FOEX: European packaging indexes mixed, with recycled-based prices flat to slightly higher and virgin-fiber prices down somewhat; price differential between recycled and virgin-fiber grades contines to narrow

Debra Garcia

HELSINKI , February 4, 2014 (press release) – Containerboard Europe – In the US, containerboard production weakened towards the end of the year with December volumes nearly 3% down from December 2012. For the year as a whole, production of containerboard was up by 1.2%. The low volumes in December helped the inventories down. With the satisfactory outlook on the economic fundamentals, the 2014 volumes can be expected to grow again. The growing supply potential, mainly through conversions from other grades, is a cause for some concern, however. In Europe, the price differential between the virgin fibre based liners and RP-based containerboard products continues to narrow and is now under 90 EUR/ton between virgin fibre kraftliner and testliner 2. Still, the demand continues to be quite firm for the RP-based products while some of the brown kraftliner producers are reportedly taking some downtime. The above-mentioned narrow price gap shrank further this time with brown (and white-top) virgin fibre linerboard prices continuing to fall and RP-based prices inching up. The currency movements had an upward impact on our indices as the Euro weakened by 1.25% against the USD and by about 0.5% against the non-EMU currency basket. Our packaging indices headed down for the virgin fibre-based grades and were flat or slightly up for the RP-based grades. The PIX Kraftliner index lost 1.06 euro, or 0.2%, to 567.76 EUR/ton. Our PIX White-top Kraftliner index retreated by 86 cents, or by 0.1%, settling at 758.77 EUR/ton. The PIX Testliner 2 index remained flat at 479.76 EUR/ton. The PIX Testliner 3 index value went up by 46 cents, or by 0.1%, closing at 460.82 EUR/ton. The PIX RB Fluting index gained 39 cents, 0.1%, settling at 452.73 EUR/ton.

General Economy – US: Although the pace of growth slowed down in the two largest single-country economies, the US and China and the adverse weather conditions impacted the expansion in a number of countries, the global recovery process moved into the new year at the same pace it ended the year 2013, at least as far as the manufacturing activity was concerned. The J.P. Morgan Global Manufacturing PMI recorded 52.9 points in January, off most marginally from 53.0 points seen in December. In the US, the particularly rigorous winter weather has extended all the way to the southernmost states and hampered economic activity. Weakening data, especially the thinning of order books, did scare the stock markets into a decline.

Europe – The only nation that can prosper within Euro-zone at the recent exchange rates is Germany. Others suffer from the lack of competitiveness, in various degrees. Still, the recovery is picking up momentum also in these smaller and weaker countries. Greece started the New Year by moving into the recovery mode with 51.2 points, the first positive value seen in five and a half years! Spain and Italy are also doing clearly better. In spite of the rebound in growth, inflation slowed down further in January, reminding of the risk of deflation if the service sector and private spending do not follow manufacturing on the way up.

Japan provided a major boost to the global economic recovery by showing the best growth the country has recorded in manufacturing since 2006. The Markit/JMMA Japan Manufacturing PMI rose from the already good 55.2 point expansion in December to 56.6 points in January. Purchasing activity grew even more. Work backlogs lengthened and in some sectors and geographical regions it was difficult to find enough man-power. Prices were moving up fast as well, with the weakness of the Yen and the tightening work-force availability being the key drivers.

China continues to struggle just to maintain the recent activity levels. The HSBC Manufacturing PMI (by HSBC) ended in the contraction zone when the index value slipped from 50.5 points in December to a reading of just 49.6 points in January. Retreat was seen both in the domestic activity and in exports. Rising inventories within China reflect the weakening of the consumer (and other client) demand and explain the reduced output growth. Employment levels continue to contract which is bad news for the domestic household spending outlook.

Paper industry – AF&PA published the US December statistics over the pulp, paper and board industries. December was one of the weakest months of the year with the total paper and paperboard production volume falling 1.0% below the December 2012 performance. For the year as a whole, there was also a decline but only by 0.5%, paperboard up by 1.0% and paper sector down by 2.6%. The New Year has started with major further capacity cuts in uncoated woodfree and with most of the paper companies showing decent, if not outright good financial results. In Europe, all the full year numbers are not out yet. The graphic paper sector lost 1.4 million tons of demand in 2013, compared to the full year 2012. The recovered paper-based packaging business continues to do well and tissue is compensating for part of the losses in the graphic paper domain. The financial results of the European paper companies are nothing to really write home about. Many rumours continue to circulate over the restructuring options.

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