FOEX: LWC paper only printing and writing paper index in Europe to gain, while prices drop for A4 B-copy paper, coated woodfree paper and newsprint, hurt by stronger euro; in US, both newsprint benchmarks remain flat, with market relatively balanced

Newsprint – As for most of the graphic paper grades, December was a positive month for newsprint. Euro-Graph reported the estimated European demand up from December 2012 by 1.4%. The cumulative demand was still down by 5.7%. With a 13% drop in exports outside the region in December and by 15% cumulatively, total European shipments were down by more than the regional demand; by 0.8% for the month of December and by over 7% for the year as a whole. Some of the business negotiations for this year, or part of it, between paper producers and buyers have been finalised, but there are still those which reportedly continue. Some higher newsprint prices have been reported during January, mainly from the UK, and our newsprint index has showed some small upward moves in the past few weeks. Euro strengthened by 0.2% against the basket of non-EMU currencies which caused a slight downward impact to the benchmark. With the strengthened Euro, our PIX Newsprint index slipped back down by 22 cents, or by 0.05%, to 476.60 EUR/ton.

 

LWC – In coated mechanical papers, 2013 was a truly tough year, both in terms of volumes and prices. December showed finally a slightly positive comparison as the estimated European demand showed a 1.5% increase over December 2012. Over the full year, the demand was still down in Europe by nearly 7%. As exports were down by 7.5%, the total European coated woodcontaining paper shipments were down by a full 7%. Price increases are attempted in the still ongoing negotiations but even after the clearly better December performance, raising prices is a hard uphill battle. Better economic growth and the possible narrowing of the price gap to uncoated mechanicals may succeed to limit the volume drop in 2014, however. The approximately 0.2% strengthening of the Euro against the weighted basket of non-EMU currencies meant a downside pressure on the benchmark. The PIX LWC index inched up, however, by 39 cents, or by 0.06%, and reached 660.82 EUR/ton.

 

Coated woodfree – While coated mechanicals succeeded in showing a positive volume comparison in December, coated woodfrees had yet another month of decline, both in European demand as well as in the total shipments. The December drop was smaller than in the earlier months but still -1.3%. The cumulative total came to -7.0% for the estimated European demand and to -5.8% for total shipments. In 2014, the supply/demand ratio could start improving a bit as several companies are planning to reduce production to a level which is better matched with the demand. The 0.2% weakening of the Euro against the non-EMU currencies exerted some downward pressure on the benchmark. The PIX Coated woodfree index lost 1.66 Euro, or 0.25%, and closed at 666.64 EUR/ton.

 

Uncoated woodfree – The earlier mentioned improvement in order books was also evidenced by the December statistics from Euro-Graph showing positive monthly comparisons on all accounts, and by very similar numbers, too. The estimated European demand grew in December by 4.1%, exports outside Europe by 4.8% and total European shipments by 4.3%. For the year as a whole, European demand and total shipments were still down also in this grade, but “only” 3.6% and by 2.7%, respectively. Exports outside the region supported the total shipments with a 4.6% increase over the year. But the supply potential went up as well and the UWF capacity utilization rates, as well as the prices, remained unsatisfactory. UPM has announced the closure of 160 000 tons of uncoated woodfree at their Docelles facility in France. The 0.2% strengthening of the Euro against the basket of non-EMU currencies pulled the benchmark lower. The PIX A4 B-copy index fell by as much as 6.31 Euro, or by 0.75%, and closed at 832.34 EUR/ton.

 

General Economy – US:  The particularly rough winter weather has disturbed the American economic growth in several ways and knocked off some 0.3% of the Q1 2014 GDP-growth (annualized). Discounting that impact, the strong growth that was seen towards the end of the year has continued in January. The Flash (i.e. preliminary) US Manufacturing PMI (by Markit) came out at 53.7 points. While this is a three-month low, much of the retreat is due to the Polar Vortex. Clearest sign of this is the very sharp lengthening of the suppliers’ delivery times. Both manufacturing output and new domestic orders showed strong growth, despite the weather. New export orders contracted, however, reflecting the slowdown in China and the rapid depreciation of several emerging country currencies which turned imports too expensive. Even so, employment numbers and near-term US economic outlook are promising.

 

Europe – The business sentiment has continued to improve in Europe. There are, however, still very wide differences between the nations. In the UK, virtually all indicators are strongly upwards, including the prices, especially property values. In the Mediterranean region, several countries are struggling to get out of contraction zone. In the Euro-zone as a whole, the Flash Composite Output index climbed to 53.2 points in January, the highest monthly value seen since June 2011, before the slide to the 2nd recession started. Both service and manufacturing sectors showed improvement but the latter at 53.9 points was clearly above the former at 51.9 points. The composite PMI value suggests a half-a-percent GDP growth rate in Q1 but the less than robust performance of the service sector reminds of the fragility of the recovery and the odds of a set-back in February are relatively high.

 

Japan ended the year 2013 with an all-time record trade deficit of over 110 billion USD. Exports did well with the stimulation programs and weakened Yen and grew over the year by 9.5%. But the value of imports, driven up especially by energy costs, surged by 15%. As nuclear power stations continue to be shut down, energy export needs of Japan will most likely continue to maintain the large trade deficits also in the coming years. Japan imports presently 90% of its energy needs. The Yen-value against the USD averaged down by 22% in 2013, compared to the 2012 average. Rising imports of energy and industrial material confirm, with several other indicators, that the recovery continues at a rapid pace. Paper industry was one of the many sectors which showed growth in 2013 over 2012.

 

China came out quickly with the 2013 official GDP-growth value of 7.7%, slightly above the official government target of 7.5%. Stable and – from Western world’s point-of-view – high growth numbers, even if down from double-digits, hide the ongoing problems. The new government is focusing more on structural changes than on maintaining unsustainably high growth rates. The transition period brings out severe risks. Investments made with borrowed money created over-capacity and are now leading to major losses. Attempts to reduce the borrowing from a 20% annual rate to 10% or so, to the nominal economic growth level limits the economic activity, especially as the simultaneous efforts to clean up the shadow banking sector also restrict the availability of money. China’s Flash Manufacturing PMI (by HSBC) fell in January to 49.6 points, i.e. marginally to contracting zone. The government may be forced to focus again on stimulation in order to avoid a further rise in unemployment.

 

Paper industry – The first December – and full year 2013 - numbers have started to trickle in. As mentioned in the section on economy, paper and paperboard production exceeded 2012 numbers e.g. in Japan, there by 1.1%. European numbers for all grades and countries will not be available for some time, but Euro-Graph – and PPPC – has published the graphic paper data over December and the year 2013. The numbers came out with a happy surprise as December consumption and shipment numbers were above those in December 2012. Using the Euro-Graph data which covers a slightly higher number of countries than PPPC, the estimated European demand for graphic papers total, including newsprint, was up by 1.7% for the month of December over December 2012. The annual demand was still down by 5%, or more than 1.6 million tons. Exports outside the region were down over 6%, both for December and for the annual total. Total European shipments ended up by 0.3% in December but down by 5.1% for the year as a whole. Newsprint shipments-to-capacity ratio in December was 5 percentage points higher than in December 2012 and up by three percentage points for the whole year, with several closures and grade conversions. In other printing and writing papers, December ratio was up by 3% against December 2012 but for the whole year, the ratio came down by two percentage points.

 

The financial results of the public paper and board companies have started to be published as well. Generalizing the results published so far, the European companies did not do well. Sinking volumes and flat or falling prices in most other grades than RP-based packaging meant weak returns. The strength of the Euro helped in terms of imported raw materials but diminished competitiveness in the export markets and intensified competition on the shrinking regional business. In North America, especially in the US, the company profits are turning out to be above average and in some cases well above the previous years’ average.