FOEX Pulp & Paper Indices - Aug. 28, 2012

Kendall Sinclair

HELSINKI , August 28, 2012 (press release) – US NBSK – Shipments of market pulp to the North American market were down in July by 2.5% against July 2011. The cumulative retreat was larger at 4.6%. In BSKP-grade, the declines were about one percentage point bigger than for the grand total. In addition to the weak demand and rising pulp stocks, the wide differential between the spot and contract prices has added to the downward pressure on the contract business prices. As widely expected, at least one supplier has announced a further 20 USD drop on the price for NBSKP in the US market from September 1. After the removal of the top and bottom 10% of the quotes received, our PIX US NBSKP index remained flat at 850.00 USD/ton, or at the list price announced by most producers, separately, for August.

US Newsprint – NAA reported the consumption down by 8.4% in July and publishers’ inventories slightly up. Supply of newsprint is down on the West Coast (Snowflake closure; about 280 000 tons per annum) but up in the East (re-start of Stadacona with about 150 000 tpa). Consequently, the regional balances are behaving differently within the US market. At least two producers have announced a price increase on the West Coast market. This increase is applied from October 1, not from September. Our price quotes are concentrated on the deals concluded in the Eastern & Central states. Both benchmarks moved marginally down from last week; the PIX US Newsprint 30lb index by 4 cents, or by 0.01%, to 619.73 USD/ton, and the 27.7lb index by 5 cents, or by 0.01%, to 658.87 USD/ton.



General economy: US – Recovery process continues but the rate of growth remains muted and several indicators suggest a further slowing down of the economic conditions – but still positive growth. The Fed appears to be in a full readiness to intervene with another boost of liquidity, case need. Unemployment rate persists above 8% and remains most probably at/above 8% through the rest of the year. The US Manufacturing PMI (Flash version by Markit) showed a minor improvement from 51.4 to 51.8 points in August. Output and domestic order inflow have modestly improved but new export orders are contracting, underlining the weakness of the overseas markets. Stocks are moving down as are also both the input and output prices. The “fiscal cliff “with higher taxes and reduced social benefits at the turn of the year is turning closer.

Europe – Positive performance in January kept the Q1 economic growth at 0.0%. However, since February, every month has shown that a worsening downturn is taking place. Cautiousness of the banks to provide loans has placed more downturn pressure on the real economy which in turn worsens national & regional fiscal conditions and, bouncing it back to the financial institutions, has raised the bond yields. Clear vicious circle, but, for the time being at least, no collapse has been seen. Markit Flash Eurozone PMI Composite Output Index remained more or less flat in August, well in the contraction territory. For Q3, the economic growth is likely to turn out to be 0.5-0.6% negative. The bad news is that virtually every sub-section of the Euro-zone economy is slowing down. The good news is that the rate of decline is slowing down for total output as well as for work backlogs, new orders and employment.

Japan – The deceleration of the overseas markets still continues. That means that the export demand remains weak. The appreciation of the Yen has also put brakes on the export and general economic growth. In recent months, the domestic demand has, however, been strong enough for the overall economic activity to be now picking up, even if only moderately. Buying of environmentally friendly cars (subsidized) and reconstruction works are the main drivers for positive growth. In terms of prices, Japan has right now neither deflation nor inflation. Just as in the US, the Central Bank is ready to intervene if the overall growth risks stalling. The “Asset Purchase Program” is already on and the size of the program will be increased again well before the turn of the year. If and when the overseas economies come out of the deceleration phase, Japanese economy seems to be ready for a stronger economic performance.

China's growth is still very respectable in Western eyes but stalling badly when measured by the Chinese’ own standards. The growth is further jeopardized by apparently quite massive inventories in some goods, especially in those meant for exports. And the inventory mountain continues to grow as the new export business declines at the sharpest rate since early 2009. The HSBC Flash China Manufacturing PMI results a few days ago were quite alarming. Apart from the lengthening of the suppliers’ delivery times, every other indicator pointed downwards and the rate of contraction was, in most cases, speeding up. This includes the total PMI as well as new orders, work backlogs and purchase volumes. It is easy to predict that the government will move into additional policy easing measures, most likely concentrated in infrastructure investments.

Paper industry – The weakness in the demand persists. With the holiday period still on in Europe, some statistics are slow coming in. The preliminary graphic paper data on July look a bit less bad than the statistics of the prior months. This was, however, largely due to the softness of the July 2011 data. The demand for printing and writing grades, including newsprint, was down by 2.5% against July. That was clearly less than the nearly 7% retreat registered over the first six months. Exports were promising, up by over 6% in July and by little more than 1% over the first 7 months. In total shipments, uncoated mechanicals and newsprint were the weakest grades whilst uncoated woodfree and coated grades did better. Stocks of paper at the producers rose across the board, but the rise was a relatively normal for the season.

Across the pond in North America, July comparison was quite positive in packaging side with July shipments up from July 2011 (with one more shipping day, though) and inventories rising less than the seasonal norm. In graphic papers the data was also a bit better than the year-to-date numbers but only slightly. Total printing and writing paper demand, excluding newsprint, was down by 5.1% whilst the cumulative drop over the first 7 months was almost 7%. Also in North America, uncoated mechanicals were the weakest grade. Coated woodfree demand was actually 2.5% higher than in July 2011.

There have been some price increase attempts going on in August but apart from brown virgin kraftliner, the attempts have been only very marginally successful and in most grades not at all, at least before September.

NBSK pulp Europe – The news from the pulp market has been predominantly bad, with some individual brighter spots. The higher than average seasonal rise of the stocks in the supply chain in July, with producer stocks for BSKP up by three days and also port and consumer stocks in Europe rising, added to the downside pressures. That led to announcements of lower prices, predominantly in North America. In Continental Europe, buyers have been on holiday and the monthly price talks have not started in earnest. In China, on the other hand, market participants appear to feel that the bottom may have been reached and the first BSKP price rise announcements have been seen while prices elsewhere are still retreating. BSKP shipments, according to PPPC, were marginally higher than in July 2011 and cumulative deliveries were up by 1.2%. The July statistics triggered market related downtime announcements and brought the date of some of the technical downtime decisions forward. Euro strengthened by 1.4% against USD from the previous week. Our PIX NBSK index fell by 2.97 dollars, or by 0.38%, and closed at 777.36 USD/ton. Converted into Euro, the index moved down by 10.97 EUR, or by 1.73%, with the index closing at 621.54 EUR/ton.

BHK pulp Europe – BHKP shipments were up almost 200 000 tons in July against the very soft July 2011 numbers, bringing the cumulative gain over the first 7 months to 1.5%. In spite of the gain in deliveries, producer stocks headed higher by 4 days without seasonal adjustment and by 5 days with the adjustment. With these numbers, the earlier better balance of the hardwood market appears to have melted away. April announced a combined downtime of 100 000 tons between their Chinese and Indonesian mills. Downtime is also taken elsewhere. Hardwood market BCTMP supply has also been reduced, and soon in a permanent way at Chetwynd, due to weakened demand and rising local integrated production of poplar APMP/CTMP in China. The price gap between NBSK and BHKP prices shrank again but this time only marginally. Euro strengthened by 1.4% against USD from the previous week. The PIX BHKP index headed down by 9.99 Euro, or by 1.61%, and closed at 610.36 EUR/ton. The PIX BHKP index value in USD fell by 1.95 cents, or by 0.25%, to 763.38 USD/ton.

BHK pulp China – The inventories of many goods are very high in China. In pulp, however, the consumer stocks appear to have come down, following the weaker purchasing activity in May-July. Consequently, the buyers are becoming more active again. This is more evident in softwood, understandably with the negative price gap promoting softwood purchases over hardwood. The major downtime announcement in BHKP by April reflects the over-supply as such but can also be interpreted stemming from the limited differential between the prices of imported pulp vs. the cost of the locally produced BHKP. PIX China BHKP fell by 5.60 dollars, or by 0.88%, and closed at 632.57 USD/ton. Yuan strengthened by 0.04% against USD. The conversion of the USD value into Yuan resulted in a drop of 37.32 RMB, or of 0.92%, to 4020.49 RMB/ton.

NBSK pulp China – Over the first 7 months, the shipments of softwood pulp to China are reported to have risen more than those in hardwood, quite logical with the negative price gap prevailing since June. Even with the shipments up from last year, the last month or two appear to have been a period of de-stocking, at least as far as the stocks held by the traders are concerned. While prices of softwood pulp were heading still lower elsewhere in the world, at least two producers have announced price increases in market BSKP in China, by 10 and 30 dollars. These increase announcements from Chile and Russia appear to have led to a withdrawal of the lowest spot offers of NBSKP from the market as well. Our PIX China NBSK index value turned slightly back up and climbed higher by 2.18 USD, or by 0.35%, and closed at 622.76 USD/ton. Yuan strengthened by 0.04% against USD. The conversion of the USD value into Yuan resulted in a rise of 12.17 RMB, or by 0.31%, to 3958.14 RMB/ton.

Newsprint – The share of newsprint-based advertising continues to fall and with total advertising more or less stalling in the EU, the demand for newsprint continues to sink with page numbers down and the smaller tablet format gaining ground. July statistics have not yet been published on the EURO-GRAPH web-site. News from the market is that the preliminary estimated demand drop in July was about 4% against the soft July 2011 performance, i.e. clearly less than the nearly 10% drop registered in the estimated European demand over the first half of the year. The lower prices agreed in July for some of the Q3/2nd half business are still trickling in and pushing our benchmark lower. The approximately 0.3% strengthening of the EUR against the weighted basket of non-EMU currencies did its share in pulling the index lower. The PIX Newsprint benchmark moved down by 3.01 EUR, or by 0.60%, closing at 500.70 EUR/ton.

LWC – In coated mechanical papers, the combination of the weakened demand and reduced production capacity in 2012 against 2011 showed as large declines in the monthly comparisons over the first half. With the 2nd half of 2011 volumes already down, the comparisons can be expected to be less dramatic. In fact, the preliminary July demand appears to have been marginally up, compared to July 2011. The cumulative demand, down by over 9% over the first half, is still down by about 9% over the first 7 months, however. The currency effect of a 0.3% strengthening of the EUR against the weighted basket of non-EMU currencies gave a downward push on our index. The PIX LWC index lost 1.96 EUR, or 0.28%, and settled at 697.48 EUR/ton.

Coated woodfree – In the US, coated woodfree volumes are down but less and less against the corresponding month in 2011. The preliminary July data showed the decline at just 0.9%. Similar trend can be seen in Europe. Whilst the cumulative drop in the estimated European demand was 2.6% over the first half of the year, the still unconfirmed numbers from July suggest a small rise against July 2011 in the regional demand as well as in exports outside the region. The 0.3% strengthening of the Euro against the weighted basket of non-EMU currencies caused downward pressure on our index. The PIX Coated woodfree index moved down by 2.16 EUR, or by 0.31%, and ended at 703.82 EUR/ton.

Uncoated woodfree – Also in the uncoated woodfree papers, the July performance was relatively better than the cumulative results over the first half. In the US, July shipments were off by 2.7% against July 2011 whilst the cumulative retreat was 3%. In Europe, the difference is clearer with July demand (estimated) up a fraction against July 2011 but with the cumulative consumption over the first half down by 4.7% and now, after 7 months by about 4.3%. The 0.3% strengthening EUR against the basket of non-EMU currencies pulled our benchmark lower. The PIX A4 B-copy index fell only very slightly, though, i.e. by 26 cents, or by 0.03%, closing at 868.62 EUR/ton.

Containerboard Europe – In the US, the brown packaging market did relatively well in July with corrugated box numbers down by 2.0% on an average-week basis but up by 2.9% year-over-year, when adjusting for the number of shipping days. Inventory rises during this summer have been lower than the average gains over the past and capacity utilization rates are high. In Europe, the slow domestic demand and the struggling export industries result in a weaker data from the packaging industry, too. The July numbers are not out yet but the first half was down by 0.7% in case making materials and by as much as 4.6% in cartonboards. The containerboard producers have followed the example from the North American market and announced sizeable price increases, effective either from August 1 or from September 1. The retreat of the RP-prices, low demand and the recent small re-strengthening of the Euro do not support this move but, on the other hand, the financial results of the companies suggest that a higher revenue stream is needed.

The currency movements meant a downward pressure on the benchmark values. Last week the Euro strengthened by about 1.4% against the USD and by 0.3% against the weighted basket of the non-EMU currencies. In spite of the downward pull from the exchange rates, the PIX Kraftliner index gained 1.70 euro, or 0.31%, landing at 544.73 EUR/ton. The PIX White-top Kraftliner index value showed a small retreat of 25 cents, or 0.03%, closing at 758.93 EUR/ton. In the recovered paper based containerboard grades, the quotes were flat or down. The PIX Testliner 2 index moved lower by 2.78 euro, or by 0.67%, to 411.86 EUR/ton. The PIX Testliner 3 index value continued its way southwards, this time by 1.59 euro, or by 0.41%, closing at 384.86 EUR/ton. Our PIX RB Fluting index retreated by 3.43 euro, or by 0.92%, to 371.40 EUR/ton.

Recovered Paper Europe – The 2nd half of the year is typically strong for packaging in China but the woes of the export trade have limited the demand growth for boxes. Consequently, the prices of linerboards have retreated and the volumes and prices of imported OCC and mixed grades have trended down. Just as in pulp, some buyers of recovered fibre appear to have become a bit more active and the price decline of RCP appears to have halted, at least temporarily. It takes always a couple of weeks, if not more, for a change in the fortunes in China to have an impact on the regional markets in Europe and the US. Also this time, the recovered paper prices in Europe have continued to fall.

Our PIX Recovered Paper benchmarks continued their now 4-month long gradual decline. The PIX OCC 1.04 dd retreated this time by 93 cents, or by 0.9%, landing at 102.48 EUR/ton. The price differentials between containerboards and OCC narrowed this time: against Testliner 2 the differential shrank by 1.85 euro to 309.38 EUR/ton, against Testliner 3 the gap declined by 66 cents to 282.38 EUR/ton and against RB Fluting, it narrowed by 2.50 euro to 268.92 EUR/ton.

Our PIX ONP/OMG 1.11 dd index moved further down, too, but this time by just 29 cents, or by 0.23%, to 127.53 EUR/ton. As the PIX Newsprint index lost more ground, the price differential narrowed by 2.72 euro to 373.17 EUR/ton.

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