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

HELSINKI , November 26, 2013 (press release) –

Newsprint – Newsprint price negotiations over early 2014 have started with producers reportedly asking for about 50 EUR/ton increases. Cost and profitability development most probably justifies such an increase after another over 20-euro drop in prices this year. The volume development and the shipment-to-capacity ratios remain, however, quite weak strengthening the buyers’ views over the 2014 price development. According to preliminary data, the estimated European demand for newsprint was down by about 7.5% against October 2012, according Euro-graph. With a major 20% drop in exports outside the region, newsprint production was down by about 13% in October whilst the cumulative drop is clearly less at -5.9%. Euro weakened by about 0.4% against the weighted basket of non-EMU currencies, which helped to push the benchmark higher. The PIX Newsprint index moved up by 12 cents, or by 0.03%, and closed at 473.03 EUR/ton.
LWC – In this grade, the supply remains persistently above demand, even if fairly major capacity exits have been seen over the past couple of years. When meeting some of producers in London two weeks ago, they happily reported that their order book situation had improved from September/early October levels. Still, the situation is still not all that good. October statistics show a slightly smaller decline than what has been seen earlier this year but the retreat was again quite substantial. Estimated European demand was down by 6.5%, exports outside the region were down by more than 7% and the production down by just over 7%. All these numbers are about one percentage point better than the cumulative numbers over the first 10 months. The approximately 0.4% weakening of the EUR against the weighted basket of non-EMU currencies gave an upward boost to the index. The PIX LWC index retreated, however, by 2.09 EUR, or by 0.32%, and landed at 660.09 EUR/ton.
Coated woodfree – At the present price levels, most, if not all, of the European coated woodfree paper producers are making financial losses. Against this background it is obvious that the producers go into the price talks with higher prices in mind. October volume statistics showed smaller declines for the month than in cumulative data but most of the sectors were still down, though. Estimated regional demand was down by 5.2% and production by more than 6%. There was a small increase in exports outside the region but an even bigger increase in coated woodfree imports. The 0.4% weakening of the EUR against the non-EMU currencies had a positive effect on the benchmark. Nevertheless, the PIX Coated woodfree index went the other way and lost 47 cents, or 0.07%, closing at 666.41 EUR/ton.
Uncoated woodfree – Producers (or rather the pulp buyers for UWF-producing firms) we met in London were happily surprised over the nice order pick-up in October against September but admitted that the order levels had started slipping back down in November. The inching up of the pulp prices helps the producers to keep the pressure up in their Q4 price recovery efforts. October demand in Europe was estimated down by about 2.5%, according to Euro-graph, a bit less than the cumulative retreat of just over 4%. Both exports and imports were up for the month, as well as cumulatively. Over the course of the year, imports have kept growing faster than the exports. The 0.4% weakening of the EUR against the basket of non-EMU currencies caused an upward pressure on the benchmark. Accordingly, the PIX A4 B-copy index moved up by 3.83 EUR, or by 0.46%, and settled at 839.48 EUR/ton.

US Newsprint – US newsprint production has fallen but “only” by about 3%, whilst the structural decline in demand is quite a bit bigger. The balance is helped by the nearly 5% growth in exports. Market remains quiet in waiting for the turn-of-the-year price talks to start in earnest. In recent weeks, price movements have been virtually non-existent.
The 30 lb index lost 1 cent, or 0.00%, ending at 585.80 USD/ton from last week, and the 27.7 lb index also lost the 1 cent, or 0.00%, and closed at 623.90 USD/ton.
General Economy – US: After weaker economic data received in October, fears of slower growth in the US started to spread. Fortunately, a turn to the better was seen again with data coming in November. Job market improved a notch as the number of those filing new claims for jobless benefits fell sharply. The Flash US Manufacturing PMI, by Markit, rose clearly in November from the low of 51.8 points in October to 52.9 points. In addition to employment numbers improving, manufacturing output, new orders, domestic and export and work backlogs all rose. Both input and output prices went up, too. That was actually a comforting piece of news as in October the prices had continued to fall to a point where some analysts brought up the issue of deflation threat. All-in-all, it now looks as if the US economy, at least the manufacturing sector, will continue to expand, not fast but expand all the same. The combination of modest growth and low inflation gives the Fed time to plan the shrinking of its bond-buying program and timing right the far away start of the interest rate hikes.

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.

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