FOEX Pulp & Paper Indices - Dec. 29, 2009

Dec 29, 2009 — FOEX

HELSINKI, December 29, 2009 (press release) — General economy: USA – Private spending grew by 0.5% in November. Industry’s order books grew by just 0.2% but orders for durable goods were up as much as 2% while inventories went down, suggesting that the recovery is firming. Another positive piece of statistics was the big 2.9% increase in the orders for non-defence capital goods. The unemployment rate improved marginally from 10.2% to 10.0%. The rapidly rising public debt, the cost of the health-care reform and the on-going problems of individual people and small & medium-size businesses in getting credit reduce the growth potential in 2010.

Europe – The recent fall of the Euro against USD reflects the weakness of the final numbers over Q3 and the ensued growing doubts over the strength of the economic recovery. Industrial production fell in October and was down by 11% from last year. One million more jobs were lost during Q3. UK economy continued to shrink, even if by just 0.2% during Q3. Most analysts expect that the growth turns positive during Q4, however. Demand for consumer goods remains lacklustre but the first guesstimates over the Christmas sales have been encouraging. Difficulties of getting credit remain a major drag on economic growth.

Japan – Japan's factory output rose in November at its fastest pace in six months, helped by the recovery in export demand from China and other Asia which boosted the production of cars and other consumer durables. The recovery process has been penalized by the strength of the currency and of deflation. This recent improvement in export demand, triggered largely by China’s massive stimulus spending, has increased the odds against Japan slipping back into recession in 2010. Still, a lot of skill is required from the BoJ to stop the deflation. The national debt approaches 200% of GDP. Recovery, if any, will be very slow in Q1 & Q2 of 2010.

China – The Chinese authorities defy the outside pressures related to the need of letting the Chinese Yuan appreciate. Such appreciation could still be seen, however, but probably only after the exports have been growing again for some months. China has pledged to keep the economic policy flexible until the reaching of the target growth has been ensured. This flexibility may also mean some tightening of the policy if the inflation and other signs of over- heating start threatening the sustainability of growth. Stricter controls over bank lending have already been introduced.

Paper industry – The relative, and in some individual cases, absolute improvement, against the softer 2008 comparisons is becoming obvious when November 2009 statistics are released. In addition to the gains recorded in the US in coated grades and flat performance or smaller- than-earlier reductions in uncoated free sheet and packaging, also the first WE data showed smaller minuses. The total of the wood-containing grades, released by CEPIPRINT, shows the estimated European consumption for the month of November still down by 9% against November 2008. This is, however, a clear improvement compared to the cumulative demand, now down by nearly 16%. Similar patterns were seen in total shipments, down 7% in November and 16% in the cumulative comparison. Exports outside the region were actually up by 7% in November while the cumulative overseas exports, including the November gain, were still down by as much as 19%.

The outlook for the year 2010 paper consumption and production is still bleak in the industrialized world. Estimates of total advertising spending for Europe and the US in 2010 compared to 2009 vary in the range from -0.5% to -4%. For paper-based advertising, declines at approximately 5% or even higher are projected. Weakness is likely to persist also in uncoated woodfrees. In packaging, comparisons against 2009 look better than in printing and writing but still not good.

In China, and elsewhere in Asia, paper consumption is expected to grow at a fairly rapid pace but not fast enough to absorb all of the major capacity growth coming on stream in China. If that capacity is fully utilized, paper markets risk being even more challenging.

NBSK pulp Europe – The large increase in Chinese paper production requires growing volumes of pulp. PPPC reported November shipments down from October 2009 but up from November 2008 by 16% for total paper grades market pulp and by more than 8% for BSKP. Inventories at producers fell by 2 days, seasonally adjusted for both total and BSKP. In BSKP they represented only 19 days of supply. Consumer stocks in Europe, reported by UTIPULP went also down to less than 700 000 tons. Total market pulp inventories were at one of their lowest levels ever. Tight market situation may be alleviated by the volumes from units re- starting production, however. The USD weakened last week by 0.4% against the Euro. The PIX NBSK index retreated by most marginal 2 cents, or 0.00%, and closed at 798.77 USD/ton. With the weakened dollar, the EUR-price index came down by 2.37 Euro, or 0.43%, to 554.78 EUR/ton.

BHK pulp Europe – The shipments of BHKP market pulp continued to rise. The November volumes were up by 4.5% from October 2009 and by 24% compared to November 2008. The cumulative gain over the first 11 months of the year was already 6.5% or 1.1 million tons – not bad for a recession year. In this grade the seasonally adjusted producer inventory level came down by 4 days to 27 days worth of supply, also one of the lowest numbers in history since a substantial part of the production moved to locations far from the key consumers. Inventories at European buyers decreased to less than 3 weeks’ of consumption. USD weakened against the EUR by 0.4%. The weakening of the USD pulled the PIX BHKP index down by 2.07 Euro, or 0.42%, to 486.18 EUR/ton. The USD-price remained again unchanged at 700.00 USD/ton.

BHK pulp China – Market pulp shipments to China were slightly down in November, compared to October 2009. Comparison against November 2008 reveals a 26% gain. Cumulatively shipments to China from countries reporting to PPPC were up as much as 72.5%, nearly 3.4 million tons over the first 11 months. In spite of the increasing resistance, several producers of BHKP (and BSKP) market pulp have announced price hikes from January 1, most commonly by 30 USD/ton. The PIX BHKP China index value rose again, this time by 1.76 USD, or 0.27%, to 657.52 USD/ton. Converting this to the Chinese currency meant an increase of 12.04 RMB, or 0.27%, to 4489.57 RMB/ton.

Newsprint – In November, Europe’s newsprint demand was down by just under 10% from November 2008, according to CEPIPRINT. Cumulatively demand was down by 13%. Imports were unchanged in November but are moderately up for the year. Exports outside Europe were the bright spot with nearly 22% increase from November 2008 which improvement brought also the annual number virtually at par with 2008. The roughly 1.0% strengthening of the EUR against the basket of non-EMU currencies pulled the benchmark lower. The PIX Newsprint index lost 1.54 EUR, or 0.30%, and closed at 508.48 EUR/ton.

LWC – Coated mechanicals showed a relative improvement in November. In the US, shipments were up almost 15% against the very weak November 2008. In Europe, comparisons continued to be negative but the estimated demand was down much less, or 11%, in November than the cumulative 22% drop. CEPIPRINT statistics showed also in this grade a minute 1% growth in exports in November, even if the cumulative volume was still down by 23%. The approximately 1.0% strengthening of the EUR against the weighted basket of non-EMU currencies meant a downward pull on the benchmark. The PIX LWC index retreated by 2.06 EUR, or by 0.31%, to 665.43 EUR/ton.

Coated woodfree – The woodfree numbers for November have not yet been released by CEPIFINE. A relative improvement is expected also in this grade. In the US market, the change seen was rather dramatic, November shipments up by just over 10% whilst the cumulative shipments were still down by more than 20%. Major capacity increases in China continue in 2010 after a large hike already seen in 2009. The combination of the risen pulp prices on one hand and growing exports from China on the other hand means a challenging environment for the early 2010 price negotiations. The strengthening of the EUR by about 1.0% against the weighted basket of non-EMU currencies provided a negative force to the benchmark. The PIX Coated woodfree index went down by 2.48 EUR, or by 0.37%, to 668.11 EUR/ton.

Uncoated woodfree – European demand may or may not show some relative improvement in November. In any case, market remains weak. The consumption of this grade is linked to a number of office workers, home offices and to job creation in general. As the unemployment problem in Europe is likely to get rather worse than better in 2010, the outlook for next year is not bright either. Risen regional production capacity and a threat of import growth also cloud the outlook, together with a shrinking margin between fibre costs and paper price. The strengthening of the EUR by about 1.0% against the weighted basket of non-EMU currencies tried to pull the benchmark lower. In spite of this down-force, the PIX A4 B-copy index moved higher by 1.21 EUR, or 0.16%, to 776.09 EUR/ton.

Packaging – The pick-up of the packaging market has been disappointingly slow. Demand continues to be weak and well under 2008 performance both in Europe as well as in North America. The US box shipments were virtually at par with the very weak November 2008 and still clearly down cumulatively. Operating rates, so far below 90% will most likely improve after major capacity reductions. Production costs have risen with mainly fibre prices and delivery costs moving up. Price hikes have been announced in North America from the turn of the year. This is also the case in Europe, on top of the increases already seen in the course of Q4. All of the liner benchmarks moved lower this week, largely due to an approximately 1% stronger EUR against the basket of non-EMU currencies. In kraftliner, partially quoted in dollars, the 0.4% weakening of the USD against EUR also meant a downward pull on the index. The absolute changes were slightly bigger for the virgin fibre based benchmarks, although the relative changes were approximately in the same ballpark for both virgin and recovered paper based grades. The PIX Kraftliner index lost 1.06 EUR, or 0.25%, landing on 415.69 and the PIX White-top Kraftliner index retreated by 1.12 EUR, or by 0.18%, to 620.63 EUR/ton.The PIX Testliner 2 index fell by 68 cents, or 0.20%, to 340.11 EUR/ton, while PIX Testliner 3 retreated similarly by 69 cents, or 0.21%, to 320.56 EUR/ton. PIX RB Fluting decreased by 56 cents, or 0.18 %, to 307.74 EUR/ton.

Recovered Paper – The combination of continuing, even if somewhat moderating, demand pull from China and other export markets and the shortness of supply in Europe and in the US has led to a slow but persistent creep of the export prices of RCP grades, especially OCC. Those export price hikes have a gradually increasing pressure also on the regional recovered paper prices. The recent shortage of containers in some export ports has been making it more difficult to get the export volumes out, however.

The PIX OCC 1.04 dd index went up by 36 cents, or 0.48%, closing at 75.36 EUR/ton. The differential to Testliner 2 narrowed by 1.04 EUR to 264.75 EUR/ton and to Testliner 3 it was reduced by 1.05 EUR to 245.20 EUR/ton. The gap to RB Fluting diminished by 92 cents to 232.38 EUR/ton. The PIX ONP/OMG 1.11 dd benchmark retreated by 25 cents, or by 0.28%, to 88.20 EUR/ton, and the difference to Newsprint index shrank by 1.29 EUR to 420.28 EUR/ton.

US NBSK pulp – The shipments of market pulp to the North American market were up in November by 5.5% from November 2008. The cumulative drop is still substantial but was reduced to 12%. In BSKP market pulp, the cumulative drop is even larger, 13.3%, and if fluff pulp was excluded, the decline would be even more important. But, as always, the global supply/demand balance and inventory positions are the key price drivers, together with the USD-value against other currencies. With inventories very low and USD weak, further pulpprice increases have been announced also in the US market, typically by 20 USD/ton from January 1. The PIX US NBSK index moved up by 4 cents, or by 0.00%, and closed at 829.57 USD/ton.

US Newsprint – In spite of the persistent weakness of the newsprint demand, prices have been moving up since September, after having fallen dramatically over the first 8 months of the year. Price movements in the West lag behind those in the East. Also, commercial printers appear to be paying more than some of the publishers, probably at least partially due to different purchasing strategy/contracts. Both of the benchmarks moved slightly higher. The PIX US Newsprint 30lb benchmark advanced by 0.85 USD, or by 0.17%, to 511.95 USD/ton and the PIX US Newsprint 27.7lb index by 0.65 USD, or 0.12%, to 546.37 USD/ton.

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