FOEX: European publication paper prices all slightly lower, pulled down by continued weak demand and stronger euro; newsprint prices remain unchanged in US, off just €0.09/tonne in Europe, but European producers aim to lift prices in 2014
December 10, 2013
US Newsprint – The weakness of the newsprint demand in North America persists. Recent gains in exports (up by 4.5% over the first 9 months) help the US industry volumes but has not prevented the production volumes from dropping in a double-digit pace (-11% over the first 10 months). In Canada, the recent weakening of the CAD against the USD has helped the financial results of the Canadian firms but give little respite there either over the newsprint production and shipments volumes. Old, already closed newsprint machines in North America are either converted into other grades, in NA or elsewhere, or sold as spare parts or scrap metal. Price negotiations over January volumes are starting with, once again, conflicting views between the sellers and buyers. In late November/early December, prices have remained static. The 30 lb index remained at 585.80 USD/ton, and the 27.7 lb index at 623.90 USD/ton.
General Economy – US: The main piece of economic news last week was the second large consecutive increase in the employment by just over 200 000 new private sector jobs. The US unemployment rate fell to 7.0%, the lowest level seen since 2008. And, there were also other encouraging pieces of news. Housing has remained a strong driver of the growth. Manufacturing output increased sharply in November and the number of new orders showed a solid gain as well. Production of plants and machinery goods led the growth hinting at the firms’ growing willingness to invest again.
The downside of all this optimism is that the Fed may start unwinding their massive stimulus programme soon. The former chairman Bernanke said before his term came to an end that when the unemployment rate dropped below 7%, the US Central Bank would cease their $85bn-a-month bond buying programme (one form of the quantitative easing).
The latest data suggests that the pace of economic growth may have started to weaken again. Consumer spending rose still by 0.3% in October, higher than the 0.2% rise in September.
Europe – The Euro-zone growth slowed down in Q3. The worst performing sector was imports, understandingly so when households are not consuming, firms are not investing and people prefer to buy domestic to help their own nation. No country or region has ever recovered through austerity. While the Euro-zone “balance sheet” will gradually get healthier through the belt-tightening, the recovery will be very modest and slow. Exports will support the growth while low private spending, lack of investments and high private and public debt in several member countries will keep the recovery at snail-pace speed. What would be needed to speed up the process is, among many other things, a change in the Central Bank mandate so that instead of focusing only on keeping the inflation low and Euro-currency strong, the mandate would include a commitment to support financial stability, economic growth and employment. With that mandate, we would see another interest rate drop in December and another longer term refinancing operation in early 2014.
Japan has revised its Q3 growth data downwards. The main reason for this was the finding that the private investment activity had lost pace faster than expected. The Japanese economy grew only 0.3% for the quarter and by 1.1% annualized, as opposed to the original estimate of a nearly 2% annualized expansion. While somewhat worrisome, the already taken aggressive measures in order to pull Japan out of deflation mode into a more rapid growth are still expected to pay off. The faster recovery seen in the US and expected in China and in a number of other emerging economies is expected to help in supporting a faster pace again in the coming quarters, at least as far as exports are concerned. Capital expenditure is most likely to recover as well. In Q4 and in Q1 2014, the domestic demand is also foreseen to strengthen, temporarily, before the sales tax increase on April 1, 2014.
In China, there are more and more signs that the economy will start to re-accelerate, not back into the over 10% annual real GDP-growth mode seen constantly a few years ago but towards – and over – 8%. The trigger for the improving growth would be a combination of export recovery and higher household demand within the country, the latter supported by the recently introduced structural changes. In the export sector, a stronger growth impulse is likely to come from the U.S. and from some closer-by Asian economies. China already recorded its largest trade surplus in several years in November with a 13% increase, up from a 5.6% gain seen in October. Exports to the US grew by nearly 18%. The statistics may lie a bit, though, as repatriation of investments could have inflated the export growth numbers.
There are also other downside risks. E.g. the growth and export performance of some of China’s closest neighbours, such as South Korea remains well below expectations. Also, the protectionist measures, such as the dissolving pulp import duties, could trigger counter-measures with some negative impact on Chinese recovery.
Paper industry – As always when nearing the turn of the year, the talk of the day are the starting, or already ongoing talks on prices. In the US, the price outlook is positive on three accounts. In spite of the speeding up of the economic growth, US dollar has weakened over the recent weeks. That will help the export volumes. Weakened currency typically also triggers higher inflation which, in turn, pushes prices higher. Finally, the supply has typically been adjusted faster to the demand changes in North America than in Europe. Consequently, the capacity utilization rates tend to be higher in NA than in WE. In 2014, this seems to be working two ways. In graphic papers, especially in uncoated free sheet, major capacity cuts have been announced – and partially already seen. On the other hand, the recent good demand for containerboards may have triggered too much new capacity. So both upside and downside price pressures have been reported by industry analysts.
In Europe, the volume-weighted average of those graphic paper prices which are reported by our PIX index system fell between January 2013 and early December 2013 by almost precisely 4%. Adjusting that to the modest 1.6% inflation rate in the EU, graphic paper prices fell in real terms by 5.5% in the past 11 months. So, there is obviously some catching up to do whether or not that is possible, and if so, to which extent is another question. Over the first three quarters of the year, graphic paper production was down in the CEPI countries by 5.0%. Case-making material production was, on the other hand, up by 2.5% and that much better starting point helped the prices up, in RP-based grades, by about 14% over the first 11 months.