Newsprint – Price negotiations in newsprint are still not fully concluded in some of the European countries but it is clear that while the producers’ efforts to get prices back up above 500 Euros were not fully successful, some gains have been seen at a time when other graphic paper prices are either flat or retreating. Admittedly, after several capacity closures, the newsprint delivery-to-capacity ratio has also been clearly better than in other graphic paper grades, in spite of the big drop in newsprint demand. In 2013, according to PPPC, newsprint enjoyed a 95% shipment-to-capacity ratio while the other printing and writing paper grades averaged 85%. Euro strengthened by about 0.2% against the basket of non-EMU currencies which caused some downward pressure on the benchmark. The PIX Newsprint index moved up 1.07 euro, or by 0.22%, and closed at 481.64 EUR/ton.
LWC – In coated papers, the January statistics were quite weak with a 5% decline in the European demand and a 6.5% drop in total shipments for coated mechanical reels. Magazine advertising did poorly already in 2013 and the situation apparently worsened further in early 2014. Order books were weak in January/early February but appear to have picked up some in late February/early March with the price negotiations finally over with unhappy results from the producers’ point-of-view. The final outcome of the negotiations does not necessarily show in our benchmark yet as many of the talks were concluded only quite recently. The approximately 0.2% strengthening of the Euro against the weighted basket of non-EMU currencies pressured the benchmark southward. The PIX LWC index retreated by 1.81 EUR, or by 0.28%, and ended at 654.51 EUR/ton.
Coated woodfree –The business sentiment remains downbeat with the decrease seen in prices and profits. Both the persistent over-capacity problem and the recent re-strengthening of the Euro play a role in the downside pressure. Also, the intense competition between printers and in the wholesale/merchant sectors impacts the paper market. The order books are actually reported to have improved a bit lately and in CWF, exports outside Europe were actually marginally up in January, at least. European demand was down over 5% in January but the conclusion of the price talks and the reported rise in the order books may start to improve the comparisons against 2013 soon. The 0.2% strengthening of the Euro against the non-EMU currencies meant a downward push on the benchmark. The PIX Coated woodfree index lost 84 cents, or 0.13%, and settled at 662.81 EUR/ton.
Uncoated woodfree – As mentioned in the general part of the paper text, uncoated woodfrees was the only major grade with positive comparison in European demand and in total shipments against January 2013. As in coated woodfrees, the recent order book volumes are satisfactory. But, prices are not. The cost savings efforts of the consumers of copy paper have led to an increasing share of C-copy paper at the expense of A and B-copy. This grade shift and shorter and shorter contracting times have also increased the downside pressures on prices. Euro strength is not helping either. The small strengthening of the Euro against the basket of non-EMU currencies had a downward impact on the benchmark. As opposed to last week, the PIX A4 B-copy index slipped lower by 3.41 EUR, or by 0.4%, and closed at 829.01 EUR/ton.
US Newsprint – The big drop in newsprint demand again in January and conversions of newsprint PM’s to other grades have reduced the need for ONP/OMG by the newsprint industry. Also, some newspaper producers are using office “waste” in order to improve the quality. Consequently, while supplies have had problems here as well, the prices of old news have been flat while prices of other RP-grades have headed higher. Consequently, the cost pressures have not risen. With the weakness continuing in the demand for newsprint, newsprint prices, on average, have remained in practice below the “list price” of 605 USD/metric ton. The PIX US Newsprint 30 lb index inched up by 26 cents, or by 0.04%, from last week, and reached 584.37 USD/ton but the 27.7 lb index turned the other way, with the index value moving down by 1.11 USD, or by 0.18%, to 621.57 USD/ton.
General Economy – US: If the events in Ukraine do not lead to so major economic sanctions against Russia that they will end up distorting the recovery progress globally, the outlook over 2014 remains good. The developed countries lead the recovery which looks more and more sustainable in the industrialized world. Unfortunately, the near-term projections over the developing countries are clearly less bullish. The combination of weakening currencies and tightening financial liquidity limit the growth prospects. In the US, the corporate sector sentiment is quite high, in spite of the Q1 weather-related problems and the lower than expected ISM-numbers in February. Capital spending is expected to be at the highest annual level since the 2008-09 recession. Strengthening of prices will probably lead to a tightening of the monetary policy in late 2014, in order to contain inflation. That tightening could add to the liquidity problems in the emerging countries.
Europe – The various PMI’s, surveys by IFO and other institutes show that the business optimism is at its highest level in Europe since 2010. Strengthening of the growth is expected by both manufacturing and service sector firms. Now that Germany and the UK are recovering at a fast pace and also most of the periphery economies are in a modest recovery mode, the job prospects are finally expected to improve, not substantially but improve all the same. The threat of deflation is still hanging in the air, especially with the strengthening of the Euro. The beginnings of a rise of the output prices, and some higher input costs, are expected to maintain a sufficiently high level of inflation. In the UK, the expectations are at post-crisis highs. The need for stimulus is disappearing and, as in the US, monetary policy is expected to start tightening before the turn of the year.
Japanese firms’ confidence over the future business activity has not changed much over the past few months. With sentiments improving in other countries/regions, the confidence in Japan is the weakest among the major economies, not altogether bearish but by no means super-high. The raise of the sales tax is just around the corner (April 1) and the strength which was hoped to be found prior to the tax-hike just was not seen in the expected magnitude. The “Abenomics” program has not created as much growth as had been hoped for and the potential of a large trade surplus has so far turned into a major trade deficit. In one area the success is becoming clear, though. Japan is definitely pulling itself out of the deflationary spiral. Prices of goods, as well as of employee costs are already rising quite rapidly. Manufacturing is doing better than the service and retail sectors.
China’s business optimism indicators have not moved much in the past 5-6 months or so. They remain near the lows reached in the summer 2013. Some minor improvement appears to be detected in early March but the levels are still low. The February manufacturing PMI (by HSBC) remained in the contraction zone. The serve sector PMI was in the positive growth territory but only very slightly and the composite PMI, combining both sectors, stood at 49.8 points, down by about one full percentage point from January. The weak development is starting to hurt the employment numbers. Some targeted stimulation efforts are likely to be seen soon as the government will try to stop the deceleration of the economic growth and keep the Chinese economy growing at a rate of 7%, at least.
Paper industry – The market data from January is somewhat difficult to interpret, due to weather-related problems, strikes and other either production or delivery-related disturbances. Combining what we know and what has been heard from the markets over the February/early March activity, it appears that the start of the year is less gloomy than feared but less bright than the more positive environment would indicate. In North America, the US ISM data was moderately positive after the low January level. More importantly, the two paper related indicators within ISM, the value for paper products and the activity in printing and related industries both showed a gain in February.
In Europe, the graphic paper sector has continued to retreat. The only grade that showed a positive comparison in January against January 2013 was uncoated woodfrees. In this grade the estimated European demand was up by over 2% but for the graphic papers total, the tally was another disappointing retreat by over 4%, both for the European demand and for shipments. And the news over the February order books is not all that encouraging either. Consequently, apart from newsprint, the price increase initiatives in Q1 have failed to materialize, rather the contrary. The recent strengthening of the Euro makes it increasingly problematic to compete in overseas exports which increase downside price pressures in the regional sales.
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