FOEX Pulp & Paper Indices - Nov. 13, 2012

Kendall Sinclair

HELSINKI , November 13, 2012 (press release) – US NBSK – As seen below, most of the 20-dollar price hike announced from November 1 had already gone through during the first full week of the month. The supply/demand balance is OK but not extra tight and several producers seem to find at least some additional (or spot) tonnage, if needed. The PIX US NBSK pulp benchmark moved again higher, this time by 9.95 USD/ton or by 1.16% and reached 865.00 USD/ton.

US Newsprint – Earlier closed newsprint machines (at least one but possibly three or four) could be converted to packaging before the end of 2013. This has, in practice, no impact on the newsprint capacity as those units have all exited from newsprint production already. And, with the rate the consumption is expected to continue to fall, more closures or conversions to other grades will be needed in a not too distant future to balance the supply and demand. Old news and mags prices have crept up in China in recent weeks and some move north has been seen already in the US market as well, adding to the cost pressures of the newsprint producers. The PIX US Newsprint indexes moved both moderately up, the 30 lb index by 98 cents, or by 0.16%, to 619.96 and the 27.7 lb index by 1.04 USD, or by the same 0.16%, to 660.52 USD/ton.

General Economy: US – President Obama won the second term with a larger than expected margin. He is facing major worries in the economic arena immediately after the election results came out. Within the next few short weeks, the present partisan bickering needs to be replaced by a compromise over the legal action to avoid falling over the so-called “Fiscal Cliff”, i.e. tax hikes and spending cuts that would otherwise be automatically enacted at the turn of the year, cutting deeply into personal consumption and, most likely, pushing the US economy back into a recession. The longer it takes for the parties to reach a common ground, the more damage will be done. A quick solution could still bring back the positive recovery momentum seen in October; especially as the US housing market is getting healthier and would support higher economic growth which the European situation will continue to depress.

Europe - The global growth remains positive but subdued in early Q4 and Europe is the main force dragging the growth down. The final composite PMI was as low as 45.8 points in October. Both the manufacturing and the service activity retreated further. The very rapid fall of the construction activity in Germany was one of the most alarming signs. The future prospects were even weaker than at any time in 2009. The depth of the Euro-zone contraction suggests that the real Q4 GDP for the region will fall by 0.5%, if not even more.

Japanese economy also appears to have stagnated in October. Order backlogs declined again, as did the employment numbers. The dispute with China is beginning to show very clearly in Japanese export and industrial production activity. A rapid drop of the incoming new orders sent the manufacturing activity further down. Sales of services continued to do better than manufacturing, even if that was very relative as the private sector business activity, supported by the services, stagnated on the weak level of the previous month. The composite output index (by Markit) registered 48.9 points, actually slightly better than the September reading but remained in the contraction territory. Companies are offering larger discounts to obtain more business. This will lead to lower profits and to a weaker investment climate in 2013.

In China, the economic growth appears to have turned the corner. The Composite Output Index (by HSBC) of October registered a small rise to 50.5 points, after having turned marginally positive already in September. The fortunes were two-fold. Manufacturing sector production continued to contract, pressed down by the weaknesses in the export arena, especially towards Japan and Europe. Services, on the other hand, showed a second successive month of improvement. The overall Business Activity Index retreated in October. The stimulation measures taken earlier pay dividend in the form of solid domestic demand growth. The annual 7.5% GDP-growth target of the government is likely to be exceeded, despite all the problems seen in most of the key export target regions.

Paper industry – The going may have been very tough volume-wise for the Western paper and board makers this year. In most cases the prices seem to have been poor as well. Sounds like bad profits? That has not been the case in North America. Cost cutting programs, rationalization, still on-going consolidation and other measures taken helped the US public companies to record-high profits during Q3 as reported by Deutsche Bank, Pulp and Paper Week and several other analysts surveying the financial performance of the forest industry players. The softness of the raw material prices during the quarter and the weakness of the US dollar boosting the export incomes helped to lift the profits to the record highs last seen in Q3 2010 and in 1999.

The situation is not equally good in Europe. There is more over-capacity than in the US. Over-valuation of the Euro and the strengthening of some other European currencies has helped to keep the costs of the imported raw materials down but the strong currencies have also cut into the export revenues and reduced the cost competitiveness of the European companies. Price increase attempts have in many cases failed and discounts granted increased. Wood and labour costs, as well as taxes, have been higher than on the western side of the Atlantic Ocean. The end result has been easy to predict: lower profitability than among the US companies.


NBSK pulp Europe – The narrow price differential has increased the share of softwood in some grades of paper, especially in the Asian markets. That and the still fairly solid growth in fluff pulp (part of the market BSKP statistics) have helped the softwood pulp demand to grow faster than that of BHKP this year. In spite of the increased supply of BSKP from earlier integrated sources following the paper machine closures, producer inventories of softwood pulp are low and supply/demand balance at present again slightly better than in BHKP. Euro weakened by 1.2% against USD from the previous week. Our PIX NBSK index moved up by 6.86 dollars, or by 0.87%, and closed at 792.32 USD/ton. Converted into Euro, the index moved up – with the Euro-weakening – clearly more, i.e. by 12.92 EUR, or by 2.1%, and closed at 624.17 EUR/ton.

BHK pulp Europe – The new Eldorado mill start-up in Brazil is scheduled to take place later this week, on November 15th. The announced closure of Jari Celulose in January 2013, at least as a paper pulp producer, and the conversion of Sappi’s Cloquet mill will remove during the first half of 2013 nearly as much BHKP as Eldorado’s start-up will bring in, helping to at least balance out the supply volume changes. Euro weakened by 1.2% against USD from the previous week. Supported by the weakening of the Euro, the PIX BHKP index in Euro moved up by 8.94 EUR, or by 1.50 %, and closed at 602.96 EUR/ton. The PIX BHKP index value in USD moved up by 2.08 dollars, or by 0.27%, to 765.40 USD/ton.


BHK pulp China – Hardwood pulp demand growth continues to be limited by the increase of hardwood BCTMP from local sources, largely now integrated but with also some market pulp sales. Also, an increasing share of the imported free market pulp goes to tissue producers who are, at present, trying to resist the producers’ price hike initiatives and the intake of pulp, after a livelier passage appears to have slowed down, possibly temporarily. After the retreat seen last week, the PIX China BHKP moved this time up by 91 cents, or by 0.14%, and closed at 642.99 USD/ton. Yuan weakened by 0.1% against the USD. The conversion of the USD value into Yuan resulted in an increase of 7.99 RMB, or of 0.20%, to 4015.62 RMB/ton.


NBSK pulp China – Opinions vary widely as to the level of Chinese pulp stocks. Claims of high and low stocks may both be partially right. Several buyers have more limited stocks at their paper and board mills but the stocks at ports or those on board of ships on their way to Asia may well have risen instead. The success seen in the recent limited price increase initiatives appears to be tough to continue as the buyers have put up renewed resistance as also shown by the development of our benchmark values over the past couple of weeks. Our PIX China NBSK index value retreated this time, even if by only 29 US-cents, or by 0.04%, and closed at 653.66 USD/ton. Yuan weakened by 0.1% against USD. The conversion of the USD value into Yuan meant a minuscule increase of 0.54 RMB, or of 0.01%, to 4082.26 RMB/ton.

Newsprint – As anticipated by several industry analysts, the WAN-IFRA expo event at the end of October was again utilised as the stage for the “kick-off” of the newsprint business negotiations for the coming year, as reported last week in the various industry media. Initiatives for price hikes were announced, adding pressure from the producer side into the early stages of the negotiations. Very little new business is done for this year any more. The exchange rate changes had a slightly positive impact on the benchmark, as the Euro weakened last week by 0.5% against the weighted basket of non-EMU currencies. The PIX Newsprint index gained 26 cents, or 0.05%, and closed at 497.03 EUR/ton.

LWC – The co-existence of the printed magazines and the digital media continues to seek good solutions. Over-capacity continues, in spite of further capacity reductions (by e.g. Stora Enso and Holmen). In some of the European markets SC (for cost reasons?) appears to have had a better order intake recently than the coated publication grades even if both showed very weak numbers still in the September demand statistics. The approximately 0.5% weakening of the Euro against the basket of non-EMU currencies helped the benchmark higher. The PIX LWC index moved up by 73 cents, or by 0.1%, and reached 692.07 EUR/ton.

Coated woodfree – Advertising business continues to be very weak and the rapidly sinking business confidence does not give much promise of any near-term improvement either. Cost cutting of the companies impacts advertising in general but hits especially hard the highest quality (=highest cost) materials. European coated paper exports outside the region continue to face stiff competition from the Chinese, Korean and Indonesian volumes. Prices in Europe have been under downside pressure due to growing local competition. The currency movements tried to push the benchmark higher. The PIX Coated woodfree index retreated, however, by 1.45 EUR, or by 0.2%, settling at 700.94 EUR/ton.

Uncoated woodfree – Printers and other uncoated woodfree consumers continue to experience weakening business conditions as the European economy sinks deeper in the recession. In addition to the increase of office automation, other factors play a role, too. Unemployment and the use of uncoated woodfree paper have always had a fair correlation, partially through general economy and income formation, but also due to the number of office personnel laid off during the times of rising unemployment. This is again evident as rising unemployment numbers and weakening order intake go hand in hand. Still, the demand decline in Europe has been less dramatic than in some other printing and writing paper grades. The currency changes gave the benchmark an upward push, and our PIX A4 B-copy index advanced by 2.55 EUR, or by 0.3%, and closed at 868.04 EUR/ton.

Containerboard Europe – The North American market remains relatively healthy with high capacity utilization rates, low stocks and, in most cases, risen price and good profit levels. The super-storm Sandy lead to limited closures of capacity but affected both supply and demand through energy failures and logistics problems. Conversions of closed newsprint machines into packaging supply are, however, bringing some increases into the production capacity and risk to weaken the presently good supply/demand balance in early 2013.

In Europe, the price levels are now back near the prices at the beginning of the year and in brown virgin kraftliner well above it. The increases have been driven more by cost pressures than good demand. Recent gradual rise of the recovered paper prices has supported the price initiatives in RP-based grades. Last week the Euro weakened by 1.2% against the USD and by about 0.5% against the non-EMU currency basket. The PIX Kraftliner index moved up by 1.92 euro, or by 0.33%, to 582.93 EUR/ton. The PIX White-top Kraftliner index gained 47 cents, or 0.06%, and settled at 770.01 EUR/ton. The PIX Testliner 2 index headed higher by 2.30 euro, or by 0.54%, closing at 425.74 EUR/ton. The PIX Testliner 3 index went north by 72 cents, or by 0.18%, to 403.56 EUR/ton and the PIX RB Fluting index gained 1.59 euro, or 0.4%, and closed at 389.09 EUR/ton.

Recovered Paper Europe – The buying by the Chinese importers, especially OCC grades, has become more active in the recent weeks. Export prices have also improved. In the US, one OCC-based mill was idled for some ten days due to the Super-storm Sandy that also closed down export ports for about a week mainly in New York area.

Supply has become quite tight in Europe. Our PIX OCC 1.04 dd index continued to gain, this time 1.59 euro, i.e. 1.5%, settling at 108.84 EUR/ton. The movements in the price gaps to the related packaging indices were mixed. The difference of PIX OCC 1.04 dd to PIX Testliner 2 widened by 71 cents to 316.90 EUR/ton, to Testliner 3 it narrowed by 87 cents to 294.72 EUR/ton and to RB Fluting it remained unchanged at 280.25 EUR/ton.

The PIX ONP/OMG 1.11 index moved up by 22 cents, or by 0.17%, closing at 128.30 EUR/ton. The price gap to PIX Newsprint benchmark widened by 4 cents to 368.73 EUR/ton.

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