Aug 09, 2006. /Lesprom Network/. Dollar weakened last week below 0.78 Euro but from end April until last week USD/Euro exchange rate stayed quite stable in the 0.78-0.8 range. The main reasons for the USD not weakening with the deficits have been the rising interest rates and the fact that the US offers a multitude of ways in storing the increasing wealth of the oil-rich nations and many (other) emerging economies. Poor employment numbers in July indicate a weakening of the economy. In spite of the job market weaknesses, US consumer spending stayed up in July. In Europe, ECB raised interest rates - as expected - from 2.75 to 3.0%. Very unexpectedly, the Bank of England followed suit and raised the UK rate from 4.5% to 4.75%. UK real rate is clearly higher than that of the EMU area. European economic growth remains reasonably good without any clear signs of a slow-down. Next rate hike by ECB is widely expected within 2-3 months. In Japan, disappointing pieces of economic news have increased but the overall outlook remains positive. Business investments have been declining but the recent Tankan survey indicated stronger plans for the future. Disposable income numbers continued to worsen but the consumer confidence is on a very high level. In China, the growth boom accelerates further. Second quarter real GDP-growth is projected to be near 11.5% annual rate after 10.9% during first quarter. The foreign reserves have exceeded $1 trillion. Now also the private domestic demand is rising. This provides a good platform for the appreciation of the Yuan which measure would reduce the risk of protectionist measures from the US. The paper industry is repeating the performance of last year. In Europe, economic growth rates are short of those in the US but the paper consumption volumes are rising faster. Over the first six months, printing and writing paper consumption in Europe was up nearly 4% whilst in the US it actually went down by 1.1%. In the matured Asian economies, Japan and Korea, minor growth of about 1% was registered. In spite of the declining consumption, US printing and writing paper market has been price-wise healthier than that of Europe. The main reason has been the better readiness of the North American producers to close down excess capacity. During the first half of this year, operating rates in the US for almost all grades either improved from 2005 or at least remained at last year's levels. Also in Europe, capacity utilization rates are up but from a lower starting level than in the US. Recent and very near-term future closures are likely to improve the European ratios further. Pulp market has not experienced much of a summer lull this year. The drop of the producer inventories to 28 days for the total of all grades and just 24 days for BSKP keeps the buyers on their toes. However, the start-up of two large new lines in Chile during the second half and the possibility of a re-start of a market pulp mill in Canada push the supply of market pulp up towards the end of the year. The PIX NBSKP benchmark climbed up this time by $3.2/tonne, or 0.45%, to $705.63/tonne. The USD weakened last week by a full 1% against Euro. While index value went up in USD, our NBSKP index value in Euro dropped to 551.62 Euro/tonne, down by 3.07 Euro/tonne, or 0.55%. In market BHKP, the increase in shipments during the first half was in the double-digit territory. Last year's supply problems and prices near NBSKP levels held BHKP demand growth back but now the substitution of BSKP by BHKP has resumed. Euro strengthened by 1.0% against the USD over last week. The weakening of the USD was the culprit for our BHKP benchmark to fall in Euro-terms. The index closed at 513.41 Euro/tonne, down by 3.1 Euro/tonne, or 0.6%. Converting the index-value into USD brought it higher to $656.75/tonne, up by $2.6/tonne, or by 0.4%. Newsprint demand in Europe has stayed at a healthy level with the first half demand up by 4.7% from 2005. Imports were down and thus the shipments of the European producers were up even more than the European total demand, or by nearly 6%. The minor upward move of the index was predominantly currency driven, as the Euro weakened by about 0.8% against the weighted basket of the non-EMU currencies last week. The PIX Newsprint index moved up by Euro 0.78, or by 0.15%, to 519.98 Euro/tonne. In LWC, the persistent over-capacity of the recent years will be clearly reduced this summer. Supply potential goes down in June-August by more than half a million tonnes with the closures of 2 PMs by UPM and another two by Stora Enso. Demand of coated mechanical reels was up by 3% during the first 6 months. Helped by the exchange rate movements, the PIX LWC benchmark gained 1.2 Euro, or 0.17% and closed at 705.85 Euro/tonne. In coated woodfrees, the production capacity is also going down in Europe, although less than in LWC. With estimated demand up in Europe by nearly 4% during the first half of the year, the oversupply problems are lessening. There were more changes upwards than downwards in the quotes received. The PIX Ctd WF benchmark moved higher, helped also by the 0.8% weakening of the Euro against the basket of non-EMU currencies. The index came up by 2 Euro, or 0.3%, and ended at 720.94 Euro/tonne. In uncoated woodfree demand, the changes over 2005 are relatively small as for the first 6 months. European demand was up by only 0.9% and for total deliveries from Europe - with some gain in exports - the shipments were up by 1.5%. Price changes reported to us from last week were mostly upwards. With further help from the currency movements, the PIX A4 B-copy index moved up by 4 Euro, or 0.5%, and closed at 807.05 Euro/tonne. The US corrugated box shipments continued strong in June and inventories fell. On raw material side OCC price rise has peaked, at least for now, and prices are reported to have come down by $10/tonne. In Europe, main producers have announced containerboard price increases, typically 30-40 Euro/tonne from September for continental Europe and Euro 40/tonne, or equivalent, from August for the UK. Capacity closures continue in the recycled fibre based containerboards. Changes reported to the packaging indexes last week were mainly up. The currency movements had a positive effect on our indexes this time as the basket of non-EMU currencies strengthened by 0.8% against the Euro. For Kraftliner, quotes received were both up and down this time. The PIX Kraftliner index ended up gaining 1.71 Euro, or 0.35%, closing at 487.48 Euro/tonne. For White-top Kraftliner, quotes received were largely unchanged or slightly up and the PIX White-top Kraftliner benchmark went up by 1.16 Euro, or 0.17%, reaching 669.48 Euro/tonne. For the recycled based packaging grades the quotes were largely unchanged and, thus, the changes in the index values were mainly currency driven. The PIX Testliner 2 index rose by Euro 0.28, or 0.07%, to 383.26 Euro/tonne, the PIX Testliner 3 by Euro 0.25, or 0.07% to 355.41 Euro/tonne, and the PIX RB Fluting by Euro 0.37, or 0.11%, to 340.26 Euro/tonne.