NBSK pulp Europe – The year 2013 has been better for market pulp than what it has been to the paper industry. With 11 months’ statistics known for the PPPC member countries, one can see the shipments-to-capacity number at 93%, more or less precisely at the long-term average, and volumes up by 100 000 tons/month, or by about 1.2 million tons annualized from the PPPC-members and, when including the non-PPPC countries, probably at 1.5-1.6 million tons, also at or even slightly above the long-term average. Had it not been for the shifts of capacity from integrated to market pulp, the supply/demand balance would have been very tight. Even now, it has been relatively tight for market BSKP with annual demand up by at least 0.5 million tons which is higher than the long-term average. At the end of November, market BSKP stocks were low at 25 days of supply, shipment-to-capacity ratio at 95% over the first 11 months and prices for NBSKP in Europe up by 12%, or nearly 100 weak dollars, since early January. New small price increases have been announced by several producers from January 1, 2014. Euro strengthened this time by 1.2% against the USD. After a retreat last week, our PIX NBSK index showed this time a modest rise of 41 cents, or by 0.05%, and closed at 906.48 USD/ton. When converting this dollar-value into euro, the strengthening of the currency against the USD sent the benchmark deep down by 7.34 euro, or by 1.1%, and the PIX NBSK index in Euro ended at 656.20 EUR/ton.
BHK pulp Europe – In BHKP, shipment and operating numbers have been quite strong over the past few months, driven up by the growing demand pull by the tissue producers and by the widened price differential to BSKP which has triggered further changes in the furnish. But, the supply numbers are up as well and the market balance is not as strong as it is in softwood. This is also shown by the statistics. In spite of the 3.4% cumulative growth over the market BHKP from the PPPC-member countries, and more when including Indonesian and other non-PPPC volumes, shipment-to-capacity ratio averages only 90% over the first 11 months and stocks were slightly above average at 39 days, seasonally adjusted, at the end of November. European prices are down by about 5 dollars in Europe since early January 2013. Some of the producers are suffering, as shown by the announcement a few days ago that the Cellulose du Maroc market BHKP mill, Celluma, has been closed after years of financial difficulties, probably permanently. Euro strengthened by 1.2% against the dollar from the previous week. With the appreciation of the currency, the PIX BHKP index value in Euro lost 6.94 euro, or 1.23%, and closed at 557.21 EUR/ton. The PIX BHKP index value in dollars retreated by 62 cents, or by 0.1%, and settled at 769.73 USD/ton.
BHK pulp China – Shipments of market BHKP to China have been very good over the past 2-3 months. Another almost 43% hike in November, over November 2012, brought the cumulative hardwood pulp shipments to China up to over 15% from the PPPC-member countries and on top of that, imports from Indonesia are up by nearly 30%. These volume gains appear now to be actually too good. The needs of the Chinese to continue buying more are down when approaching the Chinese New Year holiday period and the purchasing activity has slowed down. For other Asia/Africa it is actually down for the year as a whole, partly because of the grown exports of Chinese paper and board. With the weaker demand pull, our BHKP benchmark value has been slipping down lately, even if it stood at the end of the year still 6 USD/ton above the level 12 months ago. With the weakness of the dollar, the price of BHKP in RMB was at the end of the year actually 1.8% down from early January. Our PIX China BHKP index lost 5.79 dollars, or 0.88%, and closed at 651.31 USD/ton. Yuan strengthened against the USD by 0.02%. The conversion of the USD BHKP price into Yuan resulted in a drop of 35.77 RMB, or of 0.9%, to 3952.98 RMB/ton.
NBSK pulp China – In softwood kraft, the situation in Asia is opposite to that in hardwood. Shipments to China are marginally down from last year (from the PPPC-member countries as well as according to Chinese import statistics covering all importing countries) but to other Asia & Africa region they are up. While volumes to China are down from last year, the supply/demand situation has been relatively healthy, after a weak passage in the beginning of the year. The buying activity has slowed down also in this grade in December, though, and the string of price increases through the fall came to a halt in December. Increased availability of BSKP from Russia played a role here. Our PIX China NBSK index value slid back down by 43 cents, or by 0.06%, and closed at 742.25 USD/ton. Yuan strengthened against the USD very marginally, or by 0.02%. The conversion of the USD value into Yuan resulted in a decrease of 3.32 RMB/ton, or of 0.07%, to 4504.92 RMB/ton.
US NBSK – The year 2013 is turning out to be quite strong in the North American pulp market. Even after a marginal decline in November, the cumulative market pulp shipments were up over 5% after 11 months. In BSKP grade, November was positive with a 1.3% gain over November 2012 and the cumulative total stood 4.3% above last year. There is an increasing risk of additional paper grades pulp supply with some over-capacity in fluff pulp and with China’s anti-dumping duties on North and South American dissolving pulps adding to the potential of some swing tonnage appearing on the market. The grade switches are likely to be limited, though. Cold weather forces the NBSKP mills to run through the coming months when demand typically slows down a bit. On the other hand, harsh weather tends to lead to delivery delays as well. Meanwhile, the market has remained firm. Most BSKP producers have announced a 20 USD/ton price increase from January 1, reportedly coupled with some sort of an increase again in the discount levels. Our PIX US NBSK pulp index remained flat at previous week’s level of 990.00 USD/ton.
Recovered Paper Europe – The recovered paper year as a whole was almost surprisingly well balanced in Europe, at least when taking into account the major challenges seen on the paper sector. The main reason for the stability appears to have been the role of exports. When the regional demand was slipping, Chinese and other export markets were buying actively and when the regional balance appeared to be tightening, mainly due to reduced supply of recovered paper, the events in the export markets left more of that reduced supply for the home market. In OCC and lower quality mixed grades used by testliner and corrugated medium, the introduction of tighter quality controls in China shifted volumes from Europe towards the higher virgin fibre content North American supplies. That left more recovered paper in the home regional markets precisely in those grades where the regional demand was the best. Consequently, the price movements were also relatively limited and after a few small ups and downs over the course of the year, the prices ended up by 3.8% in export grade OCC and by 1.2% in ONP/OMG, the latter thus very close of the annual inflation rate of about 1.5% in Western Europe.
For the final index values of the year, the PIX OCC 1.04 dd index ended up losing 5 cents, or 0.04%, and settling at 112.81 EUR/ton. The margins against linerboards and fluting widened evenly as follows: against Testliner 2 by 19 cents to 366.95 EUR/ton, to Testliner 3 by 18 cents to 346.68 EUR/ton and, compared to RB Fluting, up by 17 cents to 337.85 EUR/ton.
The PIX ONP/OMG 1.11 dd benchmark slipped lower by 8 cents, or by 0.06%, landing at 129.80 EUR/ton. The price differential to the PIX Newsprint index widened by 4 cents to 343.11 EUR/ton.
General Economy – US: In spite of several disturbances during the year, the American recovery has been picking up speed, as shown by the quarterly GDP-growth series (annualized): Q4 2012: +0.1%, Q1 2013: +1.1%, Q2 2013: +2.5% and Q3 2013: +4.1% making that Q3 the fastest quarter for economic growth in two years. The substantial upward revision was fuelled by several sectors of economy with household spending and business investments into real estate, equipment and intellectual leading the pack. One worrying piece within the good news was that inventory build-up accounted for over 1% of the GDP-growth during Q3. As that is unsustainable in the longer-run, tapering down of the growth can and should be expected. But even with a slower growth during Q4, upward revisions are now likely also for the annual data, where the latest consensus still predicted only 1.7% growth. The hopes are rising also as to the recovery rate in 2014, even though the stimulation efforts by the Fed will be tapered down and the diminishing emergency aid programs for the jobless will cut down the private spending among the lower income groups. At present, the range of 2014 real GDP-forecasts is from 2.5% to 3.4% with the majority suggesting about 3% or just short of it.
Europe – While the UK is today one of the strongest growing economies in the world, the Euro-zone continues to suffer from very unequal economic development and from the persistently over-valued Euro. Plotting the Euro/USD development over the past 18 months against the export growth of the German manufacturing industries shows a good correlation. Unfortunately, the flagship of the European exports does not represent the European economy very well at all. Still, the outlook is gradually improving – much more gradually than what it would, if the ECB mandate included also other things than watching out over the inflation rate. The bleakness in Q4 shows especially in the retail sales which went further down in December with the Markit Eurozone Retail PMI at 47.7 points sinking further into the recession territory. Another bad news is that in most countries, people really do not believe in the politicians’ capability of solving the problems in 2014 either. The good news is that the worst of the financial crisis could be over as capital has started to return. The Euro-zone GDP forecast for this year remains at -0.3%/-0.4%. In 2014, a positive growth of 1% could be seen but the odds are rather for a lower growth than that, especially if the Euro remains badly over-valued.
Japan - Apart from the still subdued domestic private consumption, Japanese economy is enjoying a rapid growth. Household spending may get some support in the coming weeks from two sources: 1) The sales tax rise in April 2014 could trigger more purchasing in anticipation of that rise 2) Manufacturing growth is so strong that it has finally started to show also in a rise in manufacturing employment. That rise is still quite modest compared to the very strong growth seen in the actual manufacturing output, in new orders and in order backlogs. The Markit/JMMA Manufacturing PMI is up at 55.2 points in December, slightly higher than in November. The improvement in overall business conditions is the strongest since 2007. Year 2014 outlook is less strong, due to the negative impact of the sales tax hike but in Q1, the going is highly likely to be quite good.
In China, the Central Bank needed to take action to avoid another crash crunch this year – one was already seen in June. As a rescue measure, the Bank has pumped about 50 billion US dollars’ worth of additional money/liquidity into the financial system, after the indicators started showing a clear tightening of the liquidity in late November/early December. The weakness of the private banking sector and the still substantial use of the “shadow” banking systems demonstrate the fragile nature of the country’s financial system and the need of the Central Bank to monitor the financial system and to find, one day, a stronger and much more market-oriented approach. In the Chinese manufacturing sector, the stronger growth of the export countries helps and the new order intake is promising. In many other respects, China’s economic growth is likely to remain modest – in Chinese standards – also in 2014.
Paper industry – The year 2013 ended with another set of weak graphic paper numbers. Fortunately, the going has been clearly stronger in the other sectors, tissue and different packaging products and the global paper and paperboard industry production and consumption statistics will end up showing 2013 volumes several million tons above 2012 results, in spite of a clear, multi-million ton drop in the printing and writing paper production/consumption in the industrialized world.
Price-wise, the development was very uneven. With active supply adjustments to match the fall in the order volumes, North American supply/demand balance was not much below the long-term average even in printing and writing papers and, consequently, prices did not fall much and in some grades not at all. Naturally the weakness of the US and Canadian dollars against the European currencies helped to keep the exports flowing and limited the desire of other nations to ship to the NA markets. In Europe, a quick look over the annual track-record of our various paper and board indices shows the picture clearly. Prices of the recovered paper based liner-boards with little competition from imports were up between 12.6% and 16.7%, depending on the grade. Brown virgin fibre kraftliner, with regional production competing with imports from East and West, was down by 1.6%. Graphic papers with sinking demand, substantial over-supply and with a history of substantial exports outside Europe fared even worse. In addition to a clear loss of volumes, prices were down in copy-paper, the most positive grade, by 3%. In other grades, the declines varied from 4% to little over 4.5%. Even with serious cost-cutting programs, the profitability numbers provide pretty sad reading.
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