October 22, 2013
– Containerboard Europe – In the US, the containerboard operating rates fell clearly in September from the early month with the producers and box-makers wanting to bring the inventory levels down. Stocks did go down in total by about 50 000 tons but remained above average after the big increase seen in June-August. Operating rates of the linerboard producers were down by five percentage points from August and in corrugated medium the drop was even larger or 6 percentage points. Even after this drop, AF&PA reported the operating rates for total containerboard at a comfortable level near 94%.
In Europe, the combination of a modest pick-up in the demand and some downtime taken in early fall have kept the recovered paper based liner markets in a good balance, with no excesses one way or the other. In virgin kraftliner, the imports as well as exports outside the region play a bigger role. Here, the strength of the Euro makes Europe an attractive sales target whilst European producers find it hard to compete on the overseas markets. Consequently, price pressures remain downwards in virgin fibre liners and upwards in RP-based produces. The price gap between kraftliner and testliner 2 was almost 160 EUR/ton in the beginning of the year. This week it was again reduced and now stands at 115 EUR/ton.
The currency movements had again this time a mixed impact on our indices. The Euro strengthened by 0.9% against the USD but weakened by about 0.3% against the non-EMU currency basket. Our packaging indexes followed the exchange rate drivers with virgin liner prices down and RP-based products flat or up. The PIX Kraftliner index lost 1.87 EUR/ton, or 0.32%, and closed at 586.13 EUR/ton. The PIX White-top Kraftliner index sank by 4.60 euro, or by 0.60%, and settled at 762.67 EUR/ton. The PIX Testliner 2 index showed again no change and remained at 471.73 EUR/ton. The PIX Testliner 3 index value inched up by 12 cents, or by 0.03%, closing at 446.97 EUR/ton. The PIX RB Fluting index gained 1.36 euro, or 0.31%, and landed 437.75 EUR/ton.
General Economy – US: US Treasury can again pay the federal bills and federal employees are back at work after the debt ceiling was raised at the last minute after an agreement was reached for a temporary solution. Unfortunately, a similar sad drama may end up being replayed in a couple of months’ time. For now, US was saved from a default and from losing a notch or two in their credit rating. A lot of economic damage was done already, however. The unnecessary fiscal fight led to a clear loss of both consumer and business confidence. Estimates on the impact on the US GDP vary. The Q4 growth was probably reduced by 0.3-0.5 percentage points. The lower starting point for 2014 means that the annual GDP growth of 2014 will be 0.1-0.2% lower than what it would have been without this political battle. A repetition of this farce in January-February 2014 (funding is now guaranteed only temporarily) would be truly devastating. Hopefully the parties see the risks of that – both on the economy and on the number of votes in the next election. US real GDP is likely to grow 1.6-1.7% this year and, without another stand-off, about 2.5-2.6% next year.
Europe –ZEW’s monthly survey over the economic sentiment, published a week ago, rose to 52.8 points in October from 49.6 in September. This was the highest recorded since early spring 2010 and better than what had been expected. The sentiment index would have risen even more, had not the US fiscal crisis been just on during the poll, which most likely made those interviewed more pessimistic. The need to continue monetary easing in the US weakened the dollar against the already overly strong Euro. The combination of the slower growth in the US and the Euro strengthening hurt the German and Euro-zone export outlook. Still, the index on economic expectations in the Euro-zone rose from 58.6 points last month to 59.1 points today. The index did less well on the current situation and, in fact retreated slightly. The annual GDP-growth is likely to be -0.3% this year. In 2014, growth outlook is positive. Even so, the difficulties persisting in the periphery economies, the GDP-growth might not exceed 1%. That growth rate would be too low to get any marked improvement in the unemployment situation. Risk of social unrest continues to grow.
Japanese government is preparing an over 50 billion USD stimulation package in order to compensate for the likely negative impact from the sales tax increase to be implemented on April 2014, the tax being needed to contain the over-high public debt. Most of that package is likely to be spent on infrastructure and on lowering taxes for the corporate sector. Meanwhile, the inflation rate has been picking up, mainly as a result of rising import prices pushed up by the major Yen depreciation. Some re-strengthening has been seen lately, though, alongside with the stock market headed towards the biggest annual gain in over 40 years. With the Yen re-strengthening, consumer prices are expected to rise this year as a whole by only 0.2-0.3% but over 2% inflation is projected over 2014. The GDP estimates vary. Consensus suggests 1.9% this year and 1.7% in 2014 whilst Reuters’ poll gives 2.8% for this year and 0.9% for next year with a small pick-up following in 2015.
In China, Q3 GDP-growth appears to have accelerated to 7.8%, slightly above expectations. According to the first comments by leading economists, this is likely to prove to a false start towards higher growth. Analysts widely expect the growth to moderate again during Q4. That loss of momentum probably started already in September, even if the official PMI inched up from 51.0 points in August to 51.1 points in September. Exports were down. Factory output recorded 10.2% growth which was healthy but slightly down from August. A recent private sector survey showed weakening gains in most sub-sectors, including profits, revenues and employment. With 7.5% estimated as the Q4 growth number, the annual real GDP-growth is now expected to 7.6% growth. That would be the smallest annual growth in 23 years. In 2014, the growth is projected to inch slightly lower still, at 7.4-7.5%. Beijing government stands by, ready to act, if the growth risks tapering off any more than that.
Paper industry – The first data from September came out from the US where the box shipments were slightly down from 2012 looking at the average weekly rate but up in absolute volumes, helped by one more shipping day than in September 2012. In containerboards, downtime taken in September helped to bring the presently high inventories lower.
In Europe, actual data from September is not out yet. Order books improved less than hoped for but have apparently been somewhat better now in October.
After the first 8 months, the European graphic paper numbers are quite sad. With one exception, the so-called other uncoated mechanicals (i.e. excluding SC) all are down against 2012 in a substantial way. If the same rate of drop seen over those 8 months continued until the end of the year, the loss in total shipments would amount to 2.3 million tons and the demand within Europe would end up down by 1.9 million tons.
In the total paper and paperboard demand, the situation is less dramatic. Packaging and tissue numbers are healthy and compensate for the losses in the graphic paper side. The global estimates by a number of analysts are quite uniform in projecting a rise of about 1%, maybe slightly more, in the world total paper and paperboard production this year, compared to 2012. In 2012, global paper and paperboard production was up very little, by about 0.2%.
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