November 5, 2013
– Newsprint – Newsprint market has firmed up a bit during the fall. While total shipments of European newsprint were down over 7% and exports by almost 15%, September statistics were already much better, especially over the estimated regional demand which actually rose by 0.7% against September 2012, according to Euro-Graph. Capacity closures and firming up of the uncoated mechanical market are helping. Poor export performance with over 200 000 tons already lost against 2012 is hurting. Price negotiations over 2014 volumes are starting soon with producers obviously aiming to get the prices and their profitability up. Equally profitability-stressed buyers are looking for a different outcome. Euro weakened by about 0.5% against the weighted basket of non-EMU currencies, which helped in pushing the benchmark higher. The PIX Newsprint index moved up by 3.24 EUR, or by 0.69%, and closed at 472.45 EUR/ton.
LWC – Coated grades had poorer results in September than the uncoated grades. Exports outside the region have always been important (roughly 25% of the production in the past) in this grade and the strength of the Euro has turned those exports uncompetitive. Norske Skog has announced the closure of 225 000 tons of LWC-capacity at Walsum in Germany. This will improve the supply/demand balance but with deliveries down by already 450 000 tons over the first 9 months of the year, it is obvious that the over-supply situation is likely to persist even after those tonnage exits. The approximately 0.5% weakening of the Euro against the weighted basket of non-EMU currencies helped the benchmark to move up. The PIX LWC index inched up by 22 cents, or by 0.03%, settling at 660.13 EUR/ton.
Coated woodfree – Coated woodfrees are struggling just as the coated mechanicals with total shipments down by nearly 7% over the first nine months and with September actually even weaker with a 7.8% retreat against September 2012 in total shipments. There are no recent decisions to permanently close more capacity but the industry analysts are expecting to see some announcements before the end of the year. Downtime continues to be taken by several producers, including Burgo at Sora with also personnel laid off. On the cost side, Euro-strength and weakness of the hardwood pulp market have limited the impact of the recent price rise in softwood pulp grades. The weakening of the Euro against the non-EMU currencies meant an upward push on the benchmark. The PIX Coated woodfree index climbed up by 32 cents, or by 0.05%, and reached 667.27 EUR/ton.
Uncoated woodfree – The long-lasting trend decline came to a halt in this grade, at least for one month, in September when shipments of uncoated free sheet were up, with one more shipping day, by 1.6% against September 2012. European total shipments were marginally down but the estimated European demand was up a fraction, or by 1000 tons for the month. Over-supply is still evident, however, and exports outside the region continue to fall. Combining the over-supply situation with the lower BHKP price in Euro-terms means that the downside price pressure persists in this grade even after the somewhat less pessimistic statistical data. The 0.5% weakening of the Euro against the basket of non-EMU currencies gave an upward push on the benchmark. In spite of this help, the PIX A4 B-copy index retreated by 4.08 euro, or by 0.49%, and closed at 836.89 EUR/ton.
US Newsprint –September newsprint data from North America was not good but not too bad either, compared to the weak volumes seen over the previous months. Exports have struggled partly due to the weakening of many of the receiver market currencies (e.g. Latin American countries and India) and consequent “automatic” price increases in local currency terms. The Q3 financial results of the North American newsprint producers surprised on the upside with better profits (or smaller losses) than anticipated. The improvement is almost solely linked to the cost cutting measures and energy-efficiency investments, rather than newsprint volumes or prices as such. Our benchmark values ended up moving to different direction this time, although not dramatically so. The 30 lb index advanced by 30 cents, or by 0.05%, to 587.26 USD/ton from last week, while the 27.7 lb index slipped lower by 40 cents, or by 0.06%, and closed at 624.04 USD/ton.
General Economy – US: The two-week shut-down of nearly one million federal jobs in early October is estimated to have reduced the US economic growth during the fourth quarter by about 0.4% and thus lowered the US real GDP-growth from about 2.2% (as the earlier forecasts suggested) to about 1.6-1.7%. In addition to these direct losses, the loss of confidence, in the business community and at consumers alike, has slowed down the pace of the recovery. The US manufacturing PMI over October (by Markit) shows that the blow was quite severe as the PMI benchmark fell from 52.8 points in September to 51.8 points in October. The manufacturing output retreated very sharply from over 55 points in September to 50.6 points in October, thus only slightly above the point of contraction. The good news is that the employment numbers actually improved. This means that the firms are expecting the present lull to be of short duration.
Europe – Maybe the most dramatic news over the European economy was the fall of the inflation in the Euro-zone below 1%, to 0.7% only, in October. As the economic growth is still very hesitant, even if marginally positive, the fears of deflation have risen. After keeping the European interest rates unnecessarily above US, Japan and the UK for several years now, maybe this is finally the time when the ECB lowers the interest rates. Markets seem to believe in that as the Euro weakened a bit during last week. The Euro-zone Manufacturing PMI, by Markit, came out in October at 51.3 points, unchanged from September, and showing thus a continuation of a slow recovery. Retail sales have continued to fall, however, and the rate of the drop was actually faster in October than in September. This is another good reason for ECB to worry about the deflation and let those interest rates down.
Japanese economy continues to do well – apart from the huge national debt load, of course. The Manufacturing PMI, by Markit/JMMA, climbed in October to 54.2 points, the highest level seen since spring 2010. Manufacturing output grew at its fastest rate since December 2009. The number of new orders received rose rapidly and the order backlogs lengthened considerably, also as a result of not (yet?) hiring new people. It is obvious that the picking up of growth in the near-by economies, coupled with the Yen-weakness helps. The approaching sales tax hike in April 2014 may also increase activity now, to be quieted down closer to the taxation reform date. In any case, Japanese GDP-estimates for this year are being revised upwards.
In China, the earlier seen indications that the economic growth picked up momentum in October were confirmed by China Composite PMI data, by HSBC, which showed the index value up at 51.8 points after 51.2 recorded in September. The activity improvement was widespread, too, with both manufacturing and service sectors showing acceleration of the economic activity. Virtually every element, including new orders, operating rates, prices and employment, moved upwards. Looking further out, most of the firms expected the situation to be better in 12 months’ time, but only moderately so. The rise in employment was the first one after six months of consecutive losses. Better employment numbers feed the domestic consumption which has been also the plan of the government who wants to see the still high dependency on exports to be balanced by a larger domestic economy.
Paper industry – The September numbers have confirmed the sentiment seen in the market since the weak seasonal pick-up started after the summer that the uncoated grades are doing relatively better than the coated ones. There are several reasons for this. Firstly, the structural trend decline hit newsprint and uncoated mechanicals the hardest in the early part of the decline. Secondly, the losses in advertising come in only gradually with budget cuts often affecting the starting year and not necessarily the current one. Thirdly, there is more over-lapping between coated mechanical and coated woodfrees than between other grades of paper. Consequently, the inter-grade competition does damage on the prices. Fourthly, the capacity management has been more active in other grades, especially in SC and other uncoated mechanicals. And finally, the wholesalers play a bigger role in coated grades, especially in sheets, than in newsprint and uncoated mechanicals and especially since the summer, the producer/wholesaler dialogue has not always been very constructive.
Outside publication papers, many specialities are also going through difficult times, impacted by the long period of economic weakness and by some structural changes also in that sector. In packaging, RP-based grades fare the best. Virgin fibre liners suffer in Europe from import pressures and export challenges, linked to the exchange rate movements. Tissue continues to be the star performer around the world, in terms of consumption growth but continuous growth in consumptions attracts new capacity as well and the price and profitability performance of the tissue producers has not been as good as one might expect when hearing the relatively quite good consumption numbers, world-wide.
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