Jun 20, 2007. /Lesprom Network/. In the US, retail sales showed in May the biggest increase since late 2005. Core inflation rose less than expected, just 0.1%. Still, including food and energy, inflation continued to gallop at 0.7% rate. Producer prices went up slightly more than expected. Consumer sentiment weakened in June, probably reflecting the sharp rise in the 30-year mortgage rates. The Fed continues to believe in a steady, moderate growth, with some heightened inflation worries clouding the skies. In Europe, the consumer confidence index in Germany hit the highest level ever since the unification of the two Germanys 17 years ago. Strong export demand and private consumption are the key drivers. Elsewhere in the EU, consumption numbers are not as good. In fact, first quarter showed a 0.1% decrease for the Union as a whole. Yet, real GDP growth was up as much as 3.0%. Growth is expected to weaken during the second quarter and the second half. The main reason also here is the rising inflation concern. In Japan, GDP showed an annualised rate of growth of 3.3% during the first quarter. Capital investments, exports and this time also private consumption – helped by the lower income tax - supported the rapid advance. Clearly slower growth is projected during the second quarter. Exports already fell in April to a lower level than in January-March and industrial production fell for the second month in a row. Private consumption will suffer from the combination of higher residential tax and the sluggish wage increases. In China, the rapid growth during first appears to continue during second quarter. The Consensus Economics have now raised also the 2007 GDP-estimate above 10%. The 2008 estimates have been revised upwards, too. Both industrial production and investments continue to expand at well above 10% rate. Further measures to combat the over-heating of the Chinese economy are expected from the authorities. Paper business thrives in Asia but has hiccups both in Europe as well as in the US. The US containerboard numbers for the month of May came out disappointing. Box shipments fell by 3.3% on an annual basis, conflicting with the healthy performance of the ISM index which box shipments typically correlate well with. May 2006 was a very good month which explains partly the weak performance but the last 3 months rolling average was not very good either, down 0.7% against 2006. In other grades, May numbers are not out yet. Downtime continues to be taken in newsprint in the US and in coated mechanicals on both sides of the Atlantic Ocean. Also SC producers in North America are taking substantial downtime - and have announced price increases. European regional demand has been OK but the sizable reduction in export volumes has kept the competition intense within Europe even if the capacity shutdowns amount to a bigger tonnage than the export decline. More downtime has been announced in pulp. The reasons vary but whatever the reasons, the practical supply continues to fall short of the capacity. Costs of the Canadian producers have gone up again in USD-terms as the CAD nearly reached $0.95. The supply/demand balance remains fairly tight in the pulp markets. In BSKP, most producers have announced price increases, typically by $20/tonne from June 1. Increases have started to go through, in spite of the strong buyer resistance. The NBSKP European benchmark moved up by $5.4 or 0.7% to $790.76/tonne. The 0.3% weakening of Euro against USD raised the Euro-value slightly more. After conversion, the Euro-index moved up by 5.6 Euro or 0.95% to 593.93 Euro/tonne. In BHKP, the shortage of birch pulp supply continues to affect the hardwood pulp supply/demand balance. In addition, the price gap of $100/tonne or more to softwood since late 2006 and the sizable increases in tissue paper consumption have helped BHKP demand. Most producers have announced $20/tonne price increases. The 0.3% weakening of the Euro against USD gave an upward push to our PIX BHKP benchmark, which rose by 3.5 Euro, or 0.7%, to 517.16 Euro/tonne. Converting the value into USD meant a slightly smaller upward change and the index moved up by $2.9, or 0.4%, to $688.55/tonne. In newsprint, volumes and prices in the US market continue to fall, creating further export pressures. In Europe, the demand grew by 1.5% for the first 4 months, much of that increase being in imported paper. An approximately 0.4% weakening of the Euro against non-EMU currencies helped the PIX Newsprint benchmark into a modest rise. The index moved up by Euro 0.32, or 0.06%, to 538.82 Euro/tonne. In coated mechanical reels, further capacity cuts and/or prolonged downtime has been reported in the North American market. In Europe, some PM’s are taking downtime, already prior to the real holiday season to compensate for the sizeable drop in exports. The European regional demand growth has been healthy in early 2007. The Euro weakened during the week by about 0.4% against the basket of non-EMU currencies but this upward push was not enough to compensate for the lower quotes received. The PIX LWC benchmark lost 1.2 Euro, or 0.18%, and ended at 677.46 Euro/tonne. In coated woodfrees, increases in the regional demand have compensated for the drop in export volumes, seen clearly also in this grade. The upward push from the 0.4% weakening of the Euro against non-EMU currencies assisted the benchmark into the same direction. The PIX Ctd WF index gained Euro 0.92, or 0.13%, and closed at 717.36 Euro/tonne. In uncoated woodfrees, the cost pressures are up with the pulp prices moving higher now also in Euro-terms. Demand in Europe is up, but in a fairly modest way. The 0.4% weakening of Euro against non-EMU currencies supported the benchmark’s move northwards. The PIX A4 B-copy index gained 1.2 Euro/tonne, or 0.14%, ending at 839.18 Euro/tonne. In packaging sector, the US containerboard numbers were disappointing with a 3.3% drop in box shipments against a particularly strong May 2006. Against May months of earlier years, volumes were up. Containerboard inventories remained on a low level. In Europe, the supply/demand balance remains good and virtually all of the production is placed on the regional market. Asian demand growth is good and has started to bring up the RCP-prices again. The prices of European containerboards continued to head higher, also helped by the currency movements. The USD strengthened by 0.3% against the Euro and the basket of non-EMU currencies strengthened 0.4% against the Euro. The PIX Kraftliner benchmark gained Euro 0.83/tonne, or 0.16%, and closed at 530.90 Euro/tonne. In white-top kraftliner, our index moved up by 1.7 Euro/tonne, or 0.24%, and closed at 696.48 Euro/tonne. In the recovered paper based containerboards, the benchmark moves were supported by the currency movements. The PIX Testliner 2 benchmark came up by 1.9 Euro, or 0.4%, to 453.13 Euro/tonne. The PIX Testliner 3 index gained 1.7 Euro, or 0.4%, and closed at 434.01 Euro/tonne. The PIX RB Fluting went up by 1.5 Euro, or 0.36%, ending at 420.41 Euro/tonne. Recovered paper prices have gone up $5-10/tonne in Asia from end May. This did not show much in our European benchmark grades. The PIX OCC 1.04 dd benchmark did gain Euro 0.42/tonne, or 0.45%, and closed at 93.73 Euro/tonne. As the prices of RCP-based containerboards went up more, the differentials widened again: the gap against PIX Testliner 2 increased to Euro 359.40, compared to PIX Testliner 3 to Euro 340.28 and to Euro 326.68 against PIX RB Fluting index. In old newsprints and magazines, the PIX ONP/OMG 1.11 dd index came modestly down falling by Euro 0.14/tonne, or 0.12%, to 113.25 Euro/tonne. The differential to PIX Newsprint index widened to 425.57 Euro/tonne.