Sep 05, 2007. /Lesprom Network/. Market pulp shipments to North America have been strong this year, in spite of the decreases in the paper and board production volumes. Part of the demand increase is linked to ownership changes, part to problems at integrated production and part to the continuing switch to BHKP, especially BEKP, in tissue and some other grades of paper. Major market pulp producers have separately announced a price hike, typically by $20/tonne from September 1. Last weeks’ quotes were still mainly over August business. After removing the top and bottom 10% from the quotes received, our PIX US NBSK pulp benchmark stayed unchanged from previous week at $830.00/tonne. While waiting for the authorities’ final decision on the proposed Abitibi-Bowater merger, which is expected to trigger some further capacity reductions, newsprint market in North America is in oversupply situation. Supply reductions have not kept pace with the continuing fall in newsprint demand. A price hike of $25/tonne has been announced from September. But, at least last week, the long-lasting price decline still continued. Our 30lb benchmark retreated this time by $2/tonne, or by 0.36%, to $561.11/tonne, and the 27.7lb benchmark fell by $1.95/tonne, or by 0.32%, to $599.13/tonne. The turbulence on the financial markets appears to be calming down. Private consumption rose in the US in July but savings rate climbed higher too. Consumer confidence decline supports the view that private spending will taper off and a serious slowdown in the US economy is ahead. The Fed may – and should - lower the prime rate already in September. In Europe, the purchasing managers’ indices dipped further, even if only slightly. Also the business activity outlook is moderating. And, second quarter GDP growth was lower than expected and also below the first quarter growth. On the positive side, manufacturing industries continue to do well in most EU-countries. Also, input price inflation dropped sharply. In Japan, capital expenditures fell unexpectedly. BoJ again wisely refrained from raising the interest rate. Core consumer price inflation stands at 0.0% and risks to fall to the negative (read: deflationary) side are evident. Exports have deteriorated and the residential investments have been low. In China, strong GDP-data (11.5% growth over the first half of 2007) and the rising inflation numbers suggest that a further tightening of the availability of credit is needed if growth is to be kept at sustainable levels. Base interest rates were already raised last week. Industrial production, retail trade and exports all showed double-digit growth. Inflation is beginning to climb and came to an annual pace of 4.4% in June, twice the rate in Europe. The growth in paper industry shipment volumes has been slowing down in the recent weeks and months. In the US all grades, except for bleached board, showed a drop in the first half production. July was not much better volume-wise. Continuing trend to close down excess capacity has helped the pricing in most grades, though. European shipments were down in July in most grades as exports continued to fall. Regional shipments fared better, especially in uncoated and coated wood-containing grades. Cumulative performance is still positive for most grades. The strength of the Euro shows both in the clear reduction of paper exports outside the region and in gradually growing imports. Tightness persists on the pulp markets. Major capacity additions in Latin America bring in more market BHKP production but wood supply and other problems restrict production potential elsewhere. The largest production losses are at present seen in British Columbia with wood workers’ strike and Indonesia where mixed hardwood deliveries to the pulp mills have been stopped in the dispute over the legality of the logging practices. Most producers have announced softwood pulp price increases from September 1. The quotes received were still largely on the last sales of August. After applying the 10% top and bottom removal rule, the PIX NBSKP European benchmark remained unchanged at $800.00/tonne. The 0.7% strengthening of Euro against USD pulled the Euro-value further down. After conversion, the index in Euro fell by 3.9 Euro, or 0.7%, to 583.73 Euro/tonne. In BHKP, Bahiasul’s Mucuri mill started up last week and Botnia’s Uruguay mill is scheduled to start production in early September. The exact date has not been revealed as the political tension over the mill between Uruguay and Argentina continues. Switches from BHKP to BSKP in the Nordic region and the growing wood supply problems at the Indonesian mills counterbalance the approaching new supply. The 0.7% strengthening of the Euro against USD pulled our PIX BHKP benchmark slightly down in Euro. The index retreated by Euro 0.63, or 0.12%, to 525.01 Euro/tonne. Converting the value into USD brought the index up by $3.9, or 0.54%, to $719.53/tonne. In newsprint, demand continues to decline in the US and also in Europe demand growth has been modest. Also, imports are gradually gaining more market share. Modest 0.1% weakening of the Euro against non-EMU currencies gave the benchmark a minor upward push. Our PIX Newsprint index gained Euro 0.32/tonne, or 0.06%, and closed at 539.81 Euro/tonne. In coated mechanical reels, regional demand has improved over 3% from 2006 and - with less capacity - supply/demand ratio has improved. But, with a very large drop in exports, total shipments by European producers have fallen slightly from 2006. With more competition within Europe and with the strength of Euro, pricing remains a problem. Euro weakened marginally during the week against non-EMU currencies, giving a fractional push upwards. Still, the PIX LWC benchmark retreated by Euro 0.75, or 0.11%, to 670.92 Euro/tonne. In coated woodfrees, large price increases have been announced in the US market, supported by the rising costs and on the countervailing duties levied on imports from Asia. In Europe, the regional demand is up but exports down by almost an equal volume. The minor 0.1% weakening of the Euro against non-EMU currencies helped the benchmark upwards. The PIX Ctd WF index inched up by Euro 0.11, or 0.02%, to 709.83 Euro/tonne. The uncoated woodfree statistics over June were weaker than in previous months. With exports down and imports from outside the region up, total shipments were clearly lower than earlier this year. The impact of the weaker delivery month also crept into the pricing. The minor weakening of Euro against non-EMU currencies gave a small but insufficient upward push. Our PIX A4 B-copy index fell back by 1.1 Euro, or 0.13%, closing at 849.33 Euro/tonne, 30 Euro/tonne above the level at the beginning of the year. On the US market, packaging has done better than the paper sector but even in this sector, all grades except for bleached board are volume-wise down from 2006. The declines in linerboards are fairly small. In Europe, positive trade development, internal as well as export-oriented, has helped to keep the demand for packaging materials satisfactory. Rising production costs, especially energy and recovered paper prices, have supported higher prices. In Kraftliner, the weakness of dollar has kept the price rises lower than those in recovered paper based grades. The 0.7% weakening of the USD increased the downward pull. The minor 0.1% weakening of Euro against the basket of non-EMU currencies had only a very limited impact on our benchmarks. The PIX Kraftliner index retreated by Euro 0.51 or 0.1%, and closed at 526.91 Euro/tonne. The White-top Kraftliner index moved up by 1.5 Euro, or 0.22%, to 700.63 Euro/tonne. All three recycled fibre based benchmarks moved up slightly. Our Testliner 2 index increased by 1.25 Euro, or 0.27%, and ended at 458.95 Euro/tonne. Testliner 3 gained Euro 0.95, or 0.22%, to 439.50 Euro/tonne and RB Fluting showed an increase of 1.05 Euro, or 0.25%, to 427.79 Euro/tonne. In recovered paper, OCC prices are reported to have started up modestly again in the Asian market, after a minor retreat in mid/late August. In Europe, prices of recovered paper showed only marginal or no change. This applies also to our benchmark grades OCC 1.04 and ONP/OMG 1.11. The PIX OCC 1.04 dd index moved up by marginal Euro 0.06/tonne, or 0.06%, to 105.15 Euro/tonne. The gap between OCC and PIX Testliner 2 index widened to Euro 353.80. Against Testliner 3, the differential increased to Euro 334.35, and against RB-Fluting it widened to Euro 322.64. The PIX ONP/OMG 1.11 dd index stayed flat at 124.71 Euro/tonne. The differential to PIX Newsprint index widened to 415.10 Euro/tonne.