FOEX Pulp & Paper Indices - Oct. 16, 2012

Sandy Yang

HELSINKI , October 16, 2012 (press release) – General economy: US – Weaker IMF global outlook sent the stock values down in the US, despite the fact that the only major region with recently improved economic news is the US where especially the employment numbers got better with comfortable increase of jobs in September and upward revisions of the same over both July and August. In addition, retail sales were up more than expected in September. The “Beige Book” of the Fed found US growth modest, both over recent past as well as for Q4. The Fed sees that the recent quantitative easing as well as the pick-up in the residential housing sector suggest a “more resilient recovery” in 2013. That projection must include an assumption that the necessary legislation will be passed, in spite of the present political road-blocks, to avoid the fall over the so-called “fiscal cliff” with higher taxes and reduced benefits, both killers of the private consumption.

Europe – Concerns over the Euro-zone future increased again, after IMF published a warning that several banks in the peripheral nations still faced funding problems. That and the decision to start surveying the possibilities of a capital transfer taxation, as well as the suggested slower time-table to set up the Euro-zone wide financial sector inspection system, speeded up the flight of capital from the Euro-zone countries. The UK is not expected to join the proposed taxation system which is seen to improve the chances of a faster recovery in the UK than in the Euro-zone, especially if the Bank of England launches another round of Quantitative Easing, as expected. China and Japan, while disagreeing on most other issues, seem both ready to lend Euro-zone some support in the efforts to resolve the financial crisis.

Japan –IMF rang the warning bells loudly over Japan. They see a clear risk of Japanese banks ending up with a spike in the interest rates. The recent financial problems of Europe could be replicated in Japan, as Japan’s gross national debt is now over 200% of the annual GDP. Japanese government has downgraded its economic growth estimates for the third month in a row. Japanese Central Bank may soon intervene (again) to rein down the Yen-strength, with or without the “blessing” from the US. It is too early to tell whether or not Japan will end up in a recession in late 2012/1st half 2013 but it will be a close call. European debt crise and China’s slowdown remain the main problems. The number one loser in the Sino-Japanese dispute over the few small, goat-inhabited islands in the East China Sea will most likely be the global economy.

China – IMF’s recent report sees China’s economy continuing to expand with a little risk on a hard landing. Also China’s own Central Bank now sees the 2012 GDP-growth, at 7.8%, i.e. slightly higher than the government’s 7.5% target. China’s manufacturing activity continued to contract in September as several sectors and individual firms worked their inventories down. Exports growth, however, speeded up and reached 9.9% in September, year-on-year. A very rapid growth has taken place in the money supply. Lending activity is low, due to subdued demand. No further easing of the monetary policy appears to be needed – or expected - in the near-term future.

Paper industry – In North America, the August numbers from the graphic paper sector were quite weak increasing the cumulative decline against 2011. In September, the news from the market is mixed with maybe more positive than negative views expressed. The negative tone is expected to have, though, continued according to the preliminary numbers, in spite of the seasonally stronger demand for especially coated catalog papers in which grade producers have managed to get price increases through during the fall.

The recent weakening of the USD will help the export grades from the US and protect the market from imports from outside the region. The packaging sector is hurt by the slowdown of the world trade but has recently been doing better. In August, US total paperboard production was fractionally above the 2011 volume and in September the market has continued to improve, especially in kraftliners and other brown packaging materials. In Europe, after the cumulative demand decline for graphic papers in August against 2011 by 5.3%, including newsprint, some seasonal pick-up in orders in September-October has been reported but the mills’ operating rates remain non-satisfactory at several producers. Efforts to get price increases through have had mixed results. The re- stregthening of EUR since July against USD is likely to harm the exports which earlier in the year softenend the loss in total shipments.

NBSK pulp Europe – The balance in the softwood pulp market continued to improve in September, albeit slowly. The paper markets have experienced some seasonal order pickup, although nothing like in the past and recent tissue paper and paperboard capacity starts have increased pulp consumption. But the still darkening clouds over the European economic outlook can still spoil the party before it even began.

The quotes received for today’s index value continued to be impacted by for October announced BSKP price hike attempts. Euro weakened by 0.2% against USD from the previous week. Our PIX NBSK index moved up by 1.67 dollars, or by 0.22%, and closed at 776.96 USD/ton. Converted into Euro, the index moved up by 2.75 EUR, or by 0.46%, and closed at 599.04 EUR/ton.

BHK pulp Europe – Several factors which are likely to have been improving the softwood pulp market balance are affecting positively also in hardwood, like the growing tissue production capacity as one important contributor. Presumably the widening price difference to softwood pulps is starting to have an impact, too. Euro weakened by 0.2% against USD from the previous week. With the support of the stronger US-dollar, the PIX BHKP index in Euro increased by 3.70 EUR, or by 0.64%, and closed at 581.34 EUR/ton. The PIX BHKP index value in USD moved up by 2.95 dollars, or by 0.39%, to 754.00 USD/ton.

BHK pulp China – The slower economic growth in China and in other Asia is hurting the paper markets, both printing & writing and tissue, and the downtime taken by the Chinese graphic paper producing mills is likely to hit harder the BHKP demand volumes than the BSKP volumes. Based on the price reports over last week, the price increase announcements made by several BHKP producers for October in China, have continued to receive some acceptance. PIX China BHKP moved further up by 5.23 dollars, or by 0.83%, and closed at 636.26 USD/ton. Yuan strenghened by 0.9% against USD. Due to the stronger Yuan, the conversion of the USD value into Yuan resulted in a decrease of 4.04 RMB, or of 0.10%, to 3986.66 RMB/ton.

NBSK pulp China – In softwood, the pulp supply/demand is in China more on balance than in hardwood, as well as in the other major markets. The abnormal negative price gap seen in May-mid September this year in China between NBSKP and BEKP is one reason behind the unequal development together with the seasonal maintenance stops at the mills in the Northern producing countries. The stregthening of Yuan is alleviating the negative cost effects of increased US-dollar prices. Our PIX China NBSK index value climbed up this time by 3.39 USD, or by 0.53%, and closed at 643.76 USD/ton. Yuan strenghtened by 0.9% against USD. The currency movement made the conversion of the USD value into Yuan to mean a decrease of 16.12 RMB ,or 0.40%, to 4033.65 RMB/ton.

Newsprint – The newsprint market in Europe appears to be gearing up for business negotiations on next year’s volumes and prices. The time around the WAN-IFRA Expo, this year in Frankfurt at the end of October, has usually been the kick-off for buyers and sellers feeling each other’s pulses. Despite of the EUR strengthening by 0.4% against the weighted basket of non-EMU currencies our PIX Newsprint index ended up increasing by a minor 2 cents, or 0.0%, to 497.95 EUR/ton.

LWC – The anticipated seasonal market improvement in Europe after the summer season has not fulfilled the expectations of the paper producers, and assumingly not the printing and publishing industry, either. Both industries suffer from the slow or non-existent economic recovery, and the ample supply of paper does not help paper mills. The currency effect of a 0.4% strengthening of the EUR against the weighted basket of non-EMU currencies had a small downward pull in the benchmarks. The PIX LWC benchmark declined by 1.18 euro, or by 0.17%, closing at 692.04 EUR/ton.

Coated woodfree – The coated woodfree paper market in Europe seems in our eyes to have ridden out Q3 in a rather reasonable fashion compared to mechanical coated paper grades. Efforts to improve paper prices haven’t seen much success during the quarter, and the downward slide has been very modest. The 0.4% strengthening of the Euro against the non- EMU currency basket caused a negative effect on our index. The PIX Coated woodfree index lost 81 cents, or 0.12%, landing at 700.90 EUR/ton.

Uncoated woodfree – The same woes hamper all printing paper grades in Europe, uncoated woodfrees do not escape this. Paper mills have attempted various price improvement campaigns during Q2 with mixed results. We saw some improvements along the way, but downward erosion as well, contributing to the woodfree uncoated price benchmark to hover around the 866 EUR/ton level during the period. Despite of the negative effect of the strengthening of EUR against the basket of non-EMU currencies our PIX A4 B-copy index ended up increasing by 2.00 euro, or 0.23%, to 866.41 EUR/ton.

Containerboard Europe – In the US, the containerboard price increase of 50 USD/ton was reportedly fully implemented in September. This was the first successful price increase effort in two years. The September corrugated box numbers are not out yet. In Europe, the situation in containerboards is not quite as strong as in the US and order books remain relatively short. The brown kraftliner market has been stronger than the recovered fibre based grades and price increases have been implemented more easily in virgin linerboard.

Last week the Euro weakened by 0.25% against the USD but strengthened by about 0.4% against the non-EMU currency basket. The PIX Kraftliner index continued to increase, this time by 2.03 euro, or by 0.35%, to 574.76 EUR/ton. The PIX White-top Kraftliner index gained more this time, i.e. 2.42 euro, or 0.3%, closing at 762.34 EUR/ton. The PIX Testliner 2 index retreated by 5 cents, or by 0.01%, to 422.28 EUR/ton. The PIX Testliner 3 benchmark increased by 3.54 euro, or by 0.9%, to 401.26 EUR/ton and our PIX RB Fluting index moved up by 3.03 euro, or by 0.8%, to 386.81 EUR/ton.

Recovered Paper Europe – The buying activity in China and in other Asia appears to have picked up a bit in the first half of October. Also there has been some improvement in export prices. In Europe, Norske Skog has finalised the divestment of its recovered paper sourcing arm Reparco. Regarding prices, ONP/OMG has recently shown weaker performance than the grades used by the packaging sector. Also, our benchmarks moved clearly into different directions. The PIX OCC 1.04 dd gained 54 cents, or 0.5%, closing at 105.05 EUR/ton. Our PIX ONP/OMG 1.11 dd index lost 1.35 euro, or 1.04%, landing at 128.25 EUR/ton.

US NBSK – The pulp market in North America continues to be heading towards a stronger balance when seasonal pick-up in paper markets is supporting the demand and shortfalls in pulp production for maintenance reasons and for some unexpected technical reasons are cutting the supply. The announced price increase for October business shows further more in the price data when the index moves closer to the targeted price. The index value moved up by 5.85 USD/ton, or by 0.69%, and closed at 848.29 USD/ton.

US Newsprint – The downward trend of newsprint consumption in North America has halted, at least for August, with a 1.4% pickup in demand for that month compared to 2011. The cumulative demand change stood at -1.2% after eight months. Product mix changes in newsprint production have emerged in the wake of the creditor protection programmes which some newsprint producers have outridden. Both newsprint indexes remained again unchanged from last week, the PIX US Newsprint 30lb index at 619.70 USD/ton, and the 27.7lb index at 658.84 USD/ton.

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