FOEX: Newsprint benchmarks fall in Europe, remain unchanged in US, as orders continue to slid; amid continued demand decline, all printing and writing grade prices drop in Europe except for a slight increase in uncoated woodfree paper

Debra Garcia

HELSINKI , April 30, 2013 (press release) – Newsprint – Shipment and estimated demand figures for the month of March all point down with double-digit changes in the latest Euro-Graph statistics. Total European shipments plunged by 12.2% against last year, regional shipments dropped by 10.4% and exports were down by 19.1%. The cumulative changes for the first three months were also down, -7.9%, -5.2% and -19.3% respectively for the three categories above. Price negotiations are finally over in Germany with prices ending down from the Q4 2012/Q1 2013 old price levels. Some of the UK pricing has also been decided in April. The Euro weakened by about 1.0% against the weighted basket of non-EMU currencies, which meant an upside push on the benchmark. Still, the PIX Newsprint index moved down by 6.62 euro, or by 1.39%, and settled at 468.81 EUR/ton.

LWC –Coated mechanical reels showed also double digit downward changes in all categories for the month of March in the statistics released by Euro-graph. Total European shipments fell by 11.8%, the estimated regional demand was down by 11.6% and the export volumes retreated by 12.7%. The cumulative Q1 decline in the European estimated demand was 7.5%. Our benchmark has remained almost unchanged through March and April, mostly just a fraction above the 670 EUR level but down almost 20 Euro from the turn of the year. The continued upward trend for fibre prices tightens the squeeze on the paper makers’ profitability, building up the pressure to get the paper prices back up again. But even with fairly major supply reductions, the rapid demand decline has kept the supply/demand balance below 90%. The approximately 1.0% weakening of the EUR against the basket of non-EMU currencies had an uplifting effect on the benchmark. However, the PIX LWC index retreated by 1.06 EUR, or by 0.16%, and closed at 668.43 EUR/ton.

Coated woodfree –The March figures from Euro-Graph for coated woodfree paper showed bigger declines in shipments for March than the cumulative Q1 changes. Exports outside Europe dipped by 11.2%. The loss in the estimated regional demand was 10.0% for the month with imports in decline. The total European shipments were down by 9.9% for the month. The cumulative changes in Q1 were clearly smaller: -4.9% for total shipments, -4.7% for the regional demand and with exports outside the region still up, although by just +0.1%. Producers of coated woodfree grades appear to have been a bit more successful than their CWC colleagues in their quest for improved paper prices in April. Although the index movements in Q1 have been modest, there was a visible dip towards 675 EUR in March, but in April prices have crept back towards 680 EUR. The 1.0% weakening of the EUR gave the benchmark some upward push. Still, the PIX Coated woodfree index lost 1.04 euro, or 0.15%, landing on 678.54 EUR/ton.

Uncoated woodfree – The shipment data for uncoated woodfree paper, was more or less as weak as it was for coated woodfree papers. Euro-Graph statistics recorded a 10.6% drop in total European shipments, -8.4% retreat for the estimated regional demand and -19.0% for exports. Again, the Q1 changes were smaller: -4.7%, -5.0% and -0.5% in respective categories. Like for coated woodfrees, uncoated woodfree producers as well, to some extent same companies, are making efforts to enhance paper prices. The latest quotes received contained a rather even split of down- and upward changes. The 1.0% weakening of the EUR against the basket of non-EMU currencies gave an upward push effect on the benchmark. The PIX A4 B-copy index inched up by 13 cents, or by 0.02%, reaching 848.66 EUR/ton.

US Newsprint --  Newsprint demand in North America fell by 12.3% in March, and the first quarter North American total shipments lagged those of 2012 by 9.9%. Further newsprint capacity reductions will be seen soon through the conversion of SP Fiber (former SP Newsprint) newsprint PM’s at the Newberg and Dublin mills from newsprint to packaging products. These machines are planned to be converted to producing light weight packaging grades. The drop in the annual newsprint capacity is calculated at about 215 000 tons. Both our PIX US Newsprint benchmarks remained unchanged from last week, the PIX US Newsprint 30 lb index at 603.55 USD/ton, and the 27.7 lb index at 643.19 USD/ton.

General Economy: the US economy grew at an annualized rate of 2.5% during the first quarter of 2013, i.e. much faster than the 0.4% growth rate recorded over Q4 2012, solid but not high enough to add all that many new jobs. The unemployment rate inched down from 7.7% to 7.6%. What does help employment going forward, however, is the housing sector. For the first time in many years, the seasonally adjusted housing starts rose over one million units in Q1 and the growth is likely to continue. That is also the end of good news. In April, the preliminary US Manufacturing PMI (by Markit) was at 52.0 points; the lowest number in 6 months. Government spending growth slowed considerably, theoretically by about 10%, directly as a result of the so-called sequestration. For much of the same reason, US retail sales were down by 0.4% in Q1 and the short-term outlook is weak, both for private consumption and manufacturing.

Europe – The good news is that Italy has a new government. Another piece of likely good news is that the ECB is expected to drop the Central Bank key interest rate on their Thursday meeting. Better three years too late than never! The austerity measures have led the extreme weaknesses of several individual Euro-zone countries and the whole EU economy into a 2nd set of clear recession. With social and other political pressures mounting, the focus in Europe is shifting now to more stimuli, at least by extending the periods of correction. Those actions are also badly past the due date. In April, also Germany appears to have been hit by a renewed slow-down. Consequently, the whole Euro-zone recession persists. The Markit Flash Eurozone PMI remained deep in the contraction territory at 46.5 points (same as in March). Services inched up but the manufacturing sector retreated further as the new business continued to fall – for the 21st consecutive month.

In Japan, the Central Bank is printing massive amounts of money in a gamble to bring the country finally out of the deflation spiral. The BoJ expects the Japanese inflation to rise to approximately 2% by mid-2014. For the time being, the consumer prices continue to fall, however. The core consumer price index, excluding the food prices, was down in March by 0.5% from the March 2012 level. The core CPI rose, however, by 0.3% when compared to February. Over the full year (March 2013 to March 2014), inflation is expected to rise by about 0.7%. The BoJ has revised also their GDP-forecast upwards from 2.3% to 2.9%. April data looks promising with Japan manufacturing PMI, by Markit/JMMA, rising to 51.1 points, the highest value since March 2012. Manufacturing of investment goods and new order inflow showed the strongest gains.

China’s economic growth continues at the slowed-down pace, seen already towards the end of the Q1. The Flash China Manufacturing PMI (by HSBC) weakened again but, at 50.5 points, remained in the growth territory. Alarmingly, the new export orders contracted and employment numbers weakened in the manufacturing sector. With US growth re-weakening and with Europe, firmly in recession, China’s export outlook remains dim, at least over the next 2-3 months. Beijing is likely to react fast to these weaker economic data, especially as both input and output prices are weakening and the threat of inflation remains thus quite distant. The measures to be taken are likely to be directed towards the domestic market, both in investment volumes and in reviving further the household spending. Higher consumption and/or exports are needed to start bringing down the stocks of the finished goods which stocks have moved back up in April.

Paper industry – Paper producers are suffering from the cost pressures and, as so often in the past, Q2 is a time to try and raise prices – after total or partial failures to do so at the turn of the year. The recent economic problems, especially in Europe and Japan, have magnified the impact of the structural reduction of paper consumption. This is making the price increase efforts particularly challenging although the seasonal high has lengthened the order books in some grades. Cost pressures continue to mount with new pulp price increases announced and with the recovered paper prices having slowly crept upwards as well. Many of the April hikes have been postponed to May, as the hike attempts in the printing and writing papers largely failed to take hold in the on-going month. Prices in packaging grades did go up, even if not as much as the producers had targeted for. This shows also in our benchmark data with all paper price indices below their turn-of-the-year value but with all packaging benchmarks, except for white-top kraftliner, up compared to January levels.

The difficult negotiations are shortening the length of the periods prices are fixed for. Newsprint is a very good example. Whilst the US market has discussed newsprint prices on a monthly basis for quite some time already, Europe was very recently still in an annual price contract system for a very large majority of the deals. Now, with newsprint negotiations in Germany particularly difficult this year, the talks are reported to have ended with most of the contracts valid for six months. In other printing and writing paper grades, quarterly contracts are already common.

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