February 25, 2014
– Containerboard Europe – The US corrugated box shipments were down by 0.9% in January from last year on both actual and average week basis. In addition to the weakness of the shipment numbers, most probably partly caused by the weather conditions, the total inventories at producers and box-plants moved up by as much as 164 000 tons which is 40 000 tons more than the 10-year average increase in January. Operating rates were at 94.5% which is not bad as such, but obviously a bit high in terms of inventory development.
In Europe, during a six month erosion in virgin fibre containerboard prices the difference between brown kraftliner and Testliner 2 has shrank from 150 euros to only 80 euros today. Smurfit Kappa is taking downtime at its Biganos kraftliner mill in France. The currency movements had a small downward impact on our indices this time as the Euro strengthened by about 0.3% against the weighted basket of the non-EMU currencies but was unchanged compared to the USD (exchange rate of Fri Feb 14th against Fri Feb 21st). The PIX Kraftliner benchmark for brown virgin linerboard went down by 2.85 euro, or by 0.5%, settling at 560.15 EUR/ton. The PIX White-top Kraftliner index ended gaining a marginal 4 cents, or 0.01%, to 756.02 EUR/ton. The PIX Testliner 2 index gained 38 cents, or 0.08%, closing at 480.14 EUR/ton. Our PIX Testliner 3 index value declined by 55 cents, or by 0.12%, ending at 460.31 EUR/ton. The PIX RB Fluting index went down by 18 cents, or 0.04%, landing at 452.88 EUR/ton.
General Economy – US: The harshness of the winter in the Eastern and Central parts of the US messes up the economic indicators and makes forecasting very difficult. In spite of the weather-impacted weakening of the data, the inner strength is still there. That shows in the West where the indicators are positive. Slightly further out, West could end up being the disappointment of the year as the drought threatens the agriculture and power generation. Even with cold and snow, the US manufacturing activity has been strong in February. The Markit Flash Manufacturing PMI showed a leap from 53.7 points in January to 56.7 points in February, the largest monthly gain since 2010. The combination of falling inventories and a sharp rise in order backlogs suggests that strong growth is likely to continue in the coming months. Analysts expect the US GDP growth to be nearly 3.0% this year and then reach that level fully in 2015.
Europe – In the Euro-zone, private consumption and service industries are still searching for a faster gear but the industrial output is already showing more strength than what was expected only a few months ago. The Flash Composite PMI, by Markit, retreated slightly in February to 52.7 points from 52.9 in January but that is till the 2nd best reading in 2.5 years. Service sector showed improvement, rising to 51.7 points but still well below manufacturing output which clocked, even after a decline, 55.5 points. Although the manufacturing PMI weakened in general, new order intake was at its highest level since early summer 2011. The first quarter growth could reach 0.5% (non-annualized), already a pretty healthy level. Further price fall reminds of the deflation scare. Unemployment remains the most acute problem, together with Greece’s need to borrow more money – again. The Consensus pegs the Euro-zone GDP growth at 1% this year and 1.5% in 2015. If 0.5% growth is reached in Q1, upside risk is bigger than the downside one.
Japanese economy is growing strongly but that is exactly as was predicted with the sales tax hike taking place on April 1, especially after the 4th quarter performance was clearly disappointing with just 1% GDP-growth (annualized). Among the different sectors of the economy, the manufacturing industry is doing the best but the retail sales and service sector are showing a reasonable growth as well. Capital spending has remained quite muted and the export sales have not grown as much as expected, partly due to slowing down of China’s and some other Asian economies. The slower-than-expected growth could be a sign that there are limits to what the “Abenomics” can do with fiscal and monetary stimulus programs in the short run. Further growth requires the promised structural changes as well. Japanese GDP- growth is expected to slow down in Q2-Q4 and average slightly more than 1.5% for this year and then slow down to 1.2-1.4% in 2015.
China’s Flash Manufacturing PMI (by HSBC) showed the activity numbers deteriorating further from February. The index value sank from 49.5 points in January deeper in the contraction zone to 48.3 points. Contraction does not mean negative GDP-growth in China, as it easily would suggest in the western world but rather an economic environment where jobs are lost and growth rates diminish against prior periods. Both the actual production and new order intake have weakened, prices continue to fall, jobs are lost and work backlogs and inventories are contracting. Lower stocks mean that they will be re-built, one day, which helps the growth prospects, at that time. Some targeted stimulation efforts are likely to be seen soon, so that the growth does not fall too low. With them, a 7.5% GDP-growth could still be reached this year. The risks are, however, on the downside.
Paper industry – Few numbers are out yet on the performance of the paper and board industries in January. US containerboard and box statistics were disappointing with shipments slightly down and inventories up fairly sharply. The extreme weather conditions in large parts of the Eastern and Central US may have worsened these statistics, however. In Europe, the market pulp consumption data from UTIPULP suggests that January was not a very good, nor a very weak month. Market pulp consumption was down by one per cent, compared to January 2013. The comments from the market on the order books in various grades could maybe be summarized by stating that most market participants were positively surprised by the volumes seen in January but the activity has quieted down in February. Between the different European countries, the situation in the UK appears to be better than on the Continent, reflecting the stronger economic growth on the British Isles.
Paper price negotiations are still going on in few cases in Europe but for the most part, the picture is getting clearer with most, if not all, negotiations concluded in France and the UK and most of them through now in Germany as well. The contract periods typically vary between countries and grades between 6-month and 3-month deals,. Woodfree grades have seen declines and coated mechanical prices have taken a small hit as well. In newsprint, producers have been successful in getting part of their price increase attempt through and some small increases have also been reported from uncoated mechanicals. As shown below, these changes have started to show also on our benchmark grades now that the order backlogs from 2013 have been depleted. After the recent strengthening of the Pound Sterling, price differentials between the UK and the Continent are fairly small.
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