Oct 18, 2006. /Lesprom Network/. Inflation continues to run well above the Fed target. Still, the decision to halt the US interest rates hikes for the time being appears wise with further news confirming the slowdown. These include the negative earnings outlook for third quarter, record trade gap, decline in the retail sales in September plus the likely delayed impact from the hikes earlier this year. Oil price has come down and eased the cost pressures. In Europe, the economic news continues to be predominantly positive. Industrial production numbers were above expectations in August. Gradually more flexible labour markets are boosting productivity helping thus competitiveness. This has created jobs and supported private consumption. It has also helped to bring the inflation level probably below 2% in August-September. Japanese economy continues its moderate expansion. Consumer prices rose in August by 0.3% but excluding energy they actually fell by 0.4%. Year-on-year, inflation is just barely positive. Lending by the banks has slowed down over the last 2-3 months. In spite of the weak growth of the money supply, private spending has continued to expand. China’s foreign trade grew by almost 25% during the first three quarters. September’s trade surplus was the second highest monthly figure this year. Foreign exchange reserves are now just a fraction under $1000 billion. China’s current account surplus is now at 9% of GDP. This invites the politicians of its trading partners, mainly those of the US and the EU, to plan protectionist legislation. The slowing down of the US economy already appears to be taking its toll on the paper markets. The seasonal pick-up after the summer months is less pronounced than usually in the printing and writing paper sector. In Europe, the seasonal momentum after the summer has been better than in the US and shipments have been running above 2005 in virtually every month so far. The lengthy labour strife in Finland in 2005 still affects the comparisons of the numbers. Shipments of total paper and paperboard are up about 3% against last year and those of printing and writing papers are up by about 2.5%. Recent price increase attempts have failed in all other major grades of paper, except for the copy paper. In packaging, the results have been more positive. Pulp market is in an interesting stage. The sinking quotes for pulp futures prices and paper makers’ woes suggest a softening market but recent announcements to raise eucalyptus pulp prices worldwide and radiata pine pulp prices in China present a very different picture. The PIX NBSK benchmark moved up by $3.2/tonne, or 0.45%, to $720.28/tonne. The USD strengthened last week by 0.9% against Euro and our NBSK index value in Euro closed at 573.93 Euro/tonne, up by 7.7 Euro/tonne, or by 1.4%. In BHKP, both Brazilian and Chilean eucalyptus pulp producers have separately announced a price hike of $20/tonne in all of the key export markets, Western Europe, Asia and North America. Euro weakened by 0.9% against the USD over last week. Stronger USD helped the PIX BHKP benchmark again up in Euro-terms. The index closed at 525.90 Euro/tonne, up by 4.8 Euro/tonne, or 0.9%. Converting the Euro-prices into the USD, the index moved up only most marginally with a $.004, or 0.01%, gain to $660.00/tonne. The European newsprint market is solid with good consumption and delivery statistics over the first 8 months of the year. Euro strengthened by about 0.2% against the basket of non-EMU currencies. This pulled the benchmark slightly down. The index lost Euro 0.18, or 0.03%, and closed at 519.49 Euro/tonne. In coated mechanical reels, production capacity closures in Europe are, in principal, supporting the price increase attempts but the coated paper market remains very competitive. The approximately 0.2% strengthening of the Euro against the weighted basket of the non-EMU currencies had a slight down-pull effect. The PIX LWC benchmark fell by 1.4 Euro, or 0.2%, and ended at 699.25 Euro/tonne. The coated woodfree reels continue to experience the same global oversupply pressures as coated mechanicals. Euro strengthening against the non-EMU currencies added some downward pull on the prices. The index retreated by Euro 0.28, or 0.04%, to 721.04 Euro/tonne. In the uncoated woodfree paper grades, European market has recently been more balanced than in the coated grades even if there have been rumours of some of the off-machine coaters not running and uncoated reels being exported. Although the strengthened Euro against non-EMU currencies presented a small down-force, our PIX A4 B-copy index advanced by Euro 0.89, or 0.11%, to 812.09 Euro/tonne. The US industrial production growth has weakened but the packaging product demand remains firm. The firmness of the market is mostly in form of low inventories. In Europe, no major changes have been seen in the packaging and the earlier announced price increases continue to be implemented. The currency movements had a small negative impact on our indexes this time as the basket of non-EMU currencies weakened by about 0.2% against the Euro. Higher quotes continued to be received, this time for all of the PIX Packaging indexes. In the virgin fibre liner, the PIX Kraftliner index for brown Kraftliner climbed by 8.5 Euro, or 1.7%, and closed at 510.77 Euro/tonne. The PIX White-top Kraftliner index gained too, although again less, with a 3.7 Euro, or 0.55%, increase and closed at 678.54 Euro/tonne. In the recycled fibre based packaging grades, the PIX Testliner 2 index moved up fairly little, i.e. by 1.4 Euro, or 0.35%, to 405.73 Euro/tonne. The PIX Testliner 3 index headed higher by 5.7 Euro, or 1.5%, to 376.79 Euro/tonne. The PIX RB Fluting benchmark went up the most, i.e. by 7.8 Euro, or 2.2%, to 362.27 Euro/tonne.