FOEX: NBSK pulp prices up in China, US and in US dollars in Europe but down in euros in Europe, while BHKP prices in Europe, China fall in local currencies but rise in US dollars; prices for OCC, ONP/OMG up marginally in Europe, in relatively flat market

Debra Garcia

HELSINKI , October 29, 2013 (press release) – NBSK pulp Europe – The release of the PPPC monthly pulp statistics has been delayed until late today Finnish time and cannot thus be commented here. Port stocks in Europe went down, as almost always in September. Europulp reported the port stocks down by 82 000 tons, or by 6.7%, against end August volumes but moderately (by 3.7%) above end September 2012 level. Softwood pulp market has remained firm. Most key softwood pulp producers have separately announced price hikes from November 1 on all key markets. In Europe, the hike is typically 20 USD/ton, bringing the gross contract price for NBSKP to 920 dollars. Our PIX NBSK pulp index moved up by 4.12 dollars, or by 0.47%, and closed at 887.34 USD/ton. When converting this dollar-value into euro, the strengthening of the currency against the USD meant that while clearly up in dollar-terms, the benchmark value fell further back down by 1.37 euro, or by 0.21%, and the PIX NBSKP index in Euro landed at 644.07 EUR/ton.

BHK pulp Europe – In hardwood pulp, the recent rapid widening of the price-gap between softwood and hardwood is likely to lead to higher hardwood shares in the furnishes, whenever a further switch from softwood to hardwood is possible. This takes time to be materialized, however. UTIPULP’s numbers showed hardwood pulp stocks at pulp consumers down in September to just 18 days. This is another reason why BHKP shipments could be livelier towards the end of the year. Printing and writing paper production continued to decline in September but less than during the previous months. Euro strengthened by 0.7% against the dollar from the previous week. With the stronger Euro, the PIX BHKP index value in Euro lost 3.51 euro, or by 0.62%, and closed at 560.39 EUR/ton. The PIX BHKP index value in dollars headed higher by 41 cents/ton, or by 0.05%, and settled at 772.05 USD/ton.

BHK pulp China – The widening of the price gap is starting to impact market pulp consumption patterns also in China. Improving demand pull has halted the earlier seen decline in BHKP prices. While the weakening of the US dollar against the Chinese Yuan is supporting pulp price level and hikes, the efforts to actually raise the prices, as announced by some producers, are meeting a lot of resistance, however. This is at least partly, if not largely, due to the depressed level of paper prices and to the difficulties in rising those paper prices in a persistent over-supply situation. Chinese pulp imports were just reported down from August but up by about 6% against September 2012. In BHKP, the increase was nearly 8%. The PIX China BHKP index showed again this time a very modest rise of 59 cents, or of 0.09%, closing at 657.37 USD/ton. Yuan strengthened against the USD by 0.2%. The conversion of the USD BHKP price into Yuan led to a decrease of 5.18 RMB/ton, or of 0.13%, to 3999.19 RMB/ton.

NBSK pulp China – After performing quite poorly still during the early summer, the production volumes from the new Bratsk BSKP-line in Eastern Russia have been picking up recently and the imports of softwood pulp from Russia to China have increased. The total BSKP imports to China in September were up marginally from August and also up by close to 6% against September 2012. The widening of the price gap between BSKP and BHKP grades continued last week but at a slower pace than earlier. Several producers have separately announced softwood pulp price hikes in China from November 1, typically by 20 dollars, which would bring the gross price for contract commodity grade NBSKP to 740 USD/ton. Our PIX China NBSK index headed higher again, this time by 2.80 dollars, or by 0.39%, and closed at 715.35 USD/ton. Yuan strengthened by 0.2% against the USD. The conversion of the USD value into Yuan resulted in an increase of 7.52 RMB/ton, or of 0.17%, to 4351.92 RMB/ton.

US NBSK – Softwood pulp market has remained firm. September numbers were not available in time to be included in these comments. Recent price information from the spot market has been mixed. Some claim that spot volumes are available and prices have not moved whilst other observers report spot market prices up by 20-25 dollars and volumes offered limited. These differences may be linked to the longshoremen strike which has impacted some regions and producers more than others and thus impacted the availability of pulp for regional sales. In any case, NBSKP contract business prices have gradually moved towards the earlier announced 970 dollar level and several producers have now separately announced a further increase from November 1. This hike is typically 20 dollars/metric ton bringing commodity NBSKP gross contract price to 990 USD/ton. After removing the top and bottom 10% of the quotes received, our PIX US NBSK pulp index moved further up, this time by 96 cents, or by 0.10%, and closed at 962.57 USD/ton.

Recovered Paper Europe – The European demand for recovered paper in packaging products has been good recently within Europe. The use in the graphic papers is down, due to reduced demand and production of those papers in Western Europe. It has grown less than before in tissue and tissue producers have shifted their furnishes more towards chemical pulp. As the demand from China has not been all that strong for the European recovered paper lately (or the suppliers have been more hesitant to deliver to China after the tightening of the quality inspections), the supply/demand balance in the European market has been “flat”. There is not enough tightness to pull the prices up, nor is there much, if any, over-supply. So, while the export prices to China, with Euro-strengthening, have fallen below the regional price for the export grade products, the prices of OCC and ONP/OMG have remained more or less unchanged or moved up, but then only marginally.

The PIX OCC 1.04 dd index headed north by 76 cents, or by 0.69%, and closed at 111.38 EUR/ton. The margins to the related containerboards widened moderately, and behaved this time as follows: to Testliner 2 the gap grew by 1.08 euro to 362.19 EUR/ton, to Testliner 3 it widened by 40 cents to 336.75 EUR/ton and to RB Fluting the differential grew by 22 cents to 327.35 EUR/ton.

Our PIX ONP/OMG 1.11 dd index inched up by 9 cents, or by 0.07%, settling at 130.15 EUR/ton. The price differential to the PIX Newsprint index narrowed again, this time by 22 cents to 339.06 EUR/ton.

General Economy – US: The impact of the partial federal shutdown and the near-default of the US Treasury on the US economy begin to be revealed. As was to be expected, the political farce has hit the business life pretty hard. The preliminary US Manufacturing PMI, by Markit, revealed that the index value was only 51.1 which is the lowest level since a full year ago. Manufacturing output itself fell, in fact, to 49.5 and moved thus into the contraction zone. This was the first time since the financial crisis time in September 2009 that the US manufacturing output declined. On a more positive note, corporate profits have in many cases exceeded the modest expectations. Furthermore, new orders and employment were up in the October PMI, as was the work backlog. Both input and output prices moved up fulfilling the wish of several economists who are saying that what the US needs badly right now is a higher inflation. And it is true that a rising inflation can be beneficial especially when the economy is weak and the debt-load is high.

Europe – Euro-zone’s positive growth persists but the pace remains muted. In fact, Markit Flash Eurozone PMI Composite Output Index, combining data from both manufacturing and services, retreated from 52.2 points in September to 51.5 points in October. While down from the previous month, the index showed expansion now for the fourth consecutive month. Between the two main sectors of the index, services showed a fall whilst manufacturing activity actually increased marginally. The width of the expansion across the Eurozone was reassuring but the fall of the index signals the risk of a loss of the momentum. Additional worries come from the further strengthening of the Euro. The already earlier poor competitiveness of the region in the export markets is only getting worse. Those politicians who have started planning the withdrawal of the stimulation measures should think again. This would be a very good moment to lower the interest rates and thereby activate the badly needed re-weakening of the Euro.

Japanese economy hit a trough a year ago in October-November 2012. Massive stimulation, coupled with the devaluation of the currency, turned the economy around and now, a year later, it certainly appears that PM Abe’s huge gamble is paying off. The long-desired inflation is finally a fact, even if only a small one and relatively one-sided as it has been mainly driven by a rise in the energy prices. Exports are growing relatively fast, in spite of the weakness of the economies of many of the trading partners and the consumer confidence is picking up, too. The growth is still far too modest, however, to help correcting the debt-problem. The share of the national debt of the GDP continues to grow, although now at a slower pace. The sales tax to be introduced in early 2014 will help, but only if the growth is strong enough to compensate the ill-effects of the tax hike. That speed of growth is still a major question mark. Private consumption is likely to pick up before the hike in Q1 2014 but fall shortly thereafter.

In China, the modest acceleration of the economy during Q3 appears to have continued in October. The HSBC China Manufacturing PMI inched further up and recorded 50.9 points in late October after clocking 50.2 points in September. The advance seen was very broadly based. Apart from employment, all other 10 sub-sectors of the index showed positive growth. Manufacturing output grew, new orders increased, both in exports and at home market, and order backlogs lengthened. Both input and output prices moved up, as well, suppliers’ delivery times lengthened and stocks of finished goods grew (good for the index now but not necessarily longer-term). In any case, the momentum is improving and the fears of the speeding up of the growth in Q3 having been of temporary nature have started to dissipate. If the growth persists, the Beijing government can move their focus away from the immediate future outlook, pay less attention to pin-point stimulation measures and concentrate their efforts more on the badly needed structural reforms.

Paper industry – The more numbers over September come out, the more clear it becomes that while September was not a hugely positive month for paper and paperboard industry, it was clearly better than the average of the preceding 8 months. In the US, box shipments were up by 2.9%, helped by one extra shipping day. In printing and writing papers, late 2012 numbers were weak which helps in the 2013/2012 comparisons. North American printing and writing paper shipments were actually up in September by 1.4% against September 2012, while the cumulative nine month total shipments were down by 2.6%. Between the grades, uncoated mechanical was up strongly and positive also cumulatively. The large uncoated freesheet sector showed also modest growth for the month. Both coated grades continued to head lower but much less for the month of September than for the cumulative performance.

In Europe, total newsprint shipments showed a decline but estimated European consumption in September was marginally above September 2012 and both these numbers were much better than the cumulative performance. The regional demand for printing and writing papers, excluding newsprint, was down by 1.7% against September 2012 but much less than the cumulative drop of 5.4%. Total shipments behaved in a similar manner, down by 2.6% for the month against the cumulative fall of 5.3%. The impact of the Euro-strengthening shows in the trade data. Printing and writing paper exports outside the region were down by 3.6% in September while imports grew again, this time by 5.9%.

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