February 25, 2014
– NBSK pulp Europe – As Europe is a net exporter of paper grades BSKP pulp, the imports from North America play a less important role than what they used to do in the more distant past. Still, the weather-related supply and delivery problems in North America have an impact on the supply/demand balance here as well. In addition, there have been some production disruptions in Europe as well, including the recovery boiler problem at Stora Enso’s Skoghall mill in Sweden and downtime being taken at the Tarascon mill in February. With port stocks unchanged at a fairly low level and down in January y-o-y also at the consumer side, the market balance remains solid, supporting the early year price increase efforts. An increasing part of the announced hike, typically to 930 USD/ton for NBSKP, shows by mid/late February in our benchmark value. Euro was unchanged compared to the USD (exchange rate of Fri Feb 14th against Fri Feb 21st). Our PIX NBSK index showed a gain of 1.47 dollars, or of 0.16%, and closed at 918.02 USD/ton. When converting this dollar-value into euro, the benchmark headed higher by 1.08 euro, or by 0.16%, and the PIX NBSK index in Euro ended at 669.75 EUR/ton.
BHK pulp Europe – The price gap between the NBSKP and BEKP grades has widened to 150 dollars/ton in Europe and exceeded this week 100 dollars in the Chinese market, at least in gross price terms. This differential is wide enough to trigger further attempts to change the furnish more and more towards BHKP, especially as most analysts predict the price differential to remain wide for some time to come. Together with more capacity and demand in the tissue sector, the market BHKP demand is expected to be good in 2014. On the other hand, new supply is very substantial, too. The first lots of Maranhao pulp are reaching customers now and Stora Enso & Arauco’s mill in Uruguay and the new Oji mill in China will bring a lot of new supply to the market as well.. The number of quotes received in euro was not sufficient to calculate a meaningful average. Euro remained, for once, unchanged against the dollar from the previous week (Friday). The PIX BHKP index value in Euro gained 14 euro cents, or 0.02%, and closed at 560.31 EUR/ton. The PIX BHKP index value in dollars moved up by 19 cents, or by 0.02%, and settled at 768.02 USD/ton.
BHK pulp China – The return of the Chinese pulp buyers from their Lunar New Year holidays has not triggered all that much activity in fibre markets. Inventories are adequate and while shipments from Indonesia appear to experience some problems, the new supply from Latin America starts compensating. Another reason for the slowing down of the demand pull is that the over-capacity in tissue paper production in China means that some of the mills are running well below their capacity and some tissue machine orders have been postponed to a later date. Spot volumes of different BHKP grades are readily available which adds to the price pressures. Our PIX China BHKP index lost 7.26 dollars, or 1.10%, and closed at 653.65 USD/ton. Yuan weakened against the USD by 0.4%. The conversion of the USD BHKP price into Yuan resulted in a decrease of 28.17 RMB, or of 0.7%, to 3981.65 RMB/ton.
NBSK pulp China – The supply-chain problems affecting, or risking to affect, the softwood pulp market are keeping the BSKP supply/demand balance tight. The widening price gap threatens to switch some of the demand from BSKP towards BHKP, but, at this point at least, this risk does not seem to have an impact on the pricing. Spot volumes available on the market are limited and the spot prices have been at or in some cases above the net prices of the normal annual contract sales. As a side-note, the UKP market is equally tight, spot volumes are hard to come by, and the price differential between BSKP and UKP has narrowed over the past 12 months. In BSKP, several producers have announced modest price hikes of 10-20 USD/ton in China from March 1. Our PIX China NBSK index value headed higher by 1.43 dollars, or by 0.19%, and closed at 754.63 USD/ton. Yuan weakened against the USD by 0.4%. The conversion of the USD value into Yuan resulted in an increase of 27.01 RMB/ton, or of 0.59%, to 4596.76 RMB/ton.
US NBSK – The winter storms have continued to mess up the logistics systems through most of February. Consequently, delays in obtaining rail-cars continue to be seen. Also, while most pulp mills are now running normally, the losses in production seen earlier in January/early February will have an impact on the availability. The weaknesses in the graphic paper market are likely to show in the demand for market pulp in a month or two. On the other hand, the maintenance downtime period in early /mid Q2 is almost around the corner. This will help to maintain a relatively tight supply/demand balance for some more time to come. But, during Q2, there is a risk of some of the present dissolving pulp supply being converted back into fluff or paper pulp. Our PIX US NBSK pulp price inched up by 18 cents, or by 0.02%, and closed at 1008.24 USD/ton.
Recovered Paper Europe – In China and other East Asia, the demand for recovered paper has been rather weak lately. This appears to be linked to both a high inventory position and some quality issues, such as the high moisture content in the bales arriving from the very wet UK. Most of the downside price pressure is on white grades as the supply chain problems in the US risk to limit OCC trade volumes very soon. In Europe, demand has been quite good but the inventories appear relatively high here as well. The prices are under downside pressure.
The PIX OCC 1.04 dd index ended going down by 21 cents, or by 0.2%, settling at 113.90 EUR/ton. The margins against linerboards and fluting changed as follows: against Testliner 2 the price differential widened by 59 cents to 366.24 EUR/ton. Compared to Testliner 3, the margin narrowed by 34 cents to 346.41 EUR/ton and, against RB Fluting, the gap widened by 3 cents to 338.98 EUR/ton.
Our PIX ONP/OMG 1.11 dd benchmark value headed south by 1.46 euro, or by 1.13%, landing at 127.23 EUR/ton. The price differential against our PIX Newsprint index widened by 1.24 euro to 352.59 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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