FOEX: Newsprint prices unchanged in US, up slightly in Europe as euro weakens; European prices decline for LWC, A4 B-copy paper but increase for coated woodfree benchmark, amid capacity shifts, mill downtime, stalled price talks

HELSINKI , January 21, 2014 (press release) – Newsprint – While some newsprint deals were made for early 2014 already before the turn of the year in some of the countries, the talks have slowed down or stalled in January and the outcome remains unclear still now in late January. The first 11 months of year 2013 showed European newsprint demand down by over 6% and exports outside the region weakened by 15%, the drop in total shipments was over 7%. Demand continues to fall but so does the production capacity and newsprint capacity utilization rate has, in spite of the estimated 6% drop in demand in 2013, been higher in late 2013 than in most other graphic paper grades. Euro weakened by 0.3% against the weighted basket of non-EMU currencies which gave some upward momentum on the benchmark. The PIX Newsprint index inched up by 20 cents, or by 0.04%, and closed at 476.82 EUR/ton.

LWC – In coated mechanical, the operating rates have hovered at around 85-86% in Europe and at about 90% in North America in 2013 and the consumption drop in Europe approaches 8% for the year. This is not a favourable setting for trying to raise prices, which the cost and profitability numbers would, on the other hand, see essential. Two units, Perlen’s PM at Luzern and Stora Enso’s at Corbehem are back in operation, the former since late December 2013 after major downtime due to a fire and the latter since little more than a week ago. The approximately 0.3% weakening of the Euro against the weighted basket of non-EMU currencies gave an upward push to the benchmark. The PIX LWC index retreated, however, by 41 cents, or by 0.06%, and settled at 660.43 EUR/ton.

Coated woodfree – The operating rates in coated woodfrees have been at slightly under 90% in North America and marginally above 85% in Western Europe in 2013. In Europe, the demand is down by more than 7% against 2012. In early 2014, the order books are “acceptable”, taking into account the seasonal slow-down. Price talks are not over and order backlogs provide still volumes at late 2013 price levels. Pulp price increases in BSKP and the slightly weakened, while still strong Euro, add to the paper producers’ cost pressures. The 0.3% weakening of the Euro against the non-EMU currencies helped in pushing the index higher. The PIX Coated woodfree index gained 2.32 EUR, or 0.35%, and reached 668.30 EUR/ton.

Uncoated woodfree – In this grade, there is a wide difference in operating rates between North America and Europe. In the former, operating rates exceeded 90% over the first 11 months of 2013 and with major closures decided over the first half of 2014, the rates are expected to go further up. In Europe, the operating rate averaged only 82% over the first 11 months and with the Alizay re-start, the production capacity actually increased in late 2013. In January, Burgo’s Avezzano mill has switched from coated to uncoated woodfree production. Inevitably, the competition is intense. Rising exports help the total shipments a bit as will, at least indirectly, the recent and future capacity reductions in the US. The 0.3% weakening of the Euro against the basket of non-EMU currencies put some upward impact on the benchmark. But, the PIX A4 B-copy index drifted down, however, by 1.48 euro, or by 0.18%, and closed at 838.65 EUR/ton.


US Newsprint – Demand for newsprint continues to fall rapidly in North America, as it does throughout the industrialized world. Capacity closures and conversions to either totally different grades, such as packaging products or to improved news or other speciality, used e.g. in inserts helps the operating rate in standard newsprint. Including the latest conversion decision at SP Fiber, conversions away from newsprint to packaging already amount to over 0.5 million tons over the past 12 months. And, at least one more conversion is expected to be seen within this year. Export markets are also suffering, due to low prices, lacklustre demand and competition from other sources, including the local supply. The 30 lb index remained at 585.48 USD/ton, and the 27.7 lb index was also unchanged at 624.37 USD/ton.

General Economy – US:  The American economy is heading towards higher levels, even if some of the December data came out less bright than what had been expected. For instance, the housing starts and housing permits both fell, after several months of large gains, the former partly impacted by weather conditions. The annual growth in those housing starts still came to a very robust 18%. Job market created only 76 000 new jobs. Still, the unemployment rate came down to 6.7%, the lowest number seen in five years. In January, manufacturing activity has picked up but the future outlook is a bit dimmer as the new order volumes started to shrink.  Rising wages, fuller employment and improving household income levels, coupled with rapidly risen household wealth after the stock market gains supports higher consumer spending numbers this year. US GDP growth is expected to rise to 2.7-3.0% after an estimated 1.9% in 2013.
 
Europe – Economic outlook is improving also in Europe but at a snail’s pace. The combination of a lack of stimulation when needed, more or less destructive tightening of national budgets and the serious and prolonged overvaluation of the Euro will continue to take their toll on the European recovery prospects and pace for months and even years to come. Structural reforms were needed and they can be started in economic downturns but the way to implement them should not be such that it would lead to 4 years of recession out of six. Even now, the recovery process in the Euro-zone is threatened by the possibility of deflation. In December, Euro-zone growth rate inched up, thanks mainly to gains in German manufacturing. The consensus pegs the Euro-zone real GDP growth at 1.0%, following a decline of 0.4% in 2013.
 
Japan – After very rapid growth in early 2013, Japanese recovery lost pace during the summer and through Q3 and early Q4. Towards the end of the year, the numbers got more promising again. The stimulation measures from the “Abenomics” program continued to provide positive results. The forward looking business sentiment index was 4 points higher in December than in September. Industrial production growth is in front of the growth vehicle spurred by exports, supported by the weakened Yen. Investments are also beginning to pick up. The private spending growth is still lacking behind, in a serious way. The expected signs of more spending before the April 1 sales tax hike have been weak. Consumer prices are rising by now more than 2%/year. Finally re-emerged inflation, of about 2% in 2014, limits the real economic growth to about 1.7-1.8% this year, a shade less than the estimated 1.9% growth in 2013.
 
China’s political leaders have cautiously began to implement the promised major reforms, intended to increase the domestic share of the national growth, to reduce the inequality between the rural and urban China, to reduce the ill-effects of pollution and to modernize the ailing banking sector. The sustainable GDP-growth target is set at 7%. After picking up speed in early Q4, softness re-emerged in the economy at year-end. The attempts to reduce the share of the shadow banking system of the total lending may have triggered this slower pace, which could, at worst draw the 2014 GDP-growth below the 7% government target, with unwelcome impact also on global growth. The other drag on the economy is the low industry and corporate profitability, driven by serious over-capacity problems in a number of sectors, including paper industry. In December, industrial production grew at “only” 9.7% and business confidence weakened. The Consensus has not lost faith in China’s ability to recover and projects the 2014 real GDP-growth at 7.5%, down slightly from 7.7% in 2013, the lowest seen in 14 years. And, the risks in 2014 are mainly on the downside.
 
Paper industry – The very first December data out are the US containerboard production numbers showing lower volumes than in December 2012 but also lower inventory levels. Exports of linerboard were strong at the end of the year. In graphic paper, the numbers are not out in North America, nor in Europe. The feelings in the market suggest that December was probably yet another relatively weak month.
 
The outlook over 2014 is mixed. Improving economic growth should help to limit the decline in paper based advertising but higher postal rates in a number of countries limit paper consumption. Higher employment rates in the US, UK and many other countries, except for the Euro-zone, helps office paper demand but online invoicing and other electronic administrative advances dampen the consumption prospects. In packaging and tissue grades the outlook is predominantly positive. Also many of the structural trends are positive in the packaging side, including restrictions on the use of plastic bags and other environmentally unfriendly products and the advances in online shopping which increases packaging needs.

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