Aug 29, 2007. /Lesprom Network/. US leading indicators last week strengthened the view that US economic growth will slow down during the remainder of the year. While the outlook is pessimistic and with further downside risks originating from the credit/mortgage squeeze, recent days have brought some positive news, too. New home sales were up and exceeded expectations. Durable goods sales were up by almost 6%, thanks to the large aircraft deals. In Europe, the purchasing managers’ indices continued to slide lower. They, however, still suggest that the strong economic growth is likely to continue. Recent growing uncertainties on the financial markets brought the German ZEW-index (confidence of the financial sector) down. In spite of the growing concerns on the financial market ECB is still more likely than not to raise the prime rate in their September meeting to contain the re-rising risks of inflation. In Japan, the BofJ left the interest rates unchanged last week. With a 2% GDP-growth and 0% core inflation, the fundamentals do not support such a move anyway. Economic growth seems to have been weak during the summer – partly due to the natural disasters and weather conditions. Some recovery is still expected during fourth quarter. In China, the economic growth risks remain on the upside, in spite of the recent global financial turmoil and of the growing concerns of the environmental costs of the growth. Economic policy will continue to target to contain the overheating of the growth and of the asset market. Lending and deposit rates were raised last week. Government showed signs of liberation by allowing direct investments from China to Hong Kong in the retail sector. The numbers on paper industry activity over July have been mixed but maybe more on the positive side, taking into account the seasonal factors and the weakness of the US economy. In the US, box plants were operating in July better than last year. In coated papers and in uncoated woodfree, while demand is flat, the market is firm with supply constraints and prices are either moving up or hikes have been announced in September. In newsprint and uncoated mechanicals the situation is softer. Newsprint prices continue to fall, in spite of an announced increase attempt in September. In Europe, July numbers are in from CEPIPRINT. They show a small decline in newsprint shipments as well as in “other” uncoated mechanicals. However, in coated woodcontaining reels and in SC-grade(s) increases in shipments were substantial and in the European regional demand was up nearly 10% over July 2006. This improved also the cumulative results. Pulp market remains strong. July shipments according to PPPC were 2.5% above June and almost 10% higher than in July 2006. Producer inventories went up by one day but the stocks are still low, at producers as well as in the total supply chain. Wood supply and other problems keep the practical supply below capacity. Following the woodland workers’ strike in coastal BC, the first pulp mills have either closed down or reduced production rate. This applies to BSKP in particular. Most producers have announced softwood pulp price increases from September 1, typically in Europe and North America by $20-30/tonne and in Asia by $10-20/tonne. After applying the 10% top and bottom removal rule, the PIX NBSKP European benchmark remained unchanged at $800.00/tonne. The 1.2% strengthening of Euro against USD pulled the Euro-value down. After conversion, the index in Euro fell by 7 Euro, or 1.2%, to 587.59 Euro/tonne. In BHKP, the start-up of new market pulp mills in Uruguay and Brazil is just around the corner. At the same time, growing wood supply problems at the Indonesian mills are reported, due to government decision to halt, at least temporarily, the cutting of wood from large natural forest areas which reduces the supply of mixed hardwood. Shipments of BHKP market pulp were in July almost 14% above July 2006 level. The 1.2% strengthening of the Euro against USD pulled our PIX BHKP benchmark down in Euro. The index retreated by 3.7 Euro, or 0.7%, to 525.64 Euro/tonne. Converting the value into USD moved the index up by $3.4, or 0.5%, to $715.66/tonne. In newsprint, CEPIPRINT statistics showed a nearly 2% drop in the regional demand but strong export growth to Asia kept decline in total deliveries at 1.1%. In the cumulative numbers over the first 7 months, total deliveries were down by 2.8% but demand in Europe still showed a minor 0.3% growth with imports gaining share over the regional shipments. Modest weakening of the Euro against non-EMU currencies gave the benchmark a minor upward push. Our PIX Newsprint index gained Euro 0.04/tonne, or 0.01%, and closed at 539.49 Euro/tonne. July data from CEPIPRINT on coated mechanical reels was quite positive. Exports outside the region continued to fall in double-digit numbers but the regional shipments and the total European demand were up as much as 8.3% against July 2006. Year-to-date demand in Europe is up 3.4% but with a 17% drop in exports, total shipments showed a 0.9% decline. Euro weakened marginally during the week against non-EMU currencies, providing a fractional push-up effect. The PIX LWC benchmark moved up by Euro 0.06, or 0.01%, to 671.67 Euro/tonne. In coated woodfrees, June numbers from CEPIFINE showed exports up. Shipments to Europe and the European demand were up only very modestly. Over the first half of the year, regional demand was up by 2.4% but an almost 6% retreat in exports – in spite of the June increase, kept total shipment growth at a mere 0.2%. The minor weakening of the Euro against non-EMU currencies helped the benchmark upwards. The PIX Ctd WF index inched up by Euro 0.27, or 0.04%, to 709.72 Euro/tonne. The uncoated woodfree numbers for June from CEPIFINE were lower than expected. European demand retreated by 0.4% but with a decline in exports and with some growth in imports, total shipments from Europe fell by more than 5%. Cumulative data over the first half show a small decline in total deliveries but still about 2% growth in the European demand. Higher quotes received and the minor weakening of Euro against non-EMU currencies gave an upward push. Our PIX A4 B-copy index climbed up again, this time by 2.3 Euro, or 0.28%, closing at 850.42 Euro/tonne. On the US market, risen raw material costs, supply reductions and improved box shipments in July have helped to get through most of the latest price initiatives. In Europe, recovered paper prices have kept moving up through the summer and price increase attempts have been announced for recycled containerboard and fluting, typically 40-55 Euro/tonne in third quarter 2007. 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 0.92 or 0.17%, closing at 527.42 Euro/tonne. The White-top Kraftliner index recovered the drop of the previous week and moved up by Euro 0.46 or by 0.07% to 699.11 Euro/tonne. All three recycled fibre benchmarks moved up slightly. Our Testliner 2 index increased by Euro 0.84, or 0.18%, ending at 457.70 Euro/tonne. Testliner 3 gained a most marginal one cent, or 0.00%, to 438.55 Euro/tonne and RB Fluting had the same increase of one cent, or 0.00%, to 426.74 Euro/tonne. In recovered paper, OCC prices are reported to have come down slightly in Asia in late August, after increases in late June/early August. In Europe, the prices of recovered paper have kept on moving higher. 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 2.3 Euro, or 2.2%, to 105.09 Euro/tonne. The gap between OCC and PIX Testliner 2 index narrowed to Euro 352.61. Against Testliner 3, the differential shrank to Euro 333.46, and it decreased to Euro 321.65 against RB-Fluting. The PIX ONP/OMG 1.11 dd index gained 2 Euro/tonne, or 1.65%, closing at 124.71 Euro/tonne. The differential to PIX Newsprint index narrowed to 414.78 Euro/tonne.