October 15, 2013
– Containerboard Europe – In the US, the containerboard market has been strong with high volumes produced in spite of some maintenance downtime taken during September/early October. Both containerboard and box making capacities are going up. KapStone just opened a new box plant in Illinois. Rapid expansion continues also in East Asia with a large number of new linerboard machines planned to start up in 2014-2016. The recent rise of OCC and mixed grade recovered paper is supporting, at least for the time being, the present or even slightly higher price structure, in spite of the rapid growth in supply potential.
In Europe, re-starts of temporarily closed capacity and de-bottlenecking at some of the mills, coupled with the over-valued Euro, have weakened the virgin kraftliner market and pricing over the past few weeks. In recovered paper based testliner and fluting grades, the market remains quite firm. Slowing down of the economic growth in Russia and some other countries in Eastern Europe have reduced the demand pull of the exports outside Western Europe. Prices of virgin fibre based liner have continued to slip lower. The upward move seen in the RP-based grades halted, at least for a moment, as also seen from our index data.
The currency movements had this time a mixed, but relatively small, impact on our indices. The Euro weakened by 0.2% against the USD but strengthened by about 0.3% against the non-EMU currency basket. Our packaging indexes were either flat or declined - rather marginally. The PIX Kraftliner index lost 5 cents, or 0.01%, and closed at precisely 588.00 EUR/ton. The PIX White-top Kraftliner index slipped lower by 45 cents, or by 0.06%, and settled at 767.27 EUR/ton. The PIX Testliner 2 index showed no change and remained at 471.73 EUR/ton. The PIX Testliner 3 index value retreated by 6 cents, or by 0.01%, closing at 446.85 EUR/ton. The PIX RB Fluting index also lost 6 cents, or 0.01%, and landed 436.39 EUR/ton.
General Economy – US: The efforts to break the political impasse on the debt ceiling issue apparently progressed but did not bring any concrete results by Monday night, at least. There are just 2-3 days left to solve the crisis. Fighting over the debt ceiling has already hurt the US economy and much worse risks to follow. US economy risks stumbling and falling. If it does, it is like felling a big tree over a plantation of smaller trees. Most of them will survive but get badly hurt. After four years of a very slow recovery, the US economy remains fragile with unemployment still high. The policy uncertainties have already reduced growth and increased unemployment, the latter by 1-2 percentage points. No more political storms hitting the economy in the face with hails and high winds are needed. Let us hope, for the US and global economy, that the sense over the common good is found the last minute. The markets seem to have faith on this as the stock values have come down only marginally. Consumer confidence indices have fallen clearly more.
Europe – European debt problem needs to be solved – but with which measures and in which time-frame? The tightest austerity measures have been eased but cutting costs and tightening belts remains the key measure used in the Euro-zone. In the UK, active promotion of growth was chosen instead. Resulting differences in growth rate, employment numbers and the mood of the nations are surprisingly clear. Euro-zone is finally out of the recession, too, but continues to struggle with mass-unemployment – especially among the youth – and with rapidly growing share of people at or below the poverty lines. Social problems and – with them – immigrant hostile movements are growing. The IMF report, released last week, predicts positive but very slow growth for the Euro-zone, 1% real GDP advance next year, after a -0.4% retreat this year. The business confidence polls are a little bit better than earlier this year, indicating that the region is close to a stabilization phase in the crisis economies and recovering in the core of Europe. Risks remain mainly on the downside.
Japanese economy is doing well at present. Real GDP-growth has remained strong, the prolonged phase of deflation has most likely ended and e.g. the lending of money by the Japanese banks has risen to its highest level in four years. On a more negative note, the current account surplus sank in August to record-low level with overseas income dropping and with imports exceeding exports. Current account apart, the combination of a massive monetary easing and strong fiscal stimulus has led to a rapid pick-up of growth. The strong growth has increased the likelihood of the consumption tax increase in April 2014. That will reduce the presently high structural deficit, but only temporarily. As the household spending is likely to taper off after the tax increase, the GDP growth will come down as well, from 2%+ this year to the vicinity of 1.5%, maybe even less, in 2014. US default, if seen, will be a major blow on Japan with high volumes of US government bonds.
In China, September export statistics brought a major disappointment as the projected 5-6% increase turned out to be a 0.3% decline. The drop was partly due to the real constraints arising from the still quite weak global demand for goods and services and partly to the necessary corrections of documentation (fake invoices) that have yet to be eliminated from the trade data. On the other hand, the service sector data was slightly better than expected and employment numbers, which weakened in August, were better again in September. Coupled with the modestly better manufacturing PMI, the combined data suggests that the Chinese economic growth is stabilizing, but on a fairly modest level. The HSBC Composite Output index recorded 51.2 points, down from 51.8 in August. At this level, the surrounding Asian countries do not get much support for their respective recoveries either. As in Japan, US political foolishness over the domestic economy is viewed with growing, and well-justified, concern.
Paper industry – Paper and paperboard demand outlook suggests a very hesitant growth for the total this year with packaging and tissue sectors up but printing and writing down. In 2014, the outlook is for a slightly smaller decline for graphic papers and a slightly faster growth than this year for the packaging sector, tissue and specialities. Pooling the different analysts’ views the total paper and paperboard consumption estimates are pretty simple when comparing the annual growth rates: 2012 – 0% over 2011, 2013: +1% over 2012 and 2014; +2% over 2013. In 2012, there was actually a very marginal growth of 0.1-0.2% according to the still often preliminary numbers.
The WAN-IFRA World Publishing Expo was held last week in Berlin. This is typically the first time in a year when mainly newsprint but also other publication paper producers and buyers (publishers & printers) start talking about the upcoming new year volumes and prices. Will the market be ready for higher prices – after the Q3-Q4 price hike attempts have at least so far largely failed? The continuing structural decrease of the graphic paper demand and over-valued Euro would say no. But, there have been capacity closures, especially in North America but also in Europe. Cost pressures are there, too, in terms of higher pulp prices, at least for softwood kraft pulp. The Jury will be out on this issue, for quite a while. Neither side is reported to have had a clearly upper hand when meeting at WAN-IFRA in Berlin.
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