FOEX Pulp & Paper Indices - Sept. 4, 2012

Kendall Sinclair

HELSINKI , September 4, 2012 (press release) – US NBSK – The 3.6% decline in market BKP shipments to the North American buyers was quite evenly divided in July between BSKP and BHKP. Cumulatively, softwood pulp shipments are, once again, down more than those in hardwood. Apart from a longer-than-expected stop at St. Felicien and some normal, scheduled maintenance downtime, other downtime has not been reported. Cost pressures and hopes for more active purchases from China and other Asian markets have not stopped the price decline. Some producers have publicly announced price reductions for September shipments, typically down by 20 USD/ton, both for NBSKP and southern pine pulps, valid 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 – On Eastern side, supply is increasing (re-start of Stadacona) but on the West Coast the capacity is down after the Snowflake mill closure. As transport costs limit the business between the regions east and west from the Rockies, the different supply pattern easily impact also the pricing picture even if the demand decline, 8.4% drop again in July, impact the whole North American market. In August, prices remained relatively flat across the US but two producers have separately announced a 30 USD/ton price increase initiative in the West, valid from October 1. Both benchmarks remained unchanged, the PIX US Newsprint 30lb index at 619.73 USD/ton, and the 27.7lb index at 658.87 USD/ton.



General economy: US – The US 2nd quarter growth rate was revised upwards to 1.7% (annualized). Stronger export growth, modestly better consumer spending and the continued revival of the housing sector were the main contributors. Both home sales volumes and prices rose in July. While better than expected, the Q2 numbers still mean a further decline in the growth rate and that trend is foreseen to continue through Q3 as well. The slow growth worries also President Obama and the Fed as the slow growth means that the unemployment rate is most likely to remain at a high, above 8% level over the near-term future. The Fed chairman made it clear that some action will soon be taken to stimulate the US economy as “the likely benefits of new steps to stimulate growth outweighed the potential costs.

Europe – Economic growth of the Euro-zone turned out to be 0.2% negative in Q2, confirming the likelihood that Europe is in a double-dip at present. Unemployment rate rose to a new record of 11.3%. In spite of the economic worries, the inflation picked up in August largely due to a rise in oil prices. The contraction of the Euro-zone economy appears to be steepening with a 0.3-0.4% decline in August. The various purchasing manager indices remain well under 50 points, composite index (by Markit) at 46.4, service sector at 47.5 and manufacturing at 44.6. No quick turnaround is in sight as new orders, both domestic and export, continue to decline with a drop in every month since late spring/early summer 2011. Retail sector PMI fell to just 44.4 points. The weakness is now spread across all nations, including Germany.

Japan – The manufacturing PMI (by Markit & JMMA) fell to its lowest level since April 2011. Both output and new orders suffered retreats. Worryingly, the rate of contraction is actually accelerating. The positive mood following the strong 2nd quarter outturn is rapidly disappearing. The deceleration of the overseas economies continues to hurt Japan’s export sector. Domestic demand, on the other hand, continues to show relatively firm, even if moderate growth. In order to be able to prolong the recovery, in spite of the headwinds, the BoJ is ready to continue to actively support the economic activity with an expansive monetary policy. The asset purchase program liberates funds at a fast clip, amounting to nearly 60 trillion Yen (the latest available number). A 2.5% real GDP-growth for this year is still doable.

China's growth continues to slow down and a real economic crisis appears to be just around the corner. China can afford to stimulate the economy but it may not provide the desired results. The large stocks on unsold goods have already slowed down manufacturing output considerably and the proposed further monetary easing in China will not help the Western world to buy more Chinese goods. Furthermore, the local governments are badly indebted and cannot afford to introduce the local measures to revive the economy and limit the growing unemployment. Companies’ earnings are falling and with higher oil price, the inflation pressures have not completely disappeared either. It appears now quite possible, maybe even likely, that China may end up below the Government GDP-growth target (of 7.5%) for the first time in at least 10 years.

Paper industry – Changes in advertising volumes and patterns play, obviously, a key role in graphic paper demand fluctuations. This is the year of the so-called “quadrennial effect” with several large events, European football championships, Summer Olympics and US elections all take place in the same year and draw proportionally more advertising money than what a “normal” year with similar economic growth would capture. In the past, paper industry has also benefited. Is this the case this year? Hard to tell as the structural move away from paper-based advertising takes its toll on the demand. The Olympics may have had some impact as the July numbers, while weak, were closer to July 2011 than the results of the previous months had been compared to their corresponding months.

ZenithOptimedia and the other experts analysing the advertising world peg this year’s advertising growth in the world between 4.5-5.0%, quite respectable in about 3% overall economic growth. So, the “quadrennial effect” is expected to work again. Unfortunately for the paper industry, the share of newspapers and magazines continues to fall at such a pace that yet another drop is expected also in the total volumes. Most of the decline would be for newsprint. Magazine and direct mail advertising continues to grow still so rapidly in the emerging economies that it counterbalances the losses in the industrialized world. The numbers from the advertising experts are in harmony with the global printing and writing paper consumption which the PPPC statistics showed down by 1.7% over the first 7 months.

NBSK pulp Europe – July was not, as such, a bad month for shipments to Europe. Compared to July 2011, deliveries to Europe were up by 3.8%, less in softwood than hardwood. But the consumption of pulp, reported by UTIPULP was down marginally for the total and by 3.7% for BSKP. The discrepancy between the shipment and consumption numbers is, naturally, the large hike in stocks. The consumer stocks inched down from end June numbers and were down by 12% compared to end July 2011. But the port stocks in Europe were up by more than 200 000 tons, or over 20% and that rise was behind the seemingly positive shipment data. With stocks up also at producers, price pressures continued, in spite of the rather clear USD weakening over the past two weeks. Euro strengthened by 0.8% against USD from the previous week. Our PIX NBSK index fell by 4.18 dollars, or by 0.54%, and closed at 773.18 USD/ton. Converted into Euro, the index moved down by 8.44 EUR, or by 1.36%, with the index closing at 613.10 EUR/ton.

BHK pulp Europe – BHKP shipments did even better than the softwood deliveries as they continued to be boosted by e.g. a rising share of BHKP in tissue furnish as well as by the small increases in woodfree paper demand (both coated and uncoated) in July, compared to July 2011. In this grade, consumption was up by 2.4% against July 2011 but still most of the gain in shipments went to build up port stocks. Prices in Europe fell in August and the gap between the European prices and those quoted in the emerging economies has started to decline as the latter have stabilized and the spot prices have in some cases actually risen slightly in Middle East and Southeast Asia, possibly impacted by the large downtime announced by April. Euro strengthened by 0.8% against USD from the previous week. The PIX BHKP index headed down by 11.41 Euro, or by 1.87%, and closed at 598.95 EUR/ton. The PIX BHKP index value in USD fell by 8.04 dollars, or by 1.05%, to 755.34 USD/ton.

BHK pulp China – The worries over the near-term economic outlook in China blend with the expectations that the inventory drawdown period at consumers and merchants is soon, if not already, over and the intake for market pulp would be increasing. July import statistics showed BHKP volumes still relatively weak, down by 60 000 tons from June volumes and the only month under 400 000 tons. The volumes were, however, clearly better than in July 2011 and the cumulative BHKP intake was now up 25%. Softwood pulp producers have announced small price increases but in BHKP, we have heard of no public price announcements. PIX China BHKP fell by 1.46 dollars, or by 0.23%, and closed at 631.11 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan resulted in a drop of 13.83 RMB, or of 0.34%, to 4006.66 RMB/ton.

NBSK pulp China – High inventories of ready-made and already packaged goods risk slowing down the demand for packaging products, also those including bleached pulps, in the coming months. In softwood pulp, the July intake was also down from June but also in this grade up from July 2011. The cumulative growth in BSKP imports over the first 7 months was 18%. In spite of the gloomy picture in general economic activity, the purchasing activity appears to have livened up in August, for pulp in general but especially in the softwood grade. The rising demand outlook and the low present price level has triggered several price increase announcements in this grade, varying between 10-30 USD/ton and typically for September shipments. A small part of the increase attempts was seen as minor benchmark value rises over the second half of August. Our PIX China NBSK index value climbed higher by 1.87 USD, or by 0.30%, and closed at 624.63 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan resulted in a rise of 7.38 RMB, or by 0.2%, to 3965.52 RMB/ton.

Newsprint – The strengthening of the USD explained much of the advertising value decline in 2011/early 2012. In euro, the drop has been relatively small. But as the weaker demand for advertising space also reduces the editorial content, newsprint demand continues to decline. The changes to smaller format and narrower margins take their toll as well. Newsprint demand was down in Europe again in July and cumulatively by over 5% in January-July. August may be relatively a bit better, due to the impact of the Olympics. The approximately 0.6% strengthening of the EUR against the weighted basket of non-EMU currencies pulled the benchmark slightly lower. The PIX Newsprint benchmark moved down by 0.70 EUR, or by 0.14%, closing at a precise value of 500.00 EUR/ton.

LWC – In the US, the substantial capacity reductions (over 300 000 tons reduction between Verso and Resolute) have improved the market balance. In July, the shipments were also up marginally (+0.3%) but the cumulative demand is still down by nearly 3%. Encouraged by the tightening of the market, small price increases were successfully driven through in August. In Europe, July was also a relatively better month than most with regional demand up by 2.2% but with export volume 5% below July 2011. The currency effect of a 0.6% strengthening of the EUR against the weighted basket of non-EMU currencies gave a downward push on our benchmark. The PIX LWC index lost 1.40 EUR, or 0.2%, and settled at 696.08 EUR/ton.

Coated woodfree – Coated woodfree market has been negatively impacted by both the structural demand decline in the industrialized countries and the very large increase in the Chinese CWF production capacity which the growth in the Chinese demand has not been able to fully absorb. Consequently, many CWF importing countries have become a battle ground between European and Chinese suppliers and prices have felt the downside pressure. July was a relatively positive month in the US and even more so in Europe where both the regional demand and exports outside the region were up, by 1.7% and 10.6%, respectively, according to EURO-GRAPH. One month on the positive side does not, however, remove the persistent global over-supply problem. The 0.6% strengthening of the Euro against the weighted basket of non-EMU currencies caused downward pressure on our benchmark. The PIX Coated woodfree index moved down by 85 cents, or by 0.12%, and was pegged at 702.97 EUR/ton.

Uncoated woodfree – In the uncoated woodfree papers, the US market remained sluggish but in Europe the regional demand was 1.3% above the admittedly weak July 2011. The 11% drop in exports outside the region brought the cumulative drop to nearly 5%. Even so, the July performance was relatively better than the cumulative picture, suggesting that seasonal decline would not be more severe than in the past, rather the contrary. At least one producer has announced a price hike initiative from September 1. Our benchmark numbers are still from August. The order stock moving into September is not thick but there is some, in any case. The strengthening of EUR against the basket of non-EMU currencies had a negative impact on our benchmark. The PIX A4 B-copy index retreated by 2.30 euros, or by 0.26%, landing on 866.32 EUR/ton.

Containerboard Europe – In the US, the box sales were down on an average-week basis but up after adjustment for the number of shipping days. Inventory gain in July was much smaller than the seasonal norm. With capacity down and exports up, delivery-to-capacity ratios are high and support the on-going price increase attempts. In Europe, the supplies are not equally tight, especially as Kappa’s Cellulose du Pin mill is back in operation. Still, several producers have announced price increase initiatives both in virgin fibre and in recovered paper based products from the beginning of September. Our benchmark values shown this week are from last week’s business, i.e. from August and no increase was seen in any of the grades surveyed. The currency movements meant a downward pressure on the benchmark values. Last week the Euro strengthened by about 0.8% against the USD and by 0.6% against the weighted basket of the non-EMU currencies. Impacted by the downward pull from the exchange rates, the PIX Kraftliner index lost 10 cents, or 0.02%, and landed at 544.63 EUR/ton. The PIX White-top Kraftliner index value showed also a small retreat of 65 cents, or 0.1%, closing at 758.28 EUR/ton. In the recovered paper based containerboard grades, the quotes were predominantly flat. The PIX Testliner 2 index moved lower by 12 cents, or by 0.03%, to 411.74 EUR/ton. The PIX Testliner 3 index value lost 17 cents, or 0.04%, and closed at 384.69 EUR/ton. Our PIX RB Fluting index retreated by 1.02 euro, or by 0.27%, to 370.38 EUR/ton.

Recovered Paper Europe – The purchasing activity for recovered paper appears to have picked up a little in China but not as much as for softwood pulps. Despite much talk of the weak demand for recovered paper in China, the actual import statistics show a strong year, even relatively strong recent months. Over the first 7 months, recovered paper imports to China were up by almost 14% and over the “weak” months of June-July, 2012 numbers were 8% higher than in 2011. The summer shipments to China have been relatively better from the US than from Europe. As the regional demand in Europe has also been sluggish, prices have been under continuous downside pressure.

Our PIX Recovered Paper benchmarks continued their long gradual decline. The PIX OCC 1.04 dd retreated this time by just 2 cents, or by 0.02%, landing at 102.46 EUR/ton. The price differentials between containerboards and OCC narrowed this time: against Testliner 2 the differential shrank by 10 cents to 309.28 EUR/ton, against Testliner 3 the gap declined by 15 cents to 282.23 EUR/ton and against RB Fluting, it narrowed by exactly 1.00 euro to 267.92 EUR/ton.

Our PIX ONP/OMG 1.11 dd index moved further down, too, this time by 72 cents, or by 0.56%, to 126.81 EUR/ton. The PIX Newsprint index movement was nearly identical and the price differential widened by 2 cents to 373.19 EUR/ton.

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