November 19, 2013
Newsprint – Market is quiet while suppliers and buyers are starting their talks, behind the curtains, over 2014 volumes and early 2014 prices. Over the first 9 months of 2013, estimated consumption of newsprint fell by 5.5% but in September the rate of decline slowed down. By the end of the year, the consumption drop could well match the price decline which between the first PIX-value in January and today is 4.6%. After the fall of volumes and prices over the course of 2013, the producers – with slightly risen fibre costs - are obviously aiming to get prices up. Trade press has mentioned prices starting with 5 as the sellers’ target. Publishers and printers will, once again, resist. Euro strengthened by about 0.5% against the weighted basket of non-EMU currencies, which brought some downside pressure on the benchmark. The PIX Newsprint index moved up, however, by 22 cents, or by 0.05%, and closed at 472.91 EUR/ton.
LWC – Some production volumes have been and will continue to be lost due to downtime taken, fire at Perlen’s mill in Switzerland and decision to close an LWC PM at Walsum. A nearly 8% drop in total shipments as well as in the estimated European consumption for coated mechanical reels (mainly LWC) means a bigger loss still and the market situation remains challenging, also due to some switches from LWC to the lower-priced SC-grades. At present, the magazine paper sector is enjoying the seasonal peak and PM’s have better order books than what the still seasonally quiet September showed. The approximately 0.5% strengthening of the EUR against the weighted basket of non-EMU currencies tried to press the index lower. But, the PIX LWC index advanced by 1.13 EUR, or by 0.17%, and reached 662.18 EUR/ton.
Coated woodfree – This is the grade with the biggest demand/delivery volume declines against 2012 in late summer/early fall. Order books have inched up over the past few weeks in reeled products and the downside price pressures have alleviated. In sheets, the battle appears to be fiercer than in reels. Euro-strength has been a major headache as the European coated woodfree producers have found it very difficult to compete on the overseas markets which typically take at least 20%, in some months 25%, of the Western European production. In recent months that share has fallen to less than 20%. The strengthening of the EUR against the non-EMU currencies had a negative impact on the benchmark. Nevertheless, the PIX Coated woodfree index gained 31 cents, or 0.05%, and closed at 666.88 EUR/ton.
Uncoated woodfree – Uncoated woodfree producers we met during the Pulp Week in London were reasonable satisfied with their October/early November order books after the weaknesses experienced earlier in the year. The closure of G-P’s Crossett PM and the approaching closures of Courtland’s uncoated free sheet PM’s in the US reduce supply already before the turn of the year and the supply reduction continues in early 2014. The substantial capacity reduction in North America will help the supply/demand situation also in Europe, at least indirectly, through more space on the export markets and, possibly, with less import pressure to the WE market. The 0.5% strengthening of the EUR against the basket of non-EMU currencies put some downward pressure on the benchmark. In spite of this, the PIX A4 B-copy index moved up by 2.63 EUR, or by 0.32%, and settled at 835.65 EUR/ton.
US Newsprint – Several pulp and paper producing companies have reported improved financial results, even if price development has not been very favourable. On the other hand, several publishing companies reported lower earnings during Q3, even if e.g. newsprint prices slipped lower (in the Eastern part of the US). Approaching the turn of the year price talks, newsprint market is now more balanced than what the structural decline trend would suggest, with downtime taken and exports (up 5% so far this year) helping. Newsprint inventories are down from last year and now the earlier seen price gap between East and West has also more or less disappeared. The 30 lb index lost 85 cents, or 0.14%, from last week and closed at 585.81 USD/ton, and the 27.7 lb index recovered by 51 cents, or by 0.08%, ending at 623.91 USD/ton.
General Economy – US: The global business outlook survey (by Markit) shows that the business confidence level has moved up from the low point seen around mid-year. This improvement is not very strong, however, suggesting that the economic growth continues at a slow pace, overall. The confidence has picked up also in the US, despite of the self-inflicted pretty nasty bruises on that confidence a few weeks ago. The tax hikes and spending cuts have reduced the economic growth by about one percentage point this year. If a similar ill-willed budget stand-off was to be seen again after the turn of the year, pretty extensive damage could still be down on the business and consumer confidence and on the US economic growth. If that pitfall is avoided, the growth could pick up nicely in 2014 as several earlier drags on economic growth, such as high unemployment and insufficient capital spending, have been removed. Also, the low-cost energy “boom” creates more jobs, improves competitiveness of the US firms, triggers more investments and reduces (further) the trade deficit.
Europe – The Euro-zone economy continued its modest growth for the fourth month in a row in October. European economy has turned the corner but the growth is not broad-based, at least not yet. The UK is in its own league with all key sectors of the economy showing expansion. The Euro-zone is doing better but apart from German recovery, the Zone is not out of the woods yet. Still rising unemployment, constricted household purchasing power and persistently tight fiscal policies keep the growth very reduced, especially in Southern Europe. Scared by the inflation starting to fall well below one per cent and with deflation risk rising, ECB lowered the interest rate to 0.25%. If Europe wants a more rapid growth pace, more measures are needed. Another interest rate drop and more accommodative policies by individual nations are needed. Low Central Bank interest rate contradicts the persistently tight credit conditions among the private sector which conditions freeze the investment activity.
Japanese economy has grown fast so far this year but the high growth rate is measured against very low values from one year ago. Now the recovery is slowing down. This is partly due to more challenging comparisons but also due to waning business and consumer confidence. Modest recovery persists, however, thanks to the aggressive governmental stimulation policies, supported by the high monetary liquidity provided by the Bank of Japan. The Q3 growth numbers were disappointing with just a 0.5% expansion q-o-q. Low wage growth, in spite of the Yen devaluation, hurts the private consumption growth already prior to the approaching sales tax hike. Exports are doing better and, with it, industrial production grew in Q3 after having been declining over each of the previous four quarters. Export growth alone cannot create a sustainable long-term growth. Domestic private spending needs to be revitalized, one way or another.
In China, major political decisions with long-term consequences have just been made. After decades of “one-child policy”, the allowing of more than one child in the families where one of the two parents was a single child and abandoning the labour camps as forms of educating politically misbehaving citizens are pretty fundamental changes and part of the structural changes which are meant to increase the contribution of the domestic consumption growth to the national expansion. In Q3, GDP-growth at 7.8% was faster than expected but still largely driven by growth in exports and in public infrastructure investments while retail sales and fixed asset investments were at a lower level than desired. In spite of the faster-than-projected Q3 expansion, next year’s growth rate is not expected to rise above this year’s 7.5-7.6%. Nominal growth is foreseen to pick up a bit but higher inflation limits the pace of the real GDP-growth.
Paper industry – As usual, the first paper industry data over October came from the US containerboard and box industries from Fibre Box Association. Box shipments were weak, showing a nearly 2.5% drop against October 2012. This is somewhat alarming in two ways. Firstly, general industrial activity was good, at least if measured by the strong ISM-value at over 56 points, which should have supported strong box business. Secondly, containerboard production capacity is moving up and low box production increases the risk of over-capacity. Containerboard inventories at box plants came down by 65 000 tons, which was very near the long-term seasonal average. Inventories at board producers were not yet available from AF&PA. On printing and writing sector, outlook appears more promising as those above-mentioned October ISM numbers showed printing and support industries having had the second fastest growth in October among nearly 20 industry sectors surveyed. This does not fully match with the reports from market which suggest that order books remained weak in several grades and regions.
In Europe, the decline trend continued in September but at a reduced pace compared to earlier months. In October, paper makers seen during the Pulp Week in London gave mixed reports. The general feeling seemed to be, however, that the order books had in many cases inched up in October and downtime needs appeared less pronounced. Admittedly, many of those prudently optimistic came from the UK where the economic activity is clearly more favourable right now than on the Continent. In any case, the downward pressure on prices, while not gone, appeared a bit less pronounced.