FOEX Pulp & Paper Indices - Feb. 26, 2013

Debra Garcia

HELSINKI , February 26, 2013 (press release) – General Economy: US – News on the US economy in February are contradictory. The manufacturing index signalled strong expansion at 55.2 points, down slightly from the even stronger January. The housing market gathered more steam in January with a healthy increase in home sales. But the fears have mounted over the possibility that, first of all, the political parties will not find a compromise over the raising of the debt ceiling. Also, the markets have concerns over the Fed maybe hitting the brakes on the quantitative easing measures. Confidence was also shaken by some poor economic data. Some of those numbers came from Europe and some from the US itself. The worst piece of news was that the number of Americans filing more new claims for unemployment benefits grew last week, even with employment in manufacturing improving. Manufacturing output grew faster than new orders and inventories started moving up.

European economy remains in doldrums. The new commission forecast anticipates a longer and deeper period of recession than earlier estimated. The preliminary Euro-zone composite PMI from Markit retreated from 48.8 points in January to just 47.3 points in February. Manufacturing output and the service activity both fell and about the same amount. The new steepening of the rate of decline indicates that this will be the 4th consecutive quarter for the Euro-zone in recession mode. The Q1 drop is likely to be smaller than the plunge experienced during Q4 2012, largely because Germany is growing again. But, the differences between the nations have increased and the gap between Germany and France in economic activity is the largest ever, making it even more difficult to agree on the EU or Euro-zone wide actions needed. Italian election results suggest problems in finding a suitable coalition to run the country. Some sources described the preliminary results as “the worst possible”. Stock markets reacted negatively, as was to be expected.

In Japan, the year of the snake starts in March which carries the symbol of business prosperity. PM Abe has wowed to honour the symbol by measures which are designed to serve as a "rocket-like start towards economic recovery". While opposition politicians and consumers remain sceptical, the stock markets appear satisfied. The weakening of the Yen has already started to help the exports. At the home front, Abe plans to focus on investments on three things: the tsunami region, ageing infrastructure and proofing schools and hospitals against earth-quakes. The Bank of Japan is expected to support the government action through a more aggressive monetary policy, including a raise of the inflation target to 2% from today’s 1%. The next head of BoJ is likely to be one who agrees with government on the strategy of monetary easing. The key issue of the near-term future will be how to unleash the consumers to spend more and save less.

In China, the economy is still on the path of recovery. The Flash Manufacturing PMI, by HSBC, at 50.4 points, showed slower expansion than in January, but the months are difficult to compare with the Lunar New Year holidays this time practically fully in February. New export orders and order backlogs changed direction and decreased as did also the stocks. Other elements of the PMI were on a rise, however, including the purchasing volumes, domestic orders and employment in the manufacturing industries. Another piece of data confirming the continuation of the growth is the recent pick-up in the credit growth. Prices continued to go up, both over the input and the output, but the rate of increase slowed further down.

Paper industry – The first piece of news on the January paper industry performance are moderately encouraging. In the US, containerboard production was up by 3% from last year and the capacity utilization rate quite high but the increased production went to fill the inventories which showed an even larger than usual jump for the first month of the year – admittedly from a relatively low level. Inventory build-up can also be a reaction to the belief that economy is truly improving and the near-term sales need higher stock levels.

In Europe, UTIPULP market pulp consumption numbers were up by 2% from January 2012, suggesting that the paper production has not been doing all that badly. News from the market is that the order book development in February has been very varied depending on the grade and market. Generalizing, graphic paper continues to suffer while packaging and hygiene products have continued to advance over the beginning of the year. Recycled packaging grades appear to be “catching” up the virgin fibre side. In graphic papers, there is some pressure on volumes and prices from low cost Asian imports. As to the price hike attempts, producers of graphic paper have not thrown in the towel yet and negotiations are still going on in many cases. On packaging side, new price increases have been announced.

NBSK pulp Europe – January numbers from PPPC came out on Friday with disappointing numbers from producers’ point of view. The shipment-to-capacity ratio was as low as 83% and total deliveries were down by 2.3% against January 2012 with China showing the biggest shortfall. Shipments to Europe were up by as much as 10% against the very weak January 2012. UTIPULP’s market pulp consumption was also up, by 2% for the total and more than that for bleached kraft grades. Producer inventories moved up by four days, by three in BSKP. At least one producer has announced a price hike to 860 for commodity NBSKP in the European market from March 1. Södra announced they will be divesting Tofte mill this spring. Euro weakened by 1.0% against the USD from the previous week. Our PIX NBSK index moved up by 1.17 dollars, or by 0.14%, and closed at 825.12 USD/ton. Converted into Euro, the index moved up by 7.40 euro, or by 1.20%, and closed at 625.75 EUR/ton.

BHK pulp Europe – In market BHKP, producer stocks headed higher by 5 days without seasonal adjustment and by 6 days when seasonally adjusted. The stock rise came through added production as hardwood pulp shipments were down only quite marginally, or by 0.6%. In Europe, UTIPULP’s numbers showed a nice 4% increase in market BHKP consumption. Port stocks in Europe, reported by Europulp were down by about 6% (for all grades total). At least one BEKP producer has announced a price hike in Europe from 800 to 820 USD/ton, from March 1. Euro weakened by 1.0% against USD from the previous week. The PIX BHKP index in Euro moved up by 6.64 euros, or by 1.12%, and closed at 599.53 EUR/ton. The PIX BHKP index value in USD headed higher by 51 cents, or by 0.06%, and settled at 790.54 USD/ton.

BHK pulp China – Market pulp shipment numbers to China were very poor in January. This is at least partly explained by the fact that as the Lunar New Year was in February, smaller volumes were desired to be shipped in January. Total shipments to China were down by 27%, or by 240 000 tons, compared to January 2012. BHKP shipments fell a bit less than those of BSKP. Several companies have announced price hikes in China for the different BHKP grades, in BEKP typically to 720 USD/ton. At least one major producer has kept their prices unchanged, however. The purchasing activity for pulp appears to be fairly lively after the Lunar New Year holidays. The PIX China BHKP index moved up by 10.22 dollars, or by 1.55%, and closed at 668.23 USD/ton. Yuan weakened by 0.1% against the USD. The conversion of the USD value into Yuan resulted in an increase of 69.33 RMB, or of 1.69%, to 4170.18 RMB/ton.

NBSK pulp China – Most of the drop in market pulp shipments to China in January was in bleached softwood kraft grade, reportedly by more than 150 000 tons down from January 2012 volumes. Observers expect the softwood pulp market to tighten in China over the coming weeks as the old Bratsk BSKP line has already been closed down and the production volumes from the new line will not be reaching customers before mid/late Q2. Among producers, at least Metsa Fibre, Ilim and Arauco have announced price increases, to different levels, from March 1. In commodity NBSKP, our benchmark grade, the hike from Metsa is to 700 USD/ton. Our PIX China NBSK benchmark value continued to move up with the index value rising by 6.86 dollars, or by 1.03%, with the index closing at 672.89 USD/ton. Yuan weakened by 0.1% against the USD. The conversion of the USD value into Yuan resulted in an increase of 48.43 RMB, or of 1.17%, to 4199.26 RMB/ton.

Newsprint – According to preliminary data, newsprint shipments to the European market have been fairly clearly up in January against the weak January 2012 volumes. Exports and production appear to have been down, however, dampening the good news from the regional shipments. The price negotiations which have been concluded appear to have ended with small retreats, at least in the UK. The UK prices have fallen even more in Euro-terms as the pound has been weakening and the British newspapers are now paying relatively less than what they did through 2012, compared to their continental colleagues. Euro strengthened by 0.2% against the weighted basket of non-EMU currencies which meant a slight downward pressure on the benchmark. The PIX Newsprint index retreated by 1.18 euro, or by 0.24%, and landed on 485.33 EUR/ton.

LWC – Coated mechanical producers have been squeezed between the lower priced SC grade and not-much-higher priced coated woodfrees. Business appears to have been lost to both directions. Preliminary news over January numbers is that the domestic shipments have been weak, exports are down again and capacity utilization rates have remained at or slightly below 80%, making LWC one of the weakest grades also in that respect. Prices have been slipping lower. The roughly 0.2% strengthening of the EUR against the basket of non-EMU currencies was one of the drivers pulling the benchmark lower. The PIX LWC index lost 2.24 EUR, or 0.33%, and closed at 675.67 EUR/ton.

Coated woodfree – In coated woodfrees, the start of the year was pretty good but appears to have quieted down in February. News over the level of order books is mixed, but in most cases the books have shortened in February. This is, of course, also linked to the partly still unfinished price negotiations. January shipments are reported to have been marginally better than in 2012 with regional demand still slipping lower but with exports doing better than a year ago. The results of the price negotiations appear really mixed between, “a minor drop”, “absolutely no change”, “slightly up” and “increase efforts continue”. The approximately 0.2% strengthening of the EUR tried to pull the benchmark slightly lower. But, the PIX Coated woodfree index moved the other way, rising by 1.44 EUR, or by 0.21%, and reached 680.45 EUR/ton.

Uncoated woodfree – In this grade, imports from outside the region continue to play a bigger role than in other graphic paper grades. In 2012, exports outside the region amounted to just over 1.5 million tons while imports were more than 2/3 of that at just under 1.1 million tons. In January 2012 both appear to have done better than last January. Order books in the regional market were in several cases relatively good, seasonally adjusted, in January, but appear to have weakened since then. Copy paper demand is relatively a bit better than the situation in reels or folio sheets but this is also the sector where imports have a fair share, originating lately e.g. from Thailand. The 0.2% strengthening of the EUR against the basket of non-EMU currencies had a negative impact on the benchmark. The PIX A4 B-copy index eased down by 3.88 EUR, or by 0.45%, settling at 854.21 EUR/ton.

Containerboard Europe – US box shipments were more or less the same as in January 2012. Containerboard production volume was, however, about 3% up from last year. These extra tons went into building up the inventories, however, as the stock rose in January by more than 200 000 tons, the biggest January increase in over 10 years. Good production gave a very nice capacity utilization rate of over 97%. At least one producer has announced a price hike, by 50 USD/ton, for containerboard from April 1.

In Europe, the situation appears to have improved for the earlier weaker recovered paper based grades and maybe deteriorated a bit from the virgin linerboard with supply of the latter now more readily available. The supply of the RP-based liner and fluting is moving up too with the new Stora Enso’s 455 000 tons testliner and fluting line running tests at Ostroleka/Poland. On the price front, most major producers, but not all, have announced price hikes but the sizes of the hikes and their starting times vary.

Currency movements meant mixed pressures on our benchmarks this time as the Euro weakened by 1.0% against the USD but strengthened by about 0.2% against the weighted non-EMU currency basket. The price movements went again against the currency pressures, however. For virgin fibre based linerboards where Euro-weakening against the USD should help, the prices retreated moderately. In RP-based grades where Euro-strengthening against non-EMU basket theoretically should hurt, all benchmark prices moved up. Our PIX Kraftliner index inched down by 6 cents, or by 0.01%, and closed at 580.70 EUR/ton. The PIX White-top Kraftliner index retreated by 37 cents, or by 0.05%, settling at 768.03 EUR/ton. Further success of the price increase efforts in the RP-based grades showed again in our recycled based benchmarks. In spite of the minor Euro-strengthening against the non-EMU basket, the benchmarks showed clear gains as follows: the PIX Testliner 2 index headed higher by 8.06 euro, or by 1.92%, to 428.76 EUR/ton; the PIX Testliner 3 moved up by 6.64 euro, or by 1.67%, to 405.31 EUR/ton and the PIX RB Fluting advanced by 6.34 euro, or by 1.64%, to 392.04 EUR/ton.

Recovered Paper Europe – China’s imports of recovered paper, all grades combined, exceeded for the first time in history 30 million tons in 2012. After the holiday period in early February, Chinese buyers of recovered paper have returned with relatively good purchasing volumes. The improved demand, linked naturally to the improving economic activity in China and in some of China’s export markets, has resulted in a small price hike of 4-5 USD/ton on the OCC grade in China. However, just prior to the Lunar New Year and during it, the export prices from Europe to Asian markets came down. This drop has more impact on the European regional market than the very recent price increase in the Chinese market. Consequently, the prices in Europe slipped lower, both in OCC and in ONP/OMG-grades.

The PIX OCC 1.04 dd index lost 28 cents, or 0.26%, and closed at 108.40 EUR/ton. With clear price increases in RP-based linerboards, the margins to containerboards widened: to PIX Testliner 2 by 8.34 euro to 320.36 EUR/ton, to Testliner 3 by 6.92 euro to 296.91 EUR/ton and to RB Fluting by 6.62 euro to 283.64 EUR/ton.

Our PIX ONP/OMG 1.11 dd index value declined further, this time by 47 cents, i.e. by 0.38%, settling at 123.19 EUR/ton. The price gap to PIX Newsprint narrowed by 71 cents to 362.14 EUR/ton.

US NBSK  – Against the weak 2012 comparisons, January data from PPPC over the market pulp shipments looked good also over the North American market with shipments of paper grade market pulp, all grades, up by over 40 000 tons, or by 7.5%. NBSKP mills in north run full during winter months but tend to take maintenance downtime in Q2. In BHKP, southern producers often have difficulties in obtaining wood during the wet winter months in south–east US and run relatively more softwood than hardwood. This “split of fortunes” also shows in pricing. While some BHKP producers have announced price hikes in the US market, the NBSKP suppliers have kept quiet with most but not quite fully all of the previous price hike initiative gone through by now. The PIX US NBSK pulp benchmark remained this time unchanged at 894.44 USD/ton.

US Newsprint – The eyes of the North American producers are on the export markets with little help expected again this year from the regional purchase volumes. The recent strength of the Euro and production stoppages at some of the export markets (e.g. Kondopoga) are expected to open up opportunities to continue with the positive volumes already seen in January. In the domestic market, the finalized contracts seem to have reduced the regional differentials. Price fall since the turn of the year has been limited, at least so far. The PIX US Newsprint 30 lb index slid down by 43 cents, or by 0.07%, to 615,75 USD/tons, and the 27.7 lb index behaved in a similar fashion, moving down by 38 cents, or by 0.06%, and closing at 655.56 USD/ton.

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