FOEX Pulp & Paper Indices - March 12, 2013

Debra Garcia

HELSINKI , March 12, 2013 (press release) – General Economy: US – The pace of global growth slowed down in February, not much, though, thanks to the US where the growth accelerated. At least prior to the spending cuts (or so-called sequestration) which started coming into effect from March 1, the economic indicator news was good. New unemployment applications recorded at the end of February 344 000, less than expected. And 236 000 new jobs were created during the month which brought the unemployment rate down to 7.7%, the lowest level since December 2008. This is very good news on private consumption, the backbone of the US economy. Construction business had the strongest growth. Unfortunately, the spending cuts will slow the consumer growth down again as 500-700 000 jobs are expected to be lost because of them by early 2014.

Europe – The problems of the Euro-zone continue, both in economics as well as on the political arena. The academia and many other sources are getting more and more vocal in criticizing the Euro-zone leaders of causing the on-going recession with too much austerity and too little time for the nations in trouble to correct the imbalances. And they may well be right. German economy expanded in February but that did not help the Euro-zone out of the contraction territory. In fact, the economic downturn of the zone accelerated. The Markit Euro-zone composite PMI moved further down from 48.6 points to 47.9. That was also the reading for the service sector alone. The first two months indicate that the GDP would decline by 0.2-0.3 percentage points for the quarter, less than in Q4 2012 but still down, all the same. The return to a positive growth by mid-year, expected by the political leaders, is looking more and more unlikely.

In Japan, the output continued to stagnate in February but there is some good news, too. Q4 2012 numbers were revised upwards and show now a 0.2% growth in GDP, compared to the earlier predicted 0.4% decline. This could boost the consumer sentiment. If the consumer spending gets some sort of an uptick and at the same time exports start growing again, supported by the weakening of the Yen (by more than 20% against the USD since October 2012), there are realistic chances that Japan will come out of the deflation spiral. During the first quarter, exports have not grown much, though. But Q2 could start changing things, also as to the impact of the government’s latest stimulus package on public spending. Mr Kuroda, the new head of the Bank of Japan, supports PM Abe with readiness to take aggressive action to end the decades-long stagnation.

China was, together with the US the main driver for economic expansion in February. Intake of new orders was particularly encouraging. The HSBC composite activity index came out with a positive 51.4 reading. The rate of growth was slower than in January, though. Service sector activity was at 52.1, clearly positive but less positive than 54.0 points recorded in January with e.g. order back-logs shortening. The stock markets in China have not been strong, though. That is probably partially due to the uncertainties over the rate of success of the new government, to the decisions to be made in the on-going People’s Congress and to the strengthening of the Yuan against the Yen. Whatever success Japan has with its easy money, easy fiscal policy strategy means problems somewhere else and China is likely to be among the first impacted.

Paper industry – The preliminary numbers over the 2012 production and shipment numbers are gradually finalising and data is starting to come in also from emerging economies. China is today the world’s largest paper and board producer and big gains there and in some other Asian economies will help the global paper and board production to a small plus. In the industrialized countries, the volumes fell, again, against the previous year. Running through the key paper producing regions, USA recorded a 1.3% drop. Canadian production retreated by almost 11%, CEPI-countries were down by 1.6% and Japan by 2.5%. Among the emerging economies, Brazilian paper and board production was up, but only by 0.2% and South Korean volumes were down 1.3%. The bad news is that with the weakness of the European and Japanese economies, no change in the direction is likely here. Elsewhere, the economic activity is picking up and some improvement can be expected. If nothing else, the weakness of the year 2012 will make the month-to-month comparisons easier, as already seen when comparing January 2013 with January 2012.

At the price front, graphic paper producers have had to accept, for the time being the disappointment of not getting price hike initiatives through. In most grades, minor retreat has been recorded in Europe and flat prices in the US. New increase efforts have been announced by some producers from April 1. In packaging, price increase efforts were largely successful and new increases have been announced, typically for April shipments. A small upturn of the recovered paper prices (not in all grades, though) over the past two weeks indicates a likelihood of some cost increases.

NBSK pulp Europe – Pulp producers see a stronger market, in practice, than what the weak delivery data over January and the rise of the producer stocks would have suggested. The big drop of the delivery-inventory-ratio did not stop the suppliers from applying, on a wide front, new price initiatives, partially from March and partially from April. The differences in timing and the bigger-than-normal gap between the gross prices in Europe and North America, have led to postponement of the March hike into April by some suppliers in the US whilst in Europe the announcements appear to have remained unchanged. The recent weakening of the Euro raised the prices “automatically” in euro-terms and raised the resistance of the buyers to the price hike initiatives. The announced increases are typically 20 USD/ton for the commodity grade NBSKP from March 1. In most cases, this means that the new price is 860 USD/ton. Euro strengthened this time by 0.7% against the USD from the previous week. Our PIX NBSK index moved up by 7.79 dollars, or by 0.94%, and closed at 835.47 USD/ton. Converted into Euro, the index moved up by 1.57 euro, or by 0.25%, and closed at 638.25 EUR/ton.

BHK pulp Europe – In late Q1/early Q2, more hardwood market pulp is withdrawn from than added to the market. The volumes from Eldorado are getting larger by the month. But, shipments of Jari’s pulp are drying up, Koryazhma’s pulp in Russia becomes integrated with the new PM and Cloquet’s conversion to dissolving pulp is approaching. In addition to that, integration of Chinese hw APMP and Vietnamese BHKP as well as closure of an Indian BHKP line withdraw hardwood pulp from the market and help to firm the supply/demand balance, weakened on the other hand by declines in market pulp demand from the graphic paper sector. Euro strengthened by 0.7% against the USD from the previous week. The PIX BHKP index in Euro retreated by 94 cents, or by 0.15%, and closed at 608.57 EUR/ton. The PIX BHKP index value in USD headed higher by 4.26 dollars, or by 0.54%, and settled at 796.62 USD/ton.

BHK pulp China – Many indicators point to a strengthening of the demand pull in China after the Lunar New Year holidays ended. Already in February, the intake of pulp from consignment stocks clearly exceeded the shipment volumes from the producers’ end (i.e. import statistics vs. PPPC shipment data). Also, in spite of the Chinese buyers’ strong early resistance to price rise efforts from the suppliers, the higher prices have now been accepted, piece-by-piece over the past three weeks. In hardwood, the increasing needs of the new machines, especially in tissue and some decrease in local hw market pulp supply, due to integration, have tightened the balance and, in fact, prompted further price increase announcements. The PIX China BHKP index moved up by 2.33 dollars, or by 0.35%, and closed at 673.44 USD/ton. Yuan strengthened by 0.1% against the USD. The conversion of the USD value into Yuan resulted in an increase of 11.66 RMB, or of 0.28%, to 4188.45 RMB/ton.

NBSK pulp China – The delay of the start-up of Ilim Pulp’s new line in Bratsk and the closure of the old line in preparation for the changes, has turned the Chinese buyers more towards other sources for the time being. Most of the demand increase has been picked up by the North American producers but the Nordics have added volumes as well. Compared to January 2012, Chinese intake of US and Canadian BSKP was up by about 85 000 tons. Nordic suppliers gained about 25 000 tons whilst imports from Russia were down by about 10 000 tons. The gap between NBSKP and BEKP prices is still below long-term average but widened a bit again last week. In commodity NBSKP, our benchmark grade, several producers have announced price hikes, typically to 700 USD/ton. Our PIX China NBSK benchmark value continued to move up with the index value rising by 8.13 dollars, or by 1.20%, with the index closing at 686.67 USD/ton. Yuan strengthened by 0.1% against the USD. The conversion of the USD value into Yuan resulted in an increase of 47.71 RMB, or of 1.13%, to 4270.73 RMB/ton.

Newsprint – In 2012, CEPI-countries produced 700 000 tons less newsprint than in 2011, a drop of over 7%. Consumption within the region went down even more, however, with a 900 000 tons, or 9.9%, retreat. Against those numbers, it was very comforting to see a 0.6% increase in the regional demand and a 1.2% gain in total European shipments. These positive numbers may not last but at least indicate that the decline, if any, in 2013 could be clearly more moderate than the sharp plunge in 2012. The EUR strengthened by about 0.5% against the weighted basket of non-EMU currencies, which played a role in pulling the benchmark down. The PIX Newsprint index retreated by 2.66 EUR, or by 0.55%, and landed on 481.96 EUR/ton.

LWC – Coated mechanical numbers have been almost as bad as those in newsprint. CEPI-countries’ annual production came down by nearly 600 000 tons, or by 6.7% and the regional demand fell by almost as much in tons and by 9.0% in relative terms. In this grade the declining trend did not break in January either, even if the rate of descend moderated to just a 1% drop in the regional demand. The roughly 0.5% strengthening of the EUR against the basket of non-EMU currencies pressed the benchmark lower. The PIX LWC index lost 3.76 EUR, or 0.56%, and settled at 671.95 EUR/ton.

Coated woodfree – In some applications, coated woodfrees compete head-on with coated mechanical grades. Competition appears to have been successful, at least as far as the production volumes are concerned as the CEPI-country production was down by “only” 100 000 tons in 2012 over 2011 and European demand by little over 200 000 tons. January data on regional demand was weak but an increase in exports compensated. Some producers are reportedly trying to push some price increase through still before the end of the quarter with no success seen so far, judging by our benchmark values for reeled grade, at least. The approximately 0.5% strengthening of the Euro against the weighted basket of the non-EMU currencies had a negative impact on the benchmark. The PIX Coated woodfree index fell back by 3.83 EUR, or by 0.56%, closing at 675.11 EUR/ton.

Uncoated woodfree – The paperless office is making some advances. The high and still rising number of unemployed people in Europe affects the copy-paper and other uncoated woodfree demand also negatively. In 2012, CEPI-countries lost 300 000 tons of production, and consumption, against 2011. A modest further retreat in regional demand was recorded in January 2013 but exports outside the region grew more than what the local demand fell. Judging by the order book situation and other news from the market, February was another weak month in regional demand, the weakness driven by the poor general economic conditions. The 0.5% strengthening of the Euro against the basket of non-EMU currencies meant a southward pressure on the benchmark. The PIX A4 B-copy index slid down by 2.03 EUR, or by 0.24%, landing at 851.25 EUR/ton.

Containerboard Europe – Both in the US and in Europe, a new round of price increase initiatives has been seen from the major containerboard producers. This time, the hike efforts cover both the virgin fibre kraftliner as well as the RP-based grades. Some producers are apparently going for increases already over the March deliveries while some others are content to raise their prices from April. As only part of the originally announced 30-50 euro increases (depending on grade, market and currency) had gone through by early March, it is not in all cases fully clear what the starting point of the new announced hikes is. By early March, prices for RP-based grades were typically up by 10-20 Euro/ton and marginally down for the virgin fibre liners from the turn of the year. RP-based grade price movements in Q1 are supported by the largest price differential seen in our benchmark price history between kraftliner and testliners in January.

Currency movements meant downward pressures on our benchmarks this time as the Euro strengthened by 0.7% against the USD and by about 0.5% against the weighted non-EMU currency basket. The price movements partly followed and partly went again against the currency pressures. For virgin fibre based linerboards, the prices retreated along with the Euro-strengthening, again rather moderately. In RP-based grades where Euro-strengthening at least theoretically hurts, all benchmark prices continued to move up. Our PIX Kraftliner index headed further down by 77 cents, or by 0.13%, and closed at 579.35 EUR/ton. The PIX White-top Kraftliner index retreated by 52 cents, or by 0.07%, settling at 767.18 EUR/ton. Further success of the price increase efforts in the RP-based grades showed again in our recycled based benchmarks in a minor way. In spite of the 0.5% Euro-strengthening against the non-EMU basket, the benchmarks showed again some gains. The PIX Testliner 2 index headed higher by 92 cents, or by 0.21%, to 439.70 EUR/ton; the PIX Testliner 3 moved up by 65 cents, or by 0.16%, to 413.17 EUR/ton and the PIX RB Fluting advanced by 1.03 euro, or by 0.26%, to 399.69 EUR/ton.

Recovered Paper Europe – Prices of OCC and pulp substitute grades have risen in China, as well as in the US market, over the past 2-3 weeks. In Europe the demand pull has not been very strong and exports continue to face difficulties with the USD persistently fairly weak and with the North American OCC preferred over European, due to the higher virgin fibre contend.

In ONP/OMG, demand pull from over-seas is not as strong as in OCC. Within Europe, both supply (reducing newsprint and magazine paper consumption) and demand are diminishing, weakened further by the already seen and announced closures of e.g. newsprint machines based on recovered paper. In some markets, such as Italy, the demand for ONP/OMG has been so low that merchants have partly ceased to sort it and preferred to sell it as part of the mixed grade stream.

Our benchmark price development continues to reflect well what is happening on the market with OCC up but ONP/OMG further down. The PIX OCC 1.04 dd index gained 72 cents, or 0.66%, and closed at 109.39 EUR/ton. The margins to containerboards showed small mixed changes: to PIX Testliner 2 the gap widened by 20 cents to 330.31 EUR/ton, to Testliner 3 it narrowed by 7 cents to 303.78 EUR/ton and to RB Fluting the gap grew by 31 cents to 290.30 EUR/ton.

For our old news and mags benchmark price, quotes were either unchanged or slightly down and, consequently, the PIX ONP/OMG 1.11 dd index value declined further, this time by 43 cents, i.e. by 0.35%, settling at 122.14 EUR/ton. The price differential to PIX Newsprint narrowed by 2.23 euro to 359.82 EUR/ton.

US NBSK – Price increase initiatives in the US market, announced by some producers at the end of February for the month of March, failed to be implemented as, first of all, the previous hike had not gone quite fully through and, secondly, several suppliers opted to announce their price increases only for April deliveries. The recent price differential to Europe has been well above the longer-term average gap which is linked to the different sales terms, i.e. CIF in Europe vs. delivered to the buyer in the US market. Those suppliers, who announced their hikes (typically by 30 USD/ton to 930) from April, obviously hope to see more positive statistics from February and also trust that the on-going price movement in China will support their cause. Furthermore, April-May tends to be a good period for demand with a paper market cyclical peak and a low phase for practical supply, due to the weather allowing the maintenance stoppages. The PIX US NBSK price index moved up by 88 cents, or by 0.1%, and closed at 899.49 USD/ton.

US Newsprint – For quite some time now, newsprint production for the US has continued to be down less than what the consumption of the dailies would have indicated. This is partly due to the increased use of newsprint in inserts, partly to the good performance of the US newsprint exports and partly to the Canadian mills having taken a bigger hit in 2012 than the US ones (with production down by -11.6% vs. -3% in the US). In January 2013, the drop in the US production was even smaller against last year, i.e. by 1.5%. Until the next capacity closures are seen, North American newsprint market remains over-supplied and dependent on export-growth. Consequently, prices are under down-side pressure. The PIX US Newsprint 30 lb index remained unchanged at 613.37 USD/ton, as did the 27.7 lb index at 653.03 USD/ton.

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