FOEX Indexes Ltd - PIX Pulp, Paper, Recovered Paper Indexes

HELSINKI, August 20, 2013

Newsprint – Newsprint demand remain lacklustre. Over the first half, regional demand was down by 6% and exports fell by nearly 18% against January-June 2012. Supply was also substantially reduced through both idling paper machines or via maintenance and other downtime taken. Prices can be divided in three categories after the negotiations: annually price fixed contracts with no change, 2nd half 2013 contracts with pricing agreed until year-end and quarterly fixed deals. In mid-August, some volumes could still have been moving at old prices, due to order back-logs. Euro weakened by about 0.5% against the weighted basket of non-EMU currencies, which meant an upward push on the benchmark. The PIX Newsprint index slipped, however, lower by 58 cents, or by 0.12%, and closed at 465.86 EUR/ton.

 

LWC – Demand development has been very weak in coated mechanicals with prices heading, at least over the past week or two, rather down than up after the price negotiations. The long-awaited positive economic growth data over Q2 and also positive PMI-index values in July, give some hope to the LWC-producers that the worst of the demand retreat could be over. The small achieved increases in uncoated mechanical grades narrow the price gap between LWC and SC-A and may indirectly support the LWC-demand over the coming months. The approximately 0.5% weakening of the EUR against the weighted basket of non-EMU currencies tried to push the benchmark upwards. Nevertheless, the PIX LWC index lost 86 cents, or 0.13%, and landed on 661.09 EUR/ton.

 

Coated woodfree – The direct mail sector has been “off-pace” less than some of the other end-use areas. This should have supported coated woodfree demand but in Europe, it has fallen just as much as the demand for coated mechanicals over the past few months. Still, in this grade the price increase initiatives seem to be taking partially hold in some of the European markets, as it has done in North America. The weakening of the Euro against the weighted basket of non-EMU currencies by about 0.5% had a positive impact on the benchmark. Our PIX Coated woodfree index moved up by 3.33 EUR, or by 0.50%, and reached 675.27 EUR/ton.

 

Uncoated woodfree – Office papers showed the smallest decline in graphic papers during the first half of 2013 but even in this grade, the drop against first half of 2012 exceeded 5%. The seasonal pick-up is awaited with a particular interest as some analysts expect only a small further retreat against the corresponding months of 2012. The 0.5% weakening of the EUR against the basket of non-EMU currencies gave an upward boost to the benchmark. The PIX A4 B-copy index advanced, but by just 2 cents, or by 0.00%, and closed at 842.08 EUR/ton.

General Economy – US:  The US economy appeared to be bouncing back in July-August after a slowing-down of the economic growth during the 1st half. There are several pieces of information bringing faith in an acceleration of the growth in the 2nd half of the year but also signs of caution. Institute for Supply Management’s index of service-sector growth climbed in July to 56, clearly up from 52.2 points recorded in June. Both actual sales and new orders were up. Investments were also in a rise. Another rise was seen in the disposable income numbers but regardless of this, the U.S. consumer sentiment cooled off in August to its lowest reading since February-March. Another disappointing data showed that the residential construction rose less than expected in July, reducing hopes of acceleration in economic activity in the third quarter. Housing activity is dampened by the rapid rise in mortgage rates over the past few months. Housing starts rose less than expected in July with just under 900 000 units, or by 5.9%.

 

Europe – The recession appears to be over in the EU but the financial crisis in the Euro-zone is not over. According to the still preliminary data, the Euro-zone GDP grew by 0.3% in the 2nd quarter of 2013 (1.2% annualized), slightly more than expected and ending the record-long 18 months’ passage of economic contraction. It is not fully certain yet that the recession has ended. Germany was, once again, pulling the wagon with a 0.7% economic recovery, followed by France with a 0.5% gain. As the European Commission Vice-President Olli Rehn put it: The figures received suggest that the European economy was gradually gaining momentum. There are, however, still substantial obstacles to overcome and the tentative signs of growth are still fragile. Very high unemployment rate in a number of Euro-zone member countries is the biggest headache, suggesting major reforms across the Zone. The Consensus-numbers for the Euro-zone predict still -0.5% growth. As the forecasts were made before the release of the more optimistic data, there is, for once, some upside risk over the European economic data.

 

Japanese economy disappointed with only 2.6% GDP-growth in Q2, after a 3.8% expansion recorded during the 1st quarter. The economic observers expect the BoJ to increase the monetary stimulus efforts further in order to limit the negative impact of the up-coming sales-tax increases on growth, assuming still that the Government activates the earlier scheduled tax measures. Private consumption is expected to pick-up during the latter part of the year, before the tax hikes, speeding up the economic growth anew. An alarming piece of news on the national budgeting was that Japan’s trade deficit almost doubled in July. Exporters did well with the weakened Yen gaining 12% over July 2012 but import values rose even faster, or by 20% against July 2012. The string of trade deficit months is now 13 months long, the longest in over 30 years. Japan’s annual GDP-growth is still pegged at about 2% for this year and at 1.5% over 2014.

 

In China, the exports turned out to be quite good in July providing evidence that the economic performance of the country is stabilising following a slowdown over the first half of the year. Still, the economy is not doing fully well at present. The earlier excessive growth and, with it, excessive borrowing came for the “shadow” banking system (banks with no banking license). Now that the Government is trying to reduce these shadow banking operations, the earlier easily available credit has all but dried up for small and medium-size firms. This restricts the growth in China in a serious way. Slowing down of investments impacts private consumption and the reduced rate of household spending hurts the job market. The GDP growth is projected at around 7.5% this year and the same, or slightly lower, in 2014.

 

Paper industry – News on the paper and board market are limited in the midst of the European holiday season just before the days when the statistics over July start coming out. One piece of July numbers has already been published, the US containerboard statistics. They were quite good and in line with the better ISM-index and other improved economic news over July. US box shipments were up by nearly 3%, compared to July 2012. Linerboard production was up by 5% and capacity utilization rates remained at the 99% level already seen in June. The very high box and linerboard numbers were partly explained by a rise in the inventory levels, though. Profits of the paper industry were quite good in North America in Q2.

 

In Europe, no statistics are out yet. The good news is that the price negotiations before the holidays have brought some success, even if the targets set by the producers have not been fully reached. In any case, prices are moving up at least in recycled corrugated case materials, in uncoated mechanicals and at least in some parts/markets in the newsprint business. The jury is still out as to the pricing of the coated graphic papers and office papers. The modestly improved economic outlook gives some hope over the paper demand outlook. The declines against 2012 are expected to grow smaller than during the 1st half of the year. In Europe, the profitability of the public paper industry companies remained rather weak during the 2nd quarter.