FOEX Pulp & Paper Indices - Oct. 30, 2012

Sandy Yang

HELSINKI , October 30, 2012 (press release) – US - Economic growth prospects remain weak but the direction appears to be upwards. US manufacturing activity conditions seem to be improving marginally in October. The manufacturing flash PMI, by Markit, showed the index up at 51.3 points and thus marginally better than the 3-year low of 51.1 points recorded in September. Output and employment showed increases, as did prices. Export orders and work backlogs were essentially flat. Stocks of finished goods and new orders were down. Elections are a week away and, whatever the choice, the outcome will have some economic implications. The storm Sandy has caused a lot of damage and will have a short-lasting but clearly negative impact on the US economic performance. Near-term future hopes for stronger recovery lie on consumers, on housing, on investment activity and on speedy political compromises to reduce the year-turn threat of the “fiscal cliff”.

Europe – The manufacturing activity is taking a heavy beating now also in the core of the Euro-zone. The preliminary PMI Composite Output Index hit a 40-month low at 45.8 points, deep in the contraction zone, with services rising most marginally to 46.1 but with manufacturing sinking to 45.3. No short-term improvement is in sight as the numbers of new orders continue to contract. Euro-zone’s GDP is likely to fall moderately in Q3 and more in Q4. Domestic weakness is compounded by the export difficulties and rising unemployment numbers. Spain has now over 25% of the working population unemployed. Outside the Euro- zone, UK’s situation is not much better. Household debt is coming down but the financial and spending plan outlook is gloomy. Inflation rate is back up, income level down and job security weak. The Europeans have revised their outlook for 2013 further down.

Japan – The new economic stimulus package of just over 5 billion USD was approved on Friday. The government is hoping that this revives the activity enough to prevent Japan sliding back into a recession. The recovery has been faltering rapidly for several months now. The political clash with China has already impacted the economy in a serious way. Up to 25% of the Japanese manufacturing companies are either revising their investment plans in China down or moving their production facilities in China elsewhere. All this is bad news to the Japanese economic growth. The slowing down of the recovery process is also linked to the very high debt level as well as to the persistent strength of the currency. As the boost of last week’s stimulus package may be too small, more stimulation measures are likely to be seen next month. Stimulation may trigger higher inflation but in the case of Japan, it would be very welcome. Consumer price index actually headed lower again in September.

China – The economic growth is still contracting but at a slower rate. HSBC’s flash manufacturing PMI on China shows that while the index is still in the contraction territory, at 49.1 points it was already close to the neutral level and also at a 3-month high. Both input and output prices were up and delivery times lengthened. Otherwise all items showed contraction but typically at a slower rate than earlier. Further weakening of the EU economy, dispute with Japan and some other serious challenges suggest that a further easing of the economic policy is needed – as well as more stimulation money. The troubles of the export industries are making a dent on the job market. This could, at worst, lead to social unrest at a time of changing the power at the highest political level. Even if these problems were avoided, private spending risks being hurt and China needs badly high private spending numbers in order to compensate the losses on the export volumes and values.

Paper industry – September turned out to be a relatively busy month in terms of market pulp activity. From paper industry’s point of view, it was far from busy. In the US, containerboard production was down by 2.2%. Printing and writing paper performance was – again – poorer.

Compared to September 2011, US shipments were down by 7% and purchases by the US by a full 10%. In Europe the numbers were even worse. According to preliminary data, Western European graphic paper demand, including newsprint, appears to have fallen by as much as 14% against September 2011, i.e. more than in any other single month. The cumulative drop over the first nine months of the year was nearly 8%. With exports up slightly, both in September and cumulatively, total shipments have performed a bit better than regional demand. In September, total deliveries were down by 10% and cumulative deliveries over the first three quarters by 5%. Production is down less than shipments, explained by a drop in imports from outside the region and by changes in inventories.

Decisions to close down capacity have continued. The 3rd quarter results of the paper industry companies were for the most part OK in North America but weak for the European companies, plagued by the weakness of the regional consumption and by the persistent over-value position of the Euro.

NBSK pulp Europe – September pulp numbers, released by PPPC, came out stronger than what the situation in paper market would suggest. Total shipments were marginally lower than in September 2011 but shipment-to-capacity ratio was very high at 99% and producer stocks came down by 4 days without seasonal adjustment and by two days with adjustment. As also European consumer and port stocks came down, the total stocks in the pipeline were down as well. Softwood pulp market appears now stronger than the hardwood pulp situation and in BSKP shipments were also higher than in September 2011 and shipment-to-capacity ratio exceeded 100%. This news supported producers’ price hike initiatives. Euro weakened by 1.0% against USD from the previous week. Our PIX NBSK index moved up by 3.93 dollars, or by 0.51%, and closed at 781.62 USD/ton. Converted into Euro, the index moved up – with Euro-weakening - by 8.91 EUR, or by 1.49%, and closed at 605.53 EUR/ton.

BHK pulp Europe – Hardwood pulp shipments were down in September by 6.2% against September 2011 but still up by 0.9% cumulatively over the first 9 months. If increases in Indonesian and Chinese internal deliveries were included, the rise would, most probably, be higher. In hardwood, producer stocks behaved just as the total, down by 4 days without seasonal adjustment and by two days with it. PPPC pegged the shipment-to-capacity ratio for BHKP at 97% for the month of September and now at 90% over the first three quarters. Euro weakened by 1.0% against USD from the previous week. Due to the weakening of the Euro, the PIX BHKP index in Euro moved up by as much as 11.06 EUR, or by 1.91%, and closed at 589.69 EUR/ton. The PIX BHKP index value in USD moved up by 6.93 dollars, or by 0.92%, to 761.17 USD/ton.

BHK pulp China – Shipments of pulp to China, as reported by PPPC, were quite strong in September, showing a 10% increase against September 2011 for total pulp and more modest 4%+ growth in BHKP-grade. According to Chinese import statistics, the intake was even stronger than what the PPPC data suggested. Total pulp imports were up in September by 11% and BHKP intake by 14%. Cumulatively, import statistics show a 16.5% increase from last year for total pulp and an 18.8% increase for hardwood. The on-going 12th 5-year plan of the Chinese government calls for an increase of wood fibre in the paper making furnish. The proposed increase would require 4 million tons more woodpulp from domestic and import sources. The resistance of the buyers halted the rise of prices, at least temporarily. PIX China BHKP retreated by 1.22 dollars, or by 0.19%, and closed at 644.30 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan resulted in a decrease of 10.56 RMB, or of 0.26%, to 4026.18 RMB/ton.

NBSK pulp China – Softwood pulp shipments were up more than those of hardwood, according to PPPC. In import statistics, the hike from August was substantial but against September 2011, import statistics showed only a modest 4% rise. The cumulative gain is also slightly smaller than in hardwood, with BSKP imports up by 15%, or by 650 000 tons, over January-September period. Among major market BSKP producing countries, Sweden shows the largest growth percentage (109%), followed by Finland, Germany, Chile and the US. Our PIX China NBSK index value climbed up again, this time by 5.05 USD, or by 0.78%, and closed at 653.03 USD/ton. Yuan strengthened by 0.1% against USD. The conversion of the USD value into Yuan meant an increase of 28.60 RMB, or of 0.71%, to 4080.73 RMB/ton.

Newsprint – The estimated European demand for newsprint was 11%, 650 000 tons below last year in the cumulative 9-month comparison, according to preliminary data from industry sources. For the month of September, the drop was 18%. Exports have done well throughout the year. In September, exports outside the region were up by almost 1/3 and over the first 9 months the gain was nearly 30%. With imports down by 7%, cumulative European deliveries were down by “only” 5%. The approximately 0.8% weakening of the EUR against the weighted basket of non-EMU currencies had a positive effect on the benchmark. Still, the PIX Newsprint index lost 1.34 EUR, or 0.27%, and closed at 496.55 EUR/ton.

LWC – LWC has been the grade with the largest drop in shipments against 2011 and also the grade with the biggest capacity closures. September was a month with double-digit declines on all sectors, total shipments, regional demand, exports and imports. Cumulatively, total shipments were down by over 7% and regional demand by over 10% over the first nine months. The 0.8% weakening of the EUR against the weighted basket of non-EMU currencies pushed the benchmark higher. The PIX LWC index gained 2.51 EUR, or 0.36%, and reached 692.58 EUR/ton.

Coated woodfree – European demand of coated woodfree paper is the printing and writing grade which is the least behind the year 2011 but also in this grade the September volumes were very weak. Statistics show a nearly 5 % drop in estimated regional demand over the first nine months, after a 12.5% retreat in September. Exports remain marginally higher than in 2011. That limits the drop in total deliveries to 3.5%. The 0.8% weakening of the Euro against the weighted basket of non-EMU currencies caused an upward momentum to our benchmark. The PIX Coated woodfree index slid, however, down by 66 cents, or by 0.09%, landing at 701.08 EUR/ton.

Uncoated woodfree – After nine months, the estimated European demand for uncoated woodfree paper demand is more than 5% below the same period in 2011. With a 3% advance in export volumes, total shipments are also in this grade less down than the regional demand, or 4.5% after the first nine months. The outlook remains gloomy as various market reviews indicate little, if any, pickup in the order books after the summer lows. The 0.8% weakening EUR against the basket of non-EMU currencies helped to push the benchmark value higher. The PIX A4 B-copy index moved up, almost by as much as it fell last week, i.e. this time by 4.66 EUR, or by 0.54%, and closed at 865.84 EUR/ton.

Containerboard Europe – The US containerboard and box markets remain firm, even if a small drop was registered in shipments and in the shipment-to-capacity ratio in September. The slightly weaker shipments and a small rise in inventories did not stop the upward trending of the prices. IP announced a further expansion in their packaging business outside North America with a purchase of 75% of the shares of Orsa’s packaging assets in Brazil, including three containerboard mills and four box plants.

In Europe, the upward price movement continues as well, now also supported by small rises in recovered paper prices within the region and larger increases reported from China. While demand has not been very strong, understandably under the current economic conditions, production losses through closures (e.g. PKartons mill in Italy is down since June) and maintenance downtime (e.g. by Propapier) have improved the practical containerboard supply/demand balance. The brown kraftliner market has remained stronger than the market for recovered fibre based grades, partly because of the firmness of the North American market and the reduced need to import linerboard outside the region. Again this time, price increases in the virgin linerboard grades came out stronger than those in recycled linerboards and corrugated medium.

Last week the Euro weakened by 1.0% against the USD and by about 0.8% against the non- EMU currency basket, supporting thus upward price movement in Euro-terms. Our PIX Kraftliner benchmark went up by 4.70 euro, or by 0.82%, settling at 581.03 EUR/ton. The PIX White-top Kraftliner index gained 4.21 euro, or 0.55%, reaching 770.15 EUR/ton. The PIX Testliner 2 index increased by 78 cents, or by 0.18%, closing at 423.44 EUR/ton. The PIX Testliner 3 index gained 1.20 euro, or 0.3%, moving to 402.86 EUR/ton. Finally, our PIX RB Fluting index headed higher by 76 cents, or by 0.2%, and closed at 387.51 EUR/ton.

Recovered Paper Europe – The demand from China has picked up. This is partly due to the desire to raise purchases to obtain a sufficiently high quota for 2013 (quotas issued are largely based on previous year’s volumes), partly to the high price of RP from Chinese domestic sources and partly to the increased activity of the Chinese collection organizations in the Western markets. While the supply of recovered paper is sufficient, or even ample, in the European markets, the higher prices offered by the Chinese buyers are pulling prices up also in the European and US regional markets.

Here in Europe, the PIX benchmarks headed both a bit higher. The PIX OCC 1.04 dd went up by 81 cents, or by 0.77%, to 106.07 EUR/ton. The movements in price differentials between containerboards and OCC were small and again mixed: the gap narrowed against Testliner 2 by 3 cents to 317.37 EUR/ton but widened against Testliner 3 by 39 cents to 296.79 EUR/ton. Against RB Fluting the difference narrowed by 5 cents to 281.44 EUR/ton.

Our PIX ONP/OMG 1.11 dd index, after a fall last week, moved back upwards by 75 cents, or by 0.59%, landing at 128.53 EUR/ton. As the PIX Newsprint index declined, the price gap narrowed by 2.09 euro to 368.02 EUR/ton.

US NBSK – Strong global statistics support price increase initiatives also in the US, even if the shipments of market pulp to the North American market showed in September a 5.6% drop against September 2011 and the cumulative shipments were down by 3.9% after the first 9 months. Softwood pulp decline was smaller than the total retreat in September and with lower inventories the softwood pulp market appears now tighter than hardwood also in North America. The major earthquake in British Columbia does not appear to have had any impact on the pulp production in the province. Several suppliers have separately announced a new price increase in NBSKP for November, typically up by 20 USD/ton in the North American market (as opposed to 30 USD/ton in Europe). The PIX US NBSK pulp benchmark remained unchanged at 846.83 USD/ton.

US Newsprint – The reduction in newsprint production capacity in the West (Catalyst Paper’s Snowflake mill) continues to keep the regional supply/demand balance better than the situation on the Eastern part of the country. In spite of the continuous drop in the consumption of newsprint in the US and of the weak financial results of the publishers and printers, newsprint prices have remained stable also in the East. After the minor fall a week ago, both newsprint indexes remained flat this time. The PIX US Newsprint 30lb index was unchanged at 618.98 USD/ton, and the 27.7lb index at 659.48 USD/ton.

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.