FOEX: NBSK price in US dollars rises again in US, Europe, China but drops in China in yuan and in Europe in euros, BHKP price decreases in China, Europe in US dollars and in yuan and euros; in Europe, OCC inches higher, ONP/OMG retreats

Diane Keaton

HELSINKI , March 11, 2014 (press release) – NBSK pulp Europe – Weather conditions in North America are getting progressively easier. Still, the production problems and in some cases serious delays in shipments are still impacting the pulp market due to reduced availability. Although the delivery problems, including port strike in Chile, led to a rise in producer inventory levels, the softwood pulp market remains firm. Logistic problems risk continuing as the container-truck drivers are set to go on strike in Vancouver today. Much of the inland pulp is exported in containers. Several producers announced a further price increase from March 1. The last couple of weeks have also brought in three market pulp supply increase announcements for the future years with Sodra adding 275 000 tons of BSKP at Varo, UPM about 170 000 tons BSKP+BHKP at Kymi and Klabin 400 000 of BSKP, paper grades and fluff as well as over 1 million tons of BEKP at Ortigueira, Brazil. Euro strengthened against the US dollar again, this time by 0.6%. Our PIX NBSK index showed a marginal gain of 2.40 euro, or of 0.26%, and closed at 920.48 USD/ton. When converting this dollar-value into euro, the benchmark fell by 2.15 euro, or by 0.32%, and the PIX NBSK index in Euro landed at 662.50 EUR/ton.

BHK pulp Europe – In hardwood, the market is less tight. This is partly due to a minor decline in market BHKP deliveries in January and a bigger rise in the producer stocks and partly to the production and deliveries having been impacted by the weather less than the BSKP grade. The weakness of the graphic paper demand naturally impacts as well and hits hardwood harder than softwood. On the other hand, tissue paper production increases favour BHKP also more. The now over 150 USD/ton price gap between NBSKP and BEKP will obviously favour the latter in furnish decisions as the year advances. The price has been under downside pressure and remains quite a distance away from the 820 USD/ton target set by producers for January. Euro strengthened by 0.6% against the dollar from the previous week. The PIX BHKP index value in Euro came down by 3.57 euro, or by 0.64%, and closed at 551.70 EUR/ton. The PIX BHKP index value in dollars retreated by 46 cents, or by 0.06%, and settled at 766.53 USD/ton.

BHK pulp China – The muted economic outlook in China has spread also to the paper market. While demand for all kinds of paper products continues to grow, the growth is not fast enough to alleviate the over-capacity problems as the paper and board capacity continues to grow as well. Consequently paper prices have been under downside pressure which means downside pressure also on fibre prices. Competition has also intensified between BHKP and BCTMP. There have been some declines both in hardwood pulp and in recovered paper. Although the Yuan strengthened last week, it weakened over several weeks prior to that which widened the price gap between domestic and imported pulps. Weaker Yuan also supports the running of the non-wood pulp mills. Our PIX China BHKP index lost 79 cents, or 0.12%, and closed at 648.41 USD/ton. Yuan strengthened against the USD by 0.3%. The conversion of the USD BHKP price into Yuan resulted in a decrease of 17.49 RMB, or of 0.44%, to 3971.90 RMB/ton.

NBSK pulp China – If the container traffic from British Columbia to China is disturbed, the supply- chain problems will continue to keep the market on its toes. The spot prices for softwood pulp have been moving up, while going down in hardwood. The price increase announcements from March 1 by first Russian and Chilean and then also North American and European producers have been supported by the uncertainties over delivery schedules, including Russian pulp where volume growth has not been as big as expected after the start-up of the Ilim/Bratsk new line last spring. The price gap between NBSKP and BEKP which was slightly negative 12 months ago has now grown to 110 USD/ton. Our PIX China NBSK index value headed higher by 2.04 dollars, or by 0.27%, and closed at 757.14 USD/ton. Yuan strengthened against the USD by 0.3%. The conversion of the USD value into Yuan resulted in a minor decrease of 2.22 RMB/ton, or of 0.05%, to 4637.93 RMB/ton.

US NBSK – The supply side is playing an unusually big role in pulp pricing. While shipments of market pulp to the NA market were down by nearly 5% in January, the market remains tight. Both production problems, especially in US south, and delivery disturbances have led to delays in deliveries and sinking pulp stocks near consumers while producer stocks at those mills which have been running normally, but suffering from lack of railcars have gone up. Pulp producers have made use of the market tightness and raised the price of softwood pulp from March 1, typically by 20 dollars to 1030 USD/ton in commodity NBSKP grade. With several mills having had production problems in fluff pulp, that market has re-tightened as well and while the price relationship is promoting switches from fluff to regular paper pulps, the extra pulp has not been easily available. Our PIX US NBSK pulp price headed higher by 4.16 dollars, or by 0.4%, and closed at 1013.57 USD/ton.

Recovered Paper Europe – In China, the demand for RCP has been weak. Consequently, the OCC export prices have declined in late February - early March. On the other hand, the North American RP-prices, especially OCC, have been moving up as a result of weather-related supply- chain problems. The PIX OCC 1.04 dd index ended up gaining 31 cents, or 0.27%, and closing at 114.24 EUR/ton. The price differentials of OCC against linerboards and fluting narrowed as follows: against Testliner 2 by 31 cents to 366.29 EUR/ton, to Testliner 3 by 79 cents to 345.44 EUR/ton, and against RB Fluting by 76 cents to 338.07 EUR/ton. Our PIX ONP/OMG 1.11 dd benchmark lost 55 cents, or 0.43%, landing at 126.50 EUR/ton. The price differential against our PIX Newsprint index widened by 1.62 euro to 355.14 EUR/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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