FOEX: Newsprint benchmarks decline in US, flat in Europe as downtime, capacity cuts continue; LWC prices fall as price hike attempts fail; indexes for coated, uncoated woodfree papers higher amid rising pulp prices
May 21, 2013
– Newsprint – StoraEnso reports that they will be taking market-related downtime in newsprint production at their Hylte and Kvarnsveden sites in Sweden. After the loss of about 100 000 tons of regional demand and nearly 200 000 tons in total shipments already over Q1 against Q1 2012, supply reductions are badly needed, too, especially as the Q2 is not expected to bring any major change in the demand decline. Euro strengthened by about 0.1% against the weighted basket of non-EMU currencies, which had, theoretically, a slight negative effect on the benchmark. The PIX Newsprint index remained, however, totally unchanged from last week at 465.90 EUR/ton.
LWC – The big Q1 drop in shipments, on top of the 2012 decline, has withdrawn more tonnage than the supply reductions and the supply/demand balance has rather weakened than improved, partially also due to losses of demand to uncoated mechanicals. Order books are not evenly divided between the offset and rotogravure grades. Price increase attempts have failed to materialize. The circulation statistics show smaller declines than the actual tonnage losses which gives some hope of the worst of the decline being over. Also, Q1 2013 had fewer delivery days than Q1 2012, making fair comparisons more difficult. The approximately 0.1% strengthening of the EUR against the basket of non-EMU currencies meant downward pressure on the benchmark. The PIX LWC index retreated by 57 cents, or by 0.09%, and closed at 664.92 EUR/ton.
Coated woodfree – Cost-driven price increase attempts continue. Hardly any success was seen in April/early May. Small increases appear to have gone through in mid-May, mainly for paper in sheets. In spite of some downtime taken, supply volumes continue to surpass the lacklustre demand. Exports outside Europe remain challenging. Even though the value of Euro has softened a little bit over the recent weeks, it remains over-valued against most of the key competing currencies. The approximately 0.1% strengthening of the EUR pressed the benchmark lower. The PIX Coated woodfree moved up, however, by 1.99 EUR, or by 0.29%, and reached 683.08 EUR/ton.
Uncoated woodfree – Bleached kraft pulp prices are up by about 50 euro/ton since the beginning of the year, uncoated woodfree prices are down by 15 euro/ton. The squeezed margins have led to price increase attempts also in this grade and, just as in other graphic paper grades, with poor results. Most manufacturers announced price increases from April, typically by 30 euro/ton. Supply increases at Double A’s Alizay mill and at Koryazhma in Western Russia make the situation even more challenging in a market which already lost about 100 000 tons of demand over the 1st quarter. The 0.1% strengthening of the EUR against the basket of non-EMU currencies put a minor downward pressure on the benchmark. The PIX A4 B-copy index headed, however, higher rising by 48 cents, or by 0.06%, and closing at 848.41 EUR/ton.
US Newsprint -- While profits of the North American forest product companies were up during Q1, thanks mainly to the improved housing market, the profits of the newspaper publishers have been shrinking. For instance two of Canada’s largest newspaper publishers, Torstar Corp. and Quebecor, announced 76% and 62% declines in Q1 profits, respectively. Other publishers face similar challenges with newspaper ad revenues in many cases down by more than 10%. All cost-cutting options are tried, including a pressure on the newsprint pricing. The PIX US Newsprint 30 lb index retreated by 3.37 USD, or by 0.56%, and landed on 600.00 USD/ton. The PIX US Newsprint 27.7 lb index lost a comparative 3.60 USD, or the same 0.56%, and slid down to 639.41 USD/ton.
General Economy - US: The latest economic news has been mostly bad. After a good start over the first months, the housing starts plunged. Also, the number of jobless claims rose. One reason for the jobless claims rise was the weaker-than-expected industrial production activity. The Philadelphia Fed index on industrial production actually fell to the contraction territory in May. The recent strong showing of the stock market is, at least for the time being, clearly contrary to the underlying economic fundamentals. The weakness of the economic data, rising domestic energy production and the seasonal factors brought the consumer prices down in April by 0.4%. On a more positive note, while housing starts fell by nearly 17%, the number of housing permits rose. Also, in spite of the slowness of the recovery, the US has succeeded in combining savings programs and growth and the e.g. budget deficit is now clearly lower than in Europe, on average.
Europe – The Q1 GDP-data came out with yet another decline, this time by 0.2%. The 2011-2013 recession with six consecutive quarters of negative growth makes this the longest recession in the Euro-zone history and 2nd and 3rd quarter of 2013, at least, could well lengthen the recession further. The 2008-09 recession was deeper but shorter with 5 quarters of consecutive decline. A new interest rate drop is possible already in the next ECB-meeting, especially as the inflation rate has fallen to just 1.2% on an annualized basis. France fell back to recession and Germany was barely on plus-side. Outside Euro-zone, news from the UK is more promising. Within Euro-zone, February and March months were marginally positive. Annual GDP-growth forecast is now -0.5% for this year and +0.9% for 2014, according to Consensus Forecasts. Annual consumer price inflation rate has been revised lower to 1.6% and it could end up being even lower.
In Japan, the so-called Abenomics with massive stimulation efforts appears to be working. Japan’s GDP-growth exceeded expectations during Q1 2013 with a still preliminary 0.9% q-o-q, or a 3.5% annualized gain. After the BoJ flooded the economy with cash, deflator still remains negative at 1.2% but most of the other indicators are moving upwards. Exports grew during Q1 by 3.8%, against a 1% increase in imports. Stock market values are up by 70% in a few months’ time. Just how sustainable the growth is, remains an open question, however. Wages are still declining which will make it difficult to get the consumer spending on a solid advance path. Furthermore, the stock price rise has not been accompanied, as often is the case, by business investments which were down during the 1st quarter by 0.7%. All the same, for the time being, the recovery is strongly on and Japan was clearly the fastest growing major industrialized country in early 2013.
China’s economic growth turned out to be softer than expected during Q1, moving up by ”only” 7.7%. The economic recovery seems to be running out of steam. Industrial production growth, over 10% for years, moderated to less than 9%. Profits were down in March to only 5%, after over 17% over the first two months. Also, the base elements in determining China’s financial condition, i.e. monetary growth, equity markets and interest rates, remain fairly subdued. The moderating rate of growth seen means both good and bad things, good e.g. in the sense that the commodity price rise in China – and globally – remains easier under control. That typically helps the industrialized world buying those commodities to do better but hurts some of the commodity exporters, such as Russia. China’s bank lending has continued to grow rapidly, though. The very rapid credit growth means running a risk of a reduced credit rating.
Paper industry – The fortunes of the paper industry continue to be mixed. In North America, most major paper companies have a stake also in the lumber business. The recovery of the housing market has helped the earnings and both the US and Canadian companies show, on average, better earning margins than what they have shown since the beginning of the Millennium. Totally non-integrated paper companies have it rough though and so have those who are heavily involved in graphic paper business, such as Resolute. Volume-wise few numbers over April are available at this point. Containerboard sector data have been published. The numbers show consumption up in April in the US by as much as 8.2% but cumulatively by just 0.8%. Exports and production were up as well. Inventories came down by almost 10% and were well below average but not record low.
In Europe, paper companies’ results are, in general, weaker than in Q1 2012. Exceptions to this rule come from the paperboard or tissue paper sectors. Graphic paper results are down and so are the volumes this year. The seasonal peak in April/early May has not improved the order books as much as hoped for. On the other hand, closures of capacity, recently seen or just coming up, as well as maintenance downtime have also taken their toll on the production volumes. The combination of poor profitability, risen pulp prices and slightly improved supply/demand balance have prompted the paper producers to repeat their price increase announcements in June, after seeing the attempts made in May to fail, at least partly, if not totally.