Mar 28, 2007. /Lesprom Network/. Economic news from the US continues to come out as very contradictory – with pessimistic undertones. Housing starts went down 14% in January, then up 9% in February. Sales of existing homes went up but sales of new homes plunged to their seven-year low. Inflation pressure elevated but with leading indicators heading down, the Fed dared not lift the interest rate. In Europe, labour force is growing and getting more flexible and dynamic, unemployment is shrinking, productivity is moving up, inflation rate is slowing down and consumers’ buying power is improving. The strength of the Euro is a menace to the export outlook. Japan is one of the rare countries in which 2007 real economic growth promises to be better than last year’s performance. Consumer spending continues to be the weak link and unlikely to “wake up” any time soon. Japanese growth is based on booming exports, helped by the weakness of the Yen and on the investments, again mainly into the export sector. China is trying to continue the balancing act between gradually tightening monetary policy and continuous strong economic growth. Analysts expect the government to raise the deposit reserve ratio as well as the interest rates. Although monetary policy is increasingly restrictive, real economic growth will continue to be robust and reach and possibly even surpass the 10% mark also in 2007. In paper industry, the two first months of the year showed weak volumes both in Europe as well as in the US for some of the grades but in some others, numbers were even surprisingly strong. The clearest of these was the coated free sheet sector in the US with a 5% increase in apparent consumption after months of weak performance. But newsprint was down again as well as the coated and uncoated mechanicals. Uncoated woodfrees were down as much as 6% against February 2006. Also, the box demand fell substantially, or over 4% in February, even if weather probably played a fairly major role in the packaging grades. In Europe, a variety of other sources suggests that in Europe coated and uncoated woodfrees were not strong. However, with less capacity, the supply/demand ratios in January-February are up from early 2006. In wood-containing grades, CEPIPRINT statistics were just released. In newsprint and in the so-called other uncoated mechanicals – excluding SC, shipments were slightly down for the first two months. In SC and in coated mechanical reels, exports were clearly down but regional sales up 7% in SC and almost 6% in coated mechanical reels for the first two months. Market pulp shipments reflected the weaker performance of the paper market. Deliveries were down by nearly 2% for the first two months, but up a fraction for BSKP. Wood supply problems will continue and actually even worsen. Inventories of market pulp at producers went up for BHKP and came down, seasonally adjusted, in BSKP. Price increases by $20/tonne have now been announced also in Europe. Further widening of the price gap between BHKP and BSKP will encourage producers to switch to softwood while buyers are looking into using more BHKP. The PIX NBSKP benchmark gained the final $0.03, or 0.00%, bringing the index now to full $760.00/tonne. Euro strengthened last week again against the USD but only very marginally. This led the PIX NBSK benchmark in Euro-terms to a minuscule fall of Euro 0.06, or 0.01%, with the index closing at 570.27 Euro/tonne. In BHKP, shipments from the countries reporting their hardwood market pulp statistics were down by 3.7% for January-February from early 2006. Operating rate was below 90%. Producer stocks climbed higher. Widening price gap between BSKP and BHKP is expected to help BHKP balance as demand grows and some of the capacity is switched to BSKP at mills producing both grades. PIX BHKP benchmark retreated slightly in Euro-terms to 503.14 Euro/tonne, down by Euro 0.17/tonne, or 0.03%. Converting the Euro-value into USD, the PIX BHKP index dropped to $670.53/tonne, down by $0.13, or 0.02%. In newsprint, CEPIPRINT reported the European shipments down by nearly 3% from 2006 but the entire drop was in exports and the regional demand came up by 0.8%, however still down by 0.6% year-to-date. The benchmark, assisted by about 0.7% weakening of the Euro against the weighted basket of non-EMU currencies continued to head higher. The index gained 2.6 Euro/tonne, or 0.5%, and closed at 537.21 Euro/tonne. In coated mechanical reels, February statistics from CEPIPRINT were encouraging. Exports outside Europe were down by 13% but the regional demand was up by as much 5.6% bringing the total European shipments up 1.9% in February and 1.6% year-to-date. Better supply/demand balance fails to show in prices, though. The Euro weakened by about 0.7% against the basket of non-EMU currencies which helped the benchmark higher. The PIX LWC index gained Euro 0.93/tonne, or 0.14%, and ended at 688.89 Euro/tonne. In coated woodfrees, the statistics from CEPIFINE have not been published. The weakening of the Euro against the basket of non-EMU currencies helped the benchmark higher. The PIX Ctd WF index moved up by 1.04 Euro, or 0.09%, and closed at 719.08 Euro/tonne. Also in uncoated woodfrees, the January-February statistics are still not available. The market sentiment remains neutral. The weakening of Euro by 0.7% against the non-EMU currencies contributed to an upward move. The PIX A4 B-copy index gained Euro 0.73 cents/tonne, or 0.09%, and ended at 825.38 Euro/tonne. Weakening of the US economic growth and the freezing weather reduced the demand for containerboard in the US and weakened the chances to get the earlier announced price increases through. Box shipments fell in February by more than 4% but with a gain in containerboard exports, inventories fell more than their seasonal norm. In the European market, price increases have been announced in the white paperboards. In containerboard sector, earlier announced increases continue to go gradually through, supported by the recent clear increases in raw material costs. Over last week, also the 0.7% weakening of the Euro against the basket of non-EMU currencies had an impact. All of our packaging and raw material price indexes moved higher. Coupled with the weakening of the Euro, the PIX Kraftliner benchmark ended up with a gain of 1.3 Euro/tonne, or 0.26%, and closed at 521.23 Euro/tonne. The PIX White-top Kraftliner index moved up by Euro 0.78 cents, or 0.11%, to 686.71 Euro/tonne. Within the recovered paper based grades, the PIX Testliner 2 benchmark showed a gain of Euro 0.91, or 0.22%, and closed at 422.73 Euro/tonne. The PIX Testliner 3 index moved higher, too, by 1.2 Euro, or 0.3%, and broke the 400 Euro barrier at 400.26 Euro/tonne. The PIX RB Fluting moved again up the most, gaining 1.34 Euro, or 0.35%, and closing at 387.66 Euro/tonne. Earlier seen strong demand pull for recovered paper in Asia continued to be seen in recovered paper price movements both in Europe as well as in the US. For our European PIX OCC 1.04 dd (CEN 1.04) grade, the benchmark moved up this time rather marginally, or by 38 cents, or 0.44% and the index closed at 85.97 Euro/tonne. With this minor gain, the differentials to end-products re-widened. The margin grew to Euro 336.76 against PIX Testliner 2, to EUR 314.29 compared to PIX Testliner 3 and to Euro 301.69 against PIX RB fluting index. For PIX ONP/OMG 1.11 dd (CEN 1.11=Sorted graphic paper for de-inking), the index moved up Euro 0.60 cents, or 0.59%, and closed at 101.56 Euro/tonne, which re-widened the differential to PIX Newsprint index to 435.65 Euro/tonne.