Newsprint – Newsprint market in Europe has remained quiet in Europe after the summer holidays. This applies to volumes as well as to prices. The again very weak monthly statistics from EURO-GRAPH showing the total European shipments down by over 11% August 2012 and with regional demand down by nearly 9% did not alleviate the market concerns, even if the producers have reported that the Q4 order books are at a comfortable level. Downtime taken at the newsprint mills has, however, limited the spot volumes offered quite considerably. Euro strengthened by about 0.6% against the weighted basket of non-EMU currencies, which meant some downward pressure on the benchmark. The PIX Newsprint index lost 49 cents, or 0.10%, and closed at 469.53 EUR/ton.
LWC – Low shipment volumes and heavy competition, both within the grade and against SC and CWF suppliers, has kept the price tensions on. Order intake was not as good as had been hoped for after the holidays. Furthermore, the advertising activity has fallen more than in the US where magazine advertising activity is down slightly for the year but actually up from 2012 over the past couple of months. In Europe, supply is down through downtime taken and from the earlier seen capacity closures but those declines have not kept up with the average demand fall of over 40 000 tons/month so far this year. The approximately 0.6% strengthening of the Euro against the weighted basket of non-EMU currencies pulled the benchmark lower. The PIX LWC index lost 2.69 EUR, or 0.41%, landing on 659.54 EUR/ton.
Coated woodfree – The recovery of the sales volumes after holidays has been slow also in CWF-grades. The battle for volumes continues between producers and between CWF and LWC grades in the common end-use areas. In sheets, wholesalers bring in yet another battle-ground. Rapidly weakened exports do not help the over-all market situation in this grade. With a slight pick-up of the Europe’s general economic activity, there is hope for some improvement in the demand over Q4, however, and suppliers have not thrown in the towel yet as far as their price increase intentions are concerned. Lower BHKP prices and the recent strengthening of Euro do not help in this quest, though. The strengthening of the Euro against the non-EMU currencies placed some southward pull on the benchmark. In spite of the negative exchange rate impact, our PIX Coated woodfree index inched up by 38 cents, or by 0.06%, and reached 669.21 EUR/ton.
Uncoated woodfree – Demand for uncoated woodfree is down less than in the coated grades but still over 5%. Sudden weakness in exports in August is another concern. Also in this grade, demand pick-up after the holidays has been slower than anticipated/hoped for. It appears that some producers may have tried to gain more volumes by extending the use of the so-called “summer rebates” into September and Q4. Most of the demand drop is not in our benchmark grade, the copy paper, but in other uncoated woodfree grades. Still, also copy-paper demand could end up showing a decline this year, unless the consumption picks up fairly substantially during the final quarter. The 0.6% strengthening of the Euro against the weighted basket of non-EMU currencies brought some downward pressure on the benchmark. In spite of this, the PIX A4 B-copy index advanced by 2.78 EUR, or by 0.33%, and closed at 842.52 EUR/ton.
US Newsprint – Newsprint demand in North America remains lacklustre with a nearly 10% drop in shipments both in August as well as in the first eight months against 2012. Production losses of newsprint have concentrated into the US. In August, US production was down by 16%, y-o-y. The cumulative production over the first 8 months was down by by 15%. After the gradual closing of the price gap between the West and East coasts, very little news have come from the NA newsprint market. There were no changes reported to us for our US newsprint benchmarks .The 30 lb index remained unchanged from last week at 590.22 USD/ton, as did the 27.7 lb index holding at 627.68 USD/ton.
General Economy – US: US economy is facing major risks. Political disagreement over the lifting of the debt-ceiling was already followed by closures of a large number of public services and nearly one million federal workers have been laid off. An even more devastating threat to the US and world economy is the rapidly approaching day when the Treasury Department runs out of money and the US faces a federal default. That day is somewhere in mid-October, probably October 17th. Apart from this still solvable default threat, the US economic recovery, while still modest, appeared to be picking up speed in Q3 after a quite slow Q2. After encouraging July-August data, the September numbers, while still OK, show that the US economic activity has started to react to the growing risks. Consumer confidence readings from Gallup and Conference Board retreated from their August levels. Also, the final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) recorded 52.8 points in September, after 53.1 in August, showing that the economic activity continued to grow but at a slower pace.
Europe – The Italian political situation provided yet another scary moment when Berlusconi ordered the ministers of his People of Liberty party to leave the government. The risk of the collapse of the government, with negative consequences on the economy, has now receded and the Euro-zone recovery appears to pick up speed. Export activity has been the key driver, in spite of the strengthening of the Euro against the US dollar. Markit’s Eurozone Composite Output index climbed from 51.5 points in August to 52.2 points in September. That is the highest reading seen in over two years. Output and new order volumes continued to grow whilst work backlogs remained unchanged and job numbers showed, unfortunately, yet another decline. Service sector had a bigger improvement than the manufacturing activities and the inter-region trade. Retail sales were, in fact, down in September. Outside the Euro-zone, economic growth continues quite strong in the UK.
Japanese economy grew at a 4% annual rate during the 1st half of the year. In Q3, the growth has persisted but at a slower pace (largely due to a higher comparison base). These positive growth numbers also increased the likelihood of the planned early 2014 VAT-hike. The economic indicators have continued to be positive. September PMI data has come out quite strong again. The manufacturing PMI by JMMA & Markit rose from 52.2 points in August to 52.5 in September. Both domestic demand and the export sector contributed to the improvement. New order intake grew very rapidly, order backlogs continued to rise and suppliers’ delivery times lengthened. The only sour point was employment which continued to stagnate in September. In the service sector, the activity rose more than in manufacturing with the Activity Index rising from 51.2 points in August to 53.0 points in September. Price rises show that Japan is truly leaving the deflationary conditions. The recent pace of about 0.7% (annualized) shows Japan returning into a “normal” inflation behaviour.
In China, the economy is beginning to show more and more signs of stabilising, after the falling production and weak indicator values over the early summer months. In September, the growth has continued but still at a very slow pace, according to Chinese standards. The HSBC China Manufacturing PMI benchmark showed only infinitely small growth in September with the index value at 50.2 after 50.1 points in August. These growth rates are thus still only very marginally above the contraction zone. New order intake was flat. Work backlogs have grown, however, which is good, especially as the stocks of the finished goods appear to have declined further. The service sector shows faster overall growth with the HSBC China Services Business Activity Index at 52.4 points in September. This was, however, lower than the value in August. The Composite Index was also still positive but lower than in August. All-in-all, Q3 shows higher growth than Q2 and a stabilization in the Chinese economy. However, US default could have quite severe consequences in China.
Paper industry – In addition to the general economic data already discussed in the sections above, the US ISM-index, which typically correlates well with the paper industry performance and especially with the packaging numbers, showed a fourth consecutive rise in September. The index rose to 56.2% in September, up by 0.5 percentage points from August's already high reading of 55.7%. Among the industrial sectors included in the manufacturing part of the index, both paper products and the separate printing and related support activities were again in September among those showing positive growth. The US packaging sector did show strong growth in August. However, the very high operating rates in containerboard production led to further stock-building.
In printing and writing papers, the August numbers were somewhat disappointing after more encouraging comparisons to 2012 over the early summer. NA total printing and writing demand retreated in August nearly 3% for the month and was down by 2.2% against 2012 after the first eight months. In Europe, the estimated regional demand numbers were much worse with August showing an 8% drop against August 2012. With exports down as well, the January-August total shipments were already about 1.2 million tons lower than those in 2012 over that same period.
Elsewhere in the world, packaging and tissue continue to do well but printing and writing paper sector results are mixed. Numbers improved in August in Japan as well as in other Asia but were very weak in Latin America.
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