FOEX pulp and paper markets update

Nov 30, 2004. /Lesprom Network/. USD continues to weaken. Much talked about “limit of the pain” – level against Euro of 1.35 is not far. Interventions, unless they have a wide base, rarely work against fundamentals or market trends. US will obviously not join Europe in the fight to support USD. The key lies with China. If they revalue their currency (Yuan), much of the pressure will be lifted off Euro. The impact of the USD devaluation is beginning to show in different sectors of US and world economy. US inflation has picked up whilst the European costs show signs of beginning to slow down. US trade growth was less during third than second quarter but increases in exports were larger than in imports. European exports have started to struggle. And, investment plans into NA production units by foreigners are growing.

This is seen also in pulp industry (Celgar purchase by Mercer and interest shown by Birla on St. Anne Nackawic). European economic outlook is dim. Also the opinion polls in different European countries show little faith among the consumers in the improvement of the economic conditions of EU in 2005. Yet, clearly the best recipe to keep the modest recovery going would be to go shopping. In China, excessive investments and ensuing inflation are still a key worry. Pulled by the raw material prices, costs are going up by more than 5%, in spite of the credit restrictions and higher interest rates. This also provides some hope for those hoping for a revaluation. The first step towards stronger Yuan would be a widening of the trading band against the dollar. A slight strengthening of the Chinese and other Asian currencies would ensue, forcing USD lower and US interest rates further up.

Paper industry statistics for October showed small declines for most grades in the US over October 2003. The year-to-date numbers continue to be positive, though, except for the newsprint. Also, for most grades, inventories are fairly low and capacity utilization grades high. Weakened dollar helps the domestic industry competitiveness against imports. In Europe, numbers for the woodfree grades are not out yet, as this text is written. In woodcontaining grades, October gains were smaller than for the previous months or even below October 2003. However, year-to-date increases are substantial and shipments for some grades, such as coated reels are at all-time-highs.  

In market pulp, the large 300 000 ton drop in producer stocks reflects both the downtime taken in different ways in October and, in particular, the large pulp purchases by China at the end of September and in October. Shipments have gone up to other regions as well. WE, EE and Japan have bought increasing volumes of BHKP whilst in the NA market, most of the gain has been in BSKP. Weakness of the USD has triggered and supports price increase announcements.

With higher prices, Asian buying spree is again tapering off, at least momentarily. Quotes received for NBSKP index showed a widening of the range to 580 - 640. The most common quote continued to be 600. Our PIX benchmark closed at 599.63 USD/ton, 1.6 USD, or 0.3%, higher than a week ago. The USD weakening continued, by as much as 1.7% against the Euro. When converted into Euro, NBSKP price thus fell to EUR 452.96/ton, i.e. a decrease of 6.4 EUR/ton, or 1.4%, from the previous week.

In BHKP, price increases from November 1, mainly at 520 USD/ton, also continue to go through in dollars, although this time quite slowly. With the large price differential to BSKP, hardwood pulp demand continues to expand quite rapidly. Prices received ranged mostly between 480 and 520 in the USD with 500 still the most common quote. Prices reported in Euro ranged for most of the sales from 385 to 415 with 400 euro as the typical quote. The USD weakened by 1.7% against Euro. Euro 400 converted to 530 USD/ton. Average from the USD-quotes alone was USD 500.79, up by 1.4 USD/ton or 0.3% from the previous week. Average of the quotes in Euro alone was 402.58 euro, down by 1.4 Euro/ton or 0.35% from the previous week. With the currency impact, the official bench mark in Euro decreased by 6.1EUR/ton, or 1.6%, to 382.02 EUR/ton. Converting this into USD meant an increase of 34 cents, or 0.1%, to 505.72 USD/ton.    

Newsprint price discussions over the 2005 volumes have started. Producers asking for clear increases to compensate for the risen costs. European demand went up 1.1% in October and has advanced 2.5%, year-to-date. The quotes received for our index for 2004 deliveries remained, once again, largely unchanged. Euro weakened marginally, or by about 0.2% against the non-EMU basket creating a minor upward push in the PIX Newsprint benchmark. The index ended up at EUR 466.42, up from the previous week by 7 cents/ton, or 0.02%.  

In coated mechanical grades, the US demand pull slowed down marginally in October. In Europe, good export performance helped deliveries up by 2.8% over October 2003. Year-to-date gain in shipments is 86%. Announced price increases continue to meet resistance. Some small changes were seen, both up and down. The slight weakening of the Euro against non-EMU currencies provided minor upward push. The index closed at 669.64 EUR/ton, 34 cents/ton or 0.05% higher than last week.

The coated woodfree shipments slowed down in the US market in October 2003. European numbers for October are not out yet. The announced increases here in Europe do not show – at least not clearly - in our benchmark. However, quotes received did include some increases this time. The 0.2% weakening of the Euro against the weighted basket of the non-EMU currencies also helped to pull the bench mark upwards. The index closed at EUR 708.66/ton, up by 1.2 EUR/ton or 0.2% from last week.

In uncoated woodfrees, the October numbers for the US showed weakening of the demand. European statistics over October are not out yet. For the B-copy benchmark, some changes were seen in the quotes received, most of them downwards. The modest weakening of the Euro had some upward impact but not enough to offset the declines in the quotes received. The index fell by nearly 2.0 EUR/ton or 0.2% closing at EUR 808.58/ton.

The demand for containerboard was marginally down in the US in October but the balance is still good, inventories low and operating rates very high. European market shows also a healthy demand continuing. Prices increases have gone largely through in North American market. Prices continued to rise also in Europe, in spite of the again adverse USD/EUR exchange rate movement. The Euro continued its strengthening against the USD (by 1.7%) but weakened slightly against the non-EMU currencies (by 0.2%). In kraftliner, quotes received were unchanged or slightly up and although the USD-weakening had a downward pull, the PIX Kraftliner index ended up by 38 cents/ton (or 0.1%) to EUR 456.29/ton. In the recycled fibre based grades, quotes were unchanged. Exchange rates had in these grades a slight upward push. PIX Testliner 2 benchmark inched up by 9 cents (or 0.03%) to EUR 352.25/ton. The PIX RB Fluting index gained 19 cents (or 0.06%) to EUR 319.90/ton.