FOEX: Newsprint prices flat in US, up €0.26/tonne in Europe, helped by weaker euro; European prices also rise for all printing writing grades, from €1.42/tonne for coated woodfree to €2.82/tonne for A4 B-copy, despite sluggish demand
December 27, 2013
US Newsprint – With the demand of newsprint continuing to fall, more capacity closures, or alternatively, much more exports are needed in 2014 in order to keep the North American newsprint market in a sufficiently good balance. In the recent months and weeks, the North American newsprint operating rate has been hovering at around 92-93%. Canadian mills have ran a bit better than their US colleagues. If the US dollar strengthens against the Euro, as most observers expect to happen within 2014, raising the exports further - after a double-digit gain already this year - may prove to be a very formidable challenge. Meanwhile, the market remains rather calm. 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 American recovery process survived surprisingly well the recent shocks of the debt crisis and government shutdown. Both the Q3 final results and the individual monthly performance during Q4 have exceeded the general expectations. This is also true with the very preliminary data available over the current month. The Markit Flash U.S. Manufacturing PMI retreated slightly from November’s peak level of 54.7 to 54.4 but the business conditions remained thus quite strong in manufacturing – and there’s a good reason to believe that the service sector activity was pretty good as well. In manufacturing, actual output was at a very high level and employment numbers were even better than in November. Prices rose quite fast, especially in the input side. With the manufacturing sector growth approaching 4% (annualized) in Q4, the Fed will be reducing their stimulus programs over the coming months, starting with a 10 billion dollar reduction in bond purchases from January 2014, while keeping interest rates still at/close to 0%.
Europe – The financial, economic and social problems of the Euro-zone are definitely still not over yet. But, the number of good news is, fortunately, gradually increasing. The preliminary numbers over Germany’s manufacturing output growth in December (by Markit Flash Germany PMI) show it at 57.5 points, the highest level seen since May 2011. Strong new order intake and thereby improving inventory-to-order ratios suggest that the economic development is highly likely to remain positive also in the beginning of the year 2014. When the going is good in Germany, other Europe profits as well. The Markit Flash Eurozone Composite PMI ended at 52.1 points with services slightly down, yet positive but with manufacturing PMI clocking 52.7 points, the highest value seen in over 2.5 years. Unless final data brings in major downward revisions, Q4 2013 will end up being the strongest growth quarter since spring 2011. With the much weaker performance in services and retail sector, the Euro-zone Q4 GDP-estimate is only +0.2%, reminding us that the European recovery, with UK as a positive exception, remains fragile, uneven and subdued.
Japan’s earlier bullish economic outlook has cooled off considerably after the Government revised the Q3 real GDP-growth estimate down from the earlier stated 1.9% to just 1.1%. This was such a severe reduction after having seen a nearly 4% growth during the 2nd quarter that the future prospects were drawn down almost automatically. In spite of this clear set-back the “Abenomics”-program is still likely to succeed. Japanese export industries are doing better with the weakened Yen and that trend is likely to continue in 2014. The big challenge is to get the domestic private spending moving again. The rise in public investments, however substantial, will not be enough. One drag has been the small size of the wage and salary increases and the ensued problems with the households’ purchasing power. Another 50 billion stimulus package has been decided upon to fire up the private consumption and to compensate for the approaching tax increases.
In China, the recovery continues but quite slowly. After a slightly livelier November, the preliminary readings for December showed the growth slowing down again. Manufacturing output continues to grow but only very slowly, so slowly that the employment in manufacturing appears to fall again in December. On a more positive note, new order intake, both domestic and export orders, increased, yielding hope that the growth picks up pace after the Chinese New Year again. That potential is supported by an economic pick-up in the key export regions. Even with the weak growth in December, it is still above the Q3 average and helps to bring the annual GDP-growth above the government 7.5% target to 7.6% according to the Cabinet but to 7.7% and possibly to 7.8% according to several private estimates. Input prices were on their way up but the output prices fell keeping China’s inflation rate quite subdued and helping the real GDP-value to rise.
Paper industry – In the US, the various packaging industry numbers from Fibre Box Assn, AF&PA and Bureau of Census were reasonably good with box shipments up by 2.6% (on average week basis) and with inventories down. Containerboard consumption and production were, however, down with one less business day, the former by 2.6% and the latter by 4.5%. Linerboard exports did volume-wise well with a 4.3% rise but prices were in retreat. In printing and writing papers, PPPC reported North American total shipments down by 6% against November 2012. The cumulative drop is much smaller at 2.7%. Apart from uncoated mechanicals which showed a small gain in shipments against last year, all other grades had a poor shipment month with major declines, even taking into account one less shipping day.
In Europe, the printing and writing paper shipments were better than the cumulative totals both in September and October. The tables turned more negative again in November. The European graphic paper statistics, released by Euro-graph just before Christmas holidays showed total European shipments of graphic papers, including newsprint, down by 5.7% in November, against November 2012 while the cumulative shipments are now down by 5.4%. Similarly, the estimated European demand was down by 6.0% in November and little less than that, or by 5.4%, in January-November. Exports outside Europe fell a bit less than the cumulative total, i.e. by 5.0% vs. a 6.0% drop for the cumulative results. Between the different graphic paper grades, coated grades continued to suffer bigger declines than the uncoated with uncoated woodfree faring the best and with the gains showed in “other uncoated mechanical” limiting the retreat in uncoated mechanicals total, even if SC grades had one of their biggest monthly retreats this year.