FOEX Pulp & Paper Indices - Dec. 18, 2012

HELSINKI , December 18, 2012 (press release) – US NBSK – The volumes from Terrace Bay have increased the activity in the spot markets. Otherwise, the NBSKP market in the US remains firm with SBSKP volumes continuing to be switched from normal paper grades pulp to fluff. Several North American NBSKP & SBSKP producers, including at least Domtar, Mercer and Resolute, have separately announced price hikes from January, typically by 30 USD/ton. Domtar has announced the closure of their sawdust pulp line at Kamloops (normal NBSKP production will continue). The size of the contractual discounts has been widely discussed and is naturally linked to the price discussions over early 2013, as it may have been linked to some of the price movements seen in the beginning of or during 2012. The economic situation and paper market situation conflict with price increase initiatives but risen costs (e.g. delivery charges) and re-weakening of the USD support the sellers’ cause. The PIX US NBSK pulp benchmark remained unchanged at 870.00 USD/ton.

US Newsprint – Demand weakness is leading to extended downtime during the year-turn holiday season, even if there are not many public detailed announcements of those production cuts. One published downtime is Kruger’s Corner Brook PM 2 with 4000 tons expected to be lost in the closure extending from Christmas until Epiphany. If the threatening East Coast port strike materializes, the US market will end up with an excess supply of recovered paper. That would put downward pressure on first the raw material and then newsprint prices. The PIX US Newsprint 30 lb index remained unchanged at 620.49 USD/ton, while the 27.7 lb index lost 50 cents, or 0.08%, and closed at 660.59 USD/ton.

Copyright©FOEX Indexes Ltd. General Economy: US – Several analysts appear to be ready to revise their US economic forecasts upwards even with the recession having re-started in Japan and continuing in Europe. The upward revisions are, however, subject to avoiding the fiscal cliff, i.e. the combinations of wide tax increases and spending cuts. Apart from that threat which can be easily avoided if the politicians find a satisfactory compromise, recent indicator data for the US looks good. Housing is picking up, company profit margins are good, much more natural gas and probably also oil is available at lower costs and credit is more easily available. There is also pent-up demand for consumer durables. Markit’s Flash US Manufacturing PMI showed a solid rise to 54.2 points with strong manufacturing output and order books and work backlog growth. Exports grew as well. Finally, the Fed decided to further stimulate the economy by buying more government loans.

Europe – The outcome of the EU Summit Meeting last week, with confirming the agreements on putting the Eurozone’s banks under a new single supervisory body, was quite thin as decisions on all the controversial issues were avoided. The downturn of the European economy continues but is showing more signs of the rate of descent beginning to ease. The Flash Euro-zone PMI, by Markit, remains clearly in the contraction zone but the index value climbed higher again, to 47.3 points. This was the second rise in a row after the worst of the trough was seen in October and the highest value recorded since March/April. Germany was back in recovery zone. Change towards better was very minor in manufacturing but clearer in the service sector. There will be no quick relief, however. The incoming new business remained very weak. Jobs continue to be lost which postpones the recovery in household spending even with the output prices falling.

In Japan, the Liberal Democratic Party won elections very clearly. The new government, headed by Mr Abe of LDP, is likely to relax the monetary policy with a large supplementary budget of about 120 billion USD. Injection of this into the economy is expected to create inflation, weaken the Yen, pull Japan out of the persistent deflation spiral and support growth through higher consumer spending. After GDP-revisions, Japan was found to be in a recession with two consecutive quarters of negative growth, i.e. 2nd and 3rd and, as the 4th quarter is also likely to be negative, more stimulation is, in fact, badly needed. The domestic demand is stagnant and exports continue to suffer from the quarrel with China and from European recession. The Central Bank opposes the idea but is likely to be pressured to accept the proposed measures.

In China, December is turning out to be second month in a row of recovery. China Flash Manufacturing PMI by HSBC rose to 50.9, the highest index value seen since October 2011. Total output and new domestic orders increased but new export orders turned down. More stimulation measures are expected to be seen, provided that the inflation continues to slow down as appears to be the case with the input price rise moderating further. Stocks of finished goods are declining which is a good sign as those stocks are estimated to have been on above average levels throughout the fall months. The bad news is the increasing unemployment. The official rate of about 4% would probably be about twice as high if the unemployed migrant workers (those having left countryside to work in the cities) were included. Rising unemployment limits the growth in domestic demand, which has remained the main positive driver while export growth has quieted down.

Paper industry – This year-end setting on the paper markets has been seen before. Suppliers have started the price negotiations by announcing price increase initiatives justifying their actions by the risen costs – and the fibre and some other costs have risen during the past few months. Paper buyers are seeking price reductions with equally justified claims that the demand remains weak and competition/over-supply of printing and converting products prevents them from accepting any increases, rather the contrary. Even if the recently released October statistics were a positive surprise to many and most analysts expects the declines in November to be smaller than the cumulative monthly average, the year is closing with a depressing bilan for the year as a whole and with weak outlook going forward. The over-supply problems have for some grades and regions been alleviated a bit through industry re-structuring but remain severe in many others. PPPC’s numbers show European printing and writing paper shipments-to-capacity ratios persistently under 90%. In China, woodfree paper sector is equally plagued with clear over-supply. With still more new capacity coming in, the problem will not go away in a hurry either even though the expected closures of polluting old machines, often non-wood pulp based, will help to some extent in 2013. In tissue sector in China, announced capacity expansion plans exceed the projected still rapid growth in tissue paper demand.


NBSK pulp Europe – Some producers have published price increases from January 1, 2013. Södra came out in Europe with a 20-dollar increase announcement which would bring the gross contract price to 840 USD/ton for their NBSKP-grade. Many others have followed suit, while some are still waiting on the side-lines, undoubtedly at least partly to see what the November shipment and inventory numbers from PPPC, UTIPULP and EUROPULP look like. If the US East Coast ports go on strike just before the end of the year, it could slow down the export shipments of some NA market BSKP pulps, predominantly those of fluff pulp. Euro strengthened by as much as 1.4% against the USD from the previous week. Our PIX NBSK index moved up by 2.17 dollars, or by 0.27%, and closed at 807.58 USD/ton. Converted into Euro, the index value fell – with the strengthening euro – by 6.74 euro, or by 1.1 %, and closed at 617.37 EUR/ton.

BHK pulp Europe – The first price increase initiatives in market pulp from January 1 were published by the eucalyptus pulp producers. Also here, the size of the announced increase was 20 USD/ton in Europe, which, if successful, would bring the “list price” to 800 USD/ton. In the beginning of the year, Eldorado’s volumes start entering the markets. On the other hand, Jari’s volumes will disappear. Also, compared to early 2011, quite a lot capacity will be switched from paper grades BHKP to dissolving pulp. The strike threat in the Eastern US ports would, in this grade, impact mainly the sizeable market BEKP imports to the US. Tightening thus the US market but creating supply pressure on others. Euro strengthened by 1.4% against USD from the previous week. The PIX BHKP index in Euro fell by 6.33 euro, or by 1.06%, and closed at 593.18 EUR/ton. The PIX BHKP index value in USD headed north by 2.27 dollars, or by 0.29%, landing at 775.94 USD/ton.


BHK pulp China – Over-supply is pressuring the Asian paper prices down, both in China and in the near-by markets. Pulp buyers are thus not supportive at all to the price increase initiatives of the market pulp suppliers. Purchasing activity has been slow in recent weeks and it appears that buyers are rather reducing than re-building their purchased pulp inventories. Spot tonnage is easily available and the share of spot business has re-risen, compared to contract business, which has gained share of the total Chinese shipments over the past few years. Prices of the recently closed spot sales – typically in local currency - have been slipping lower. Last week’s weakening of the Yen puts further pressure on dollar-pricing. The PIX China BHKP index retreated by 2.49 dollars, or by 0.39%, and closed at 640.40 USD/ton. Yuan weakened by 0.3% against the USD. The conversion of the USD value into Yuan resulted in a decrease of 3.26 RMB, or of 0.08%, to 3999.94 RMB/ton.


NBSK pulp China – The fundamentals for BSKP are better than for BHKP in the sense that the price gap between the two grades remains small, favouring BSKP share in the furnish. Also, the delay of the Bratsk new line start-up, increasing tissue demand and production capacity and low producer inventories help the near-term supply/demand balance. But, the coated paper over-capacity and the targeting of China for the sales of the BSKP released from integrated to market production in Europe and the US impact the supply/demand balance negatively. Spot prices remain below the suppliers’ contract price targets and the purchasing activity has been low also in BSKP grades over the past 2-3 weeks. Our PIX China NBSK index value slipped again lower. The retreat was now larger than a week ago, amounting to 2.44 dollars, or to 0.37%, and with the index closing at 656.46 USD/ton. Yuan weakened by 0.3% against the USD. The conversion of the USD value into Yuan meant a decrease of 2.64 RMB, or of 0.06%, to 4100.25 RMB/ton.

Newsprint – The reduced volumes over the year have increased, as such, paper producers’ costs/ton. ONP/OMG prices have risen slightly over the 2nd half even if down in past couple of weeks. Producers are thus driving for price increases. Publishers’ advertising income is down as are the number of pages and annual subscribers. With that, price declines are demanded, especially in the UK where prices have averaged higher than on the continent, partly due to exchange rate movements. Price negotiations risk continuing, once again, over the turn of the year. The 0.7% strengthening of the EUR against the weighted non-EMU basket led to a decline of the benchmark value. The PIX Newsprint index retreated by 86 cents, or by 0.17%, and closed at 495.73 EUR/ton.

LWC – Just as in newsprint, sellers’ and buyers’ price negotiation targets are clearly conflicting. October statistics were better than expected but the order books are still relatively thin. Some downtime is expected to be taken around year-turn holidays, even if public announcements of production cuts are hard to find. Negotiations are reported to have advanced, though, more in the offset than on the rotogravure side. The 0.7% strengthening of the EUR against the weighted non-EMU basket meant a downward pull on the benchmark. The PIX LWC index retreated by 88 cents, or by 0.13%, landing on 690.00 EUR/ton flat.

Coated woodfree – Also in this grade, the producers are aiming to turn the recent downward slide of the prices in an increase from January. The size of the price increase initiatives appears to vary, depending on the specific grade and on the market in question. According to the industry analysts, the size of the announced increase varies between 5-8%. October statistics were a positive surprise to suppliers which naturally hope to see a repetition with the November data. Otherwise, the market fundamentals continue to look challenging for a price hike. The Euro strength, up by 0.7% against the non-EMU currency basket, pulled the benchmark lower. Our PIX Coated woodfree index slid down by 98 cents, or by 0.14%, and closed at 697.33 EUR/ton.

Uncoated woodfree – Demand for UWF in reels remains weak and prices have been under the clearest downward pressure in those grades. In copy-paper, our benchmark grade, and in other cut-size products, the order book levels appear to have remained satisfactory through November/early December. The suppliers have thus reasons to hope that the positive October statistics could be repeated in November. Capacity closures and exports overseas have helped to balance the market with shipment-to-capacity ratio for uncoated woodfrees total approaching 90%, as opposed to the 85% average recorded in 2011. The 0.7% strengthening of the Euro brought some downward pressure on the benchmark. The PIX A4 B-copy index lost 58 cents, or 0.07%, and settled at 863.40 EUR/ton.

Containerboard Europe – Industry concentration continues with Dunapack having bought a Turkish corrugated board manufacturer. Looking at the markets, the balance in virgin kraftliner remains tighter than that in RP-based grades. US market is firm, export needs reduced and East Coast port strike, if it starts, would reduce those exports more. Maintenance/other repair downtime taken earlier this year, at least in Sweden and France, reduced the producer inventories. Consequently, supply/demand situation is quite good. Longer-term, the wide price gap to RP-based grades risks shifting demand between the grades, though. In testliners and RP-fluting, an over-supply situation persists and announced downtime at containerboard mills and box plants does not make the near-term future outlook any better. Prices of recovered paper based grades are under downward pressure. In virgin fibre liner, the minor index value declines seen, for instance this time, have typically been directly linked to the exchange rate variations. Currency movements meant downward pressures on the benchmark prices. The Euro strengthened last week by 1.4% against the USD and by about 0.7% against the weighted non-EMU currency basket. All our packaging indices headed south, even if only rather moderately. The PIX Kraftliner index inched lower by 15 cents, or by 0.03%, to 584.20 EUR/ton. The PIX White-top Kraftliner index lost 1.18 euro, or 0.15%, and settled at 777.85 EUR/ton. The price development of testliners and fluting was also negative, largely due to the exchange rate movements. The PIX Testliner 2 index moved lower by 9 cents, or by 0.02%, and closed at 426.48 EUR/ton. The PIX Testliner 3 index retreated by 1.26 euro, or by 0.31%, ending at 402.03 EUR/ton and the PIX RB Fluting index lost 91 cents, or 0.23%, and closed at 386.62 EUR/ton.

Recovered Paper Europe – After a spurt in RP-purchases by the Chinese buyers in late October through most of November, the export demand for recovered paper, especially OCC and mixed grades, has quieted down in December. Obviously, either the stocks in China had been re-built or high enough import quotas had been secured for 2013 with 2012 volumes, or a bit of both. Whatever the reasons, the demand for recovered paper in Europe has softened, both for exports and for regional causes. Extended holiday shutdowns and the general weakness of the European economy reduce the needs for OCC as well as for old news and mags. Prices in Asia have been sliding down since mid/late November and now both the US and European regional prices have followed that trend.

Our PIX OCC 1.04 dd index lost ground for a second week in a row. The retreat was 1.85 euro, or 1.66%, and the index value settled at 109.28 EUR/ton. The price gaps to the related packaging indices widened. The differential of PIX OCC 1.04 dd to PIX Testliner 2 increased by 1.76 euro to 317.20 EUR/ton, to Testliner 3 it widened by 59 cents to 292.75 EUR/ton and to RB Fluting the gap grew by 94 cents to 277.34 EUR/ton. Also our old news and mags benchmark slipped lower again. The PIX ONP/OMG 1.11 dd index retreated by 27 cents, or by 0.21%, closing at 128.29 EUR/ton. The price gap to the PIX Newsprint benchmark narrowed this time by 59 cents to 367.44 EUR/ton.

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