turnaround was seen, at least temporarily. PIX China BHKP moved back up by 4.06 dollars, or by 0.63%, and closed at 644.14 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan resulted in an increase of 20.61 RMB, or of 0.50%, to 4104.77 RMB/ton.

NBSK pulp China – Softwood pulp intake numbers by China were down considerably, or by 70 000 tons, in June against May. This came as a bit of a surprise as the negative price gap to BHKP was expected to start helping the softwood pulp demand by this time. Cumulatively, BSKP imports were up by a fraction under 20% over the first six months with Finland, Sweden, Chile and the US showing the largest county-specific gains. As in BHKP, prices fell through July, but this price drop appears to have come to a halt, at least temporarily as our benchmark inched back up again this time. Our PIX China NBSK index value increased this time by 1.57 USD, or by 0.25%, and closed at 629.68 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan resulted in a pick-up of 4.85 RMB, or by 0.12%, to 4012.62 RMB/ton.

Newsprint – The newsprint shipments within the region dropped by 10.7% in June according to Euro-Graph figures. The cumulative change for the first six months showed a decline of 10.1%. The PIX Newsprint index stayed more or less at the level of 506 EUR through July, and retreated by about 2 EUR around the end of the month. The minor, approximately 0.02%, strengthening of the EUR against the weighted basket of non-EMU currencies had a marginal down pulling effect on the index. The PIX Newsprint benchmark inched up, however, by 57 cents, or 0.11%, reaching 504.80 EUR/ton.

LWC – The European coated mechanical paper shipments within the region dropped by 14.1% in June, while the cumulative 6–month figure retreated by 9.4% in the latest Euro-Graph statistics. Our benchmark price remained practically stable on a level of 702 EUR through July, but took a 2 EUR drop at the end of the month. The currency effect of a tiny 0.02% strengthening of the EUR against the weighted basket of non-EMU currencies had a slight negative impact on our benchmark. The PIX LWC index lost 59 cents, or 0.08%, and slid to 699.99 EUR/ton.

Coated woodfree – European deliveries of coated woodfree paper in the region improved by 4.5% in June and lagged only by 1.6% in the cumulative comparison against 2011, as reported by Euro-Graph. The PIX Coated woodfree index dipped to about 703 EUR in early July, but improved to 707.20 EUR at the end of the month. Recent news reporting speaks of some upward price changes achieved in these grades around mid-year. The 0.02% strengthening of the Euro against the weighted basket of non-EMU currencies caused a minimal downward pull effect to the index. The PIX Coated woodfree index lost 70 cents, or 0.10%, and dropped to 706.50 EUR/ton.

Uncoated woodfree – European uncoated woodfree shipments within the market area dropped by 2.5% in June, which was less than the cumulative drop of 3.5% in the Euro-Graph figures. We have come across hints of some paper producers planning price increases for these grades, apparently as of September. The currency effect of a minutely strengthening EUR had a marginal downward impact on our index. The PIX A4 B-copy index dropped by 61 cents, or 0.07%, settling at 865.30 EUR/ton.

Containerboard Europe – June corrugated box data from the US was surprisingly strong with shipments up by 1.1% from last year on an average week basis. Inventories went down especially at box plants. Price increase announcements of typically 50 USD/ton have been made for the US market. Containerboard operating rate remained high at 96%. Exports were not as strong as before probably due to the stronger USD compared to the Euro and not so strong European packaging market.

In Europe, kraftliner suppliers have also come out with price increase initiatives of 40-60 EUR/ton either from Aug 1 or Sep 1. The recent weakening of the Euro against the USD boosts the competitiveness of the European producers against the importers. Kraftliner market has been tightening now as two mills stay idle. In recycled fibre based grades, some producers have come out with price increase announcements of typically 100 EUR/ton from Sep 1 in Europe. Last week Euro weakened by about 0.6% against USD but strengthened a bit against the weighted basket of the non-EMU currencies. The small changes in virgin fibre linerboard prices were in both directions. The PIX Kraftliner benchmark lost as the PIX White-top Kraftliner index gained. The recycled fibre based grades generally continued their way down. The PIX Kraftliner index went down by 10 cents, or by 0.02%, landing at 543.22 EUR/ton. The PIX White-top Kraftliner index value showed a gain of 2.45 euro, or 0.3%, closing at 759.41 EUR/ton. The PIX Testliner 2 index decreased by 1.97 euro or by 0.47% to 416.22 EUR/ton. Our PIX Testliner 3 index value lost 2.07 euro, or 0.53%, landing at 390.17 EUR/ton. Finally, the PIX RB Fluting index showed no change at all staying at 378.89 EUR/ton.

Recovered Paper Europe – Even though China imported 8.7% more recovered paper in June than in the same month a year ago imports from Europe amounted to only 21% of the total. Prices of most recovered paper grades have continued their way down. Sellers are waiting for the Chinese buyers to start re-stocking again. Containerboard producers have announced price increases of typically 100 EUR/ton for the recycled fibre based grades from Sep 1 in Europe.

Our PIX OCC 1.04 dd lost less than earlier, i.e. 92 cents, or 0.85%, landing at 107.18 EUR/ton. The price differences between containerboards and OCC narrowed again in most cases: against Testliner 2 the differential decreased by 1.05 euro to 309.04 EUR/ton and against Testliner 3 the gap reduced by 1.15 euro to 282.99 EUR/ton. As the PIX RB Fluting showed no change this time the differential widened by 92 cents to 271.71 EUR/ton. The PIX ONP/OMG 1.11 dd index lost more this time, i.e. 1.26 euro, or 0.97%, to 128.69 EUR/ton. With the PIX Newsprint index gaining a bit the price differential grew by 1.83 euro to 376.11 EUR/ton.

US NBSK – Market pulp shipments to North America were reported down by just 1.5% from May but by as much as 12.5% compared to June 2011. In the softwood grade total, the shipments were down less than in hardwood, but the retreat was still as much as 8.7% against June 2011. The cumulative drop over the first half was a bit more than 6%. Global producer stocks were up in June but the stocks at the US producers of market pulp were down by 10 000 tons, or by 1.5%, from end May, according to AF&PA. Against June 2011, the stocks were up but just by 7 000 tons, i.e. by 1.2%. Several North American producers had earlier separately announced a price drop in NBSKP grade from 880 to 850 USD/ton from August 1. Much of this drop was already shown as the quotes came in from the first days of August. Our PIX US NBSKP index fell by 18.61 USD, or by 2.1%, and closed at 861.39 USD/ton.

US Newsprint – Newsprint demand has continued to decline, although the latest PPPC statistics including June showed a moderate decline of 1.2% and the cumulative change is also relatively small at -1.6%. Some newsprint production capacity will be taken out, as Catalyst Paper announced the permanent closure at the end of September of its Snowflake paper mill in Arizona, which has an approximate annual newsprint capacity of 290 000 tons. Both benchmarks remained unchanged, the PIX US Newsprint 30lb index at 620.59 USD/ton, and the 27.7lb index at 659.79 USD/ton.

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