FOEX: Newsprint prices relatively flat in US, Europe, where talks on 2014 prices are under way; in Europe, A4 B-copy index advances, but LWC and coated woodfree benchmarks decline as market remains weak due to oversupply
November 26, 2013
Europe –The Euro-zone economy is recovering from the crisis but only very, very slowly. The GDP rose by just 0.1 per cent in the third quarter. There are, however, several indicators suggesting that the growth will pick up pace, at least a little. The Conference Board’s Leading Economic Index is one of those indicators. The best and surprising news came from Spain, where the real GDP grew for the first time since first half 2011. The Markit Flash Eurozone PMI was another source of partially positive news. The good message was that the composite output (manufacturing+services) continued to grow. The uneasy piece was that the rate of expansion slowed down in November to 51.5 points from 51.9 points in October. Service index closed at just 50.9 while the manufacturing continued to do better at 51.5 and manufacturing output at 52.8. When converted into a GDP-growth estimate, these numbers suggest 0.2-0.3% expansion, better than 0.1% in Q3 but still very modest. With slow growth and with inflation fallen already below 1%, the deflation risk is rising. What is needed: Interest rate at 0% or negative, Germany starting to consume more and stimulation instead of austerity. That worsens the debt problem momentarily but improves chances to correct it later.
Japanese economic growth halved in Q3 from Q2’s 3.8% to 1.9%. Even this was actually moderately better than what most analysts had expected. Among different economic drivers exports and domestic private consumption slowed down the most. In October, received data is predominantly positive. Exports, which slowed down in Q3, showed a major 18.6% gain in value and a 4.4% advance in volume. These are good numbers taking into account the still slow growth in global demand and the international trade. Continuation of the good export growth is important as the Japanese Government is counting on the overseas recovery to help to cushion the blow which will be seen in domestic demand from the sales tax hike in April 2014. Among the positive signs, there are also some less bright points. E.g. capital spending has not started to recover – not yet at least. The private investments are expected to fall this year by about 1%, but to rise 4-5% next year.
In China, Q3 general economic growth surprised on the upside but the news coming out from October-November has again been more muted. Already during Q3, some sub-sectors, such as retail sales and fixed asset investments were slipping lower over November; The Flash Markit/HSBC Purchasing Managers' Index (PMI) fell to 50.4 points from the revised October value of 50.9. This means that the index was only barely on the recovery mode. Manufacturing production continued to increase, as did the domestic order books. But, several of the sub-elements of the index headed towards darker clouds. The decrease of the new export orders and the weakening employment picture were the most worrisome details. Also, suppliers’ delivery times shortened and the stocks contracted. Inflation remained muted, which is a positive item as it allows the government to continue the stimulation efforts with little risk of creating bubbles. What is also positive is that November was already the 4th month in a row with the index in the recovery mode. Government appears to have found the stability of growth they had been searching for. But no fast growth can be expected; also because the longer-term reforms under way are likely to slow down some industries and sectors.
Paper industry – The first data over paper and paperboard production and shipments in October show that the month could certainly have been better but it was not a catastrophe either. In the US, containerboard production was up by 1.4%, y-o-y, which reduced the cumulative gain, now over 10 months, to 2.2%, according to AF&PA. October operating rate, at 94.7%, was up from September but clearly down from October 2012 with machine starts having brought the total capacity up. The Fibre Box Association showed box shipments down by 2.4% against October 2012.
In Western Europe, the preliminary printing and writing paper data (by PPPC) shows total graphic paper estimated demand in October 2013 down by 5.6% from October 2012. That same 5.6% is also the decline in the cumulative 10-month data against 2012. And, by coincidence, the production capacity is also down by those same 5.6%. Consequently, the shipments-to-capacity ratio was unchanged against October 2012 at 95%. Between the different grades, newsprint and coated mechanicals had the largest declines against October 2012 and uncoated mechanicals the smallest drop. Woodfree grades were both in the middle of the pact with a 3.2% demand decrease in October, y-o-y.