FOEX: BHKP benchmark increased by $6.8 or 1,2%

Apr 19, 2005. /Lesprom Network/. US newsprint market continues to be sluggish as the number of dailies sold and the apparent consumption of newsprint are down from the previous year. Capacity closures, such as Norske Canada’s decision to stop production at one at Port Alberni, support pricing efforts, together with the cost and currency development. The attempted price hikes, driven especially the strengthening of the CAD against USD, was postponed to April. A small part of the attempted price increase (typically by 35 USD/ton to 615 USD/ton) appeared to have gone through previously. No further upward changes were, however, reported to us from last week. Our PIX US Newsprint benchmark remained thus flat at USD 564.63/ton, no change from the previous week.

The softness of the BSKP market still has not affected the price of the contract tonnage in North America even if more spot tonnage is reported to be offered. The futures quotes of NYBOT (reflecting spot tonnage net price at a few harbour locations in Europe or US) have fallen. The first settlement day is at hand which may have affected the pricing as the contract is based on the physical delivery concept and the liquidity has not been very high, although clearly better than with Pulpex. Last week the prices quoted for our benchmark continued to be and our PIX US NBSKP benchmark stayed flat at 680.00 USD/ton.

Utipulp, European pulp consumer March figures; inventory 1.210 million tons, in days 30, down from February figure of 1.226 million tons by 16 000 tons or 1.3%, down by 7.4% from March 2004. Consumption in March 1.240 million tons, up by 81 000 tons or 7.0% from February figure of 1.159 million tons, down by 4.0% from March 2004.

The price of oil has started to fall, at least temporarily. The fears of inflation in the US market still remain though. Further interest rate hikes are likely to be seen, in spite of the less positive news on the US economy. Deficits grew further in February with imports over 60% larger than exports. Industry output was down in March. Business inventories are up and consumer sentiment has been fading in April. The recent sizeable fall of the stock market lowers the household wealth and makes the consumer less willing to add to his already high debt-load.

European economy continues to lag seriously behind the US. Inflation is lower than in the US but after a 0.5% monthly increase the rate is difficult to keep below the 2% threshold target. The lower import prices in some products, such as textiles, have not (yet) been passed on to the consumers. Inflation at or above 2% is likely to prevent the possibility of an interest rate drop in Europe, one tool which could be used to help the EU out of the economic straight-jacket.

Japan suffered several economic blows last week. The stock values fell. The yields were down. The Yen depreciated. And, most importantly, the relations with China took a definite turn to worse. All this impacted both the consumer sentiment as well as the investing climate. It was unfortunate as several items had been positive.

Chinese economy is estimated to have expanded by 9.0% during Q1-2005. While still over-heated, this is one of the slowest growth numbers in two years. The political tensions that have risen between Japan and China can easily have economic implications as well. The weaker signs in the US economy are another worry. The nations and organizations outside China, including IMF, continue to put pressure on China to let their currency to float (in practice appreciate) arguing that such a move would be beneficial to both the world and the Chinese domestic economy.

In the paper sector, only limited number of March statistics is out by now. Ad pages in US magazines had a modest 1.2% growth after a more sizeable gain in February. US packaging numbers showed an improvement over the weak February. Against last year, the containerboard consumption was, after adjustment to the number of shipping days, slightly up year-to-date. Production was high and inventories rose 12% against 2004. Railcar loadings declined last week but are still up 4% year-to-date for pulp and paper products.

In Europe, the strike threat and some already experienced short-term strikes in the Finnish harbours and still ongoing labour negotiations in the pulp and paper industry – also there with a number of strikes and machines stoppages – is building up tension and, most probably has led to some attempts to increase inventories, both in pulp and in paper & paperboard over the recent weeks. Otherwise the markets have remained rather bearish and the order books are clearly shorter than this time last year. Coated mechanical paper exports have continued to do well, partly due to the losses of production in North America due to a lengthy labour conflict.

In market pulp, the only statistics out for March are still the Europulp stocks. They went up moderately both from February and against March -04. The port stocks are historically on one of the highest levels in a long time. Part of the inventory increase is probably due to the anticipation of the labour unrest in Finland and preparing for some scheduled maintenance down-time, typical for Q2. The other explanation is the weak paper production volume.Softwood pulp market remains weaker than the hardwood one. This is also seen in Asia where the BSKP prices have been under some downward pressure whilst BHKP prices have risen 20-30 USD/ton, depending on the grade and the market. The price gap between hardwood pulp and softwood pulps continues to shrink. The supply shift from hardwood to softwood at several mills has increased softwood pulp supply. Improving weather conditions in the US south and the narrower price gap may switch some capacity back to hardwood. Quotes received for our NBSKP index ranged from 630 to 670 with 645 still the most common quote. PIX benchmark continued heading south closing at 642.97 USD/ton, down by 32 US cents, or 0.05%. The USD weakened last week against Euro by 0.4%. The NBSKP Euro-value went thus down faster, ending - after conversion - at EUR 499.67/ton, down by 2.2 EUR/ton, or 0.4%, from the previous week.

In BHKP, the supply limitations and consumers’ switches from softwood to hardwood continue to support the producers’ efforts to raise prices and the supply/demand balance remains tight– for the time being, at least. The USD quotes received ranged now from 580-600 with 600 this time the most common quote. Prices reported in Euro ranged from 450 to 465 with 455 still the most common quote. The USD weakened by 0.4% against Euro. Euro 455 converted to 585 USD/ton. Average from the USD-quotes alone was USD 594.41, up 7 USD or 1.2% from the previous week. Average of the quotes in Euro alone was 457.50, up 2.5 EUR/ton from the previous week, or by 0.6%. With weaker USD, price increase was more limited in Euro. The official benchmark in Euro increased by 3.5 EUR/ton, or 0.8%, to 461.38 EUR/ton. Converting this into USD meant an increase of 6.8 USD/ton or 1.2%, to 593.70 USD/ton. Price gap between NBSKP and BHKP is getting close to the long-term average.

Newsprint demand has been disappointing both in Europe and in the US in early 2005. Still, the combination of supply discipline with several closures of capacity in the US and the cost pressures have helped the prices up on both continents. In Europe the results of the prolonged price talks for 2005 are now more or less fully shown in our benchmark values. Euro weakened by about 0.4% against the weighted non-EMU currency basket. This helped the benchmark in PIX Newsprint into a minor further rise. The index closed at EUR 490.59, up from the previous week by 39 cents/ton, or by 0.08%.

For coated mechanical reels, exports outside the region have continued strong with supply reduction in North America as the key driver. The price increases announced for Q1 or for the first half have gone partially through and continue to creep up, supported also by the recent gains in coated woodfrees. Among quotes received last week, most were unchanged but some further modest increases were also reported. The 0.4% weakening of the Euro against non-EMU currencies also helped to move the benchmark up. The index closed at 696.11 EUR/ton, 1.05 euro/ton, or 0.15%, up from last week.

Coated woodfree demand appears to have shown some improvement over the past couple of weeks. The statistics over March are not out yet. The efforts to get a price increase through continue as only a limited part of the announced increases has gone through for the time being. Some further small gains were again seen last week. The weakening of Euro against non-EMU currencies helped the benchmark to rise modestly. The index closed at EUR 723.27/ton, up by 1.5 EUR/ton or 0.2% from the previous week and 15 EUR/ton (2.2%) up from the beginning of the year.

The uncoated woodfree market remains weak, but the growing cost pressures with BHKP price moving up stopped the persistent downward trend in prices, at least temporarily. In the US, the price increase attempts have been fairly successful, despite the slackness in demand, as further capacity reductions have been seen or announced. For our B-copy benchmark in Europe, the majority of the quotes were again unchanged. Among those changed, there were, this time, more upward than downward modifications. The weakening of the euro gave some further upward push. Our A4 B-copy index increased by 2.7 EUR/ton, or 0.3%, closing at EUR 786.49/ton.

The packaging sector numbers in North America were not strong in March but, overall, slightly more positive than the previous months. Box demand is up 1%, year-to-date. But inventories are relatively high and the price increase attempts have been stalling. Exports are up but export prices down. The export drive is impacting also Europe as some of the NA kraftliner heads to the European markets.In Europe the capacity gains - already seen or still coming up later in the year – continue to exert downward pressure on prices. Last week the currency movements had a conflicting impact. The strengthening of the Euro against the USD pushed the index down, especially in virgin krafliner. The slight weakening of the euro against the weighted basket of the non-EMU currencies gave the indexes some upward push. In kraftliner, most of the changes reported were, however, downwards and the 0.4% weakening of the USD gave a further downward push. The PIX Kraftliner benchmark fell by 1.3 EUR/ton (or 0.3%) closing at EUR 449.66/ton.In the recovered paper based grades, price increases were announced from March 15 or April 1 in several markets. The price quotes received continue to be in most cases unchanged. Among those changed, there were only a limited number of changes, both up and down. The approximately 0.4% weakening of the euro against the non-EMU currencies gave a small upward push. The PIX Testliner 2 index came down by marginal 12 cents (or 0.03%) to EUR 351.57/ton. The PIX RB Fluting benchmark rose very modestly as it moved up by 13 cents/ton (or 0.04%) to EUR 314.47/ton.

PIX INDICES

Price/Tonne