Sep 26, 2007. /Lesprom Network/. In the US, the larger-than-expected (0.5%-points) drop in the prime rate reduced – but did not completely remove – the risk of a recession. Lower interest rate and record-weak dollar, in principle, raise the inflation risk but the August data - with producer prices down by 1.4% and consumer prices by 0.1% - helped to alleviate those fears for the time being. In September, risks rose again as oil prices moved up to their highest level ever in nominal terms. In Europe, the credit squeeze and the lack of confidence in the financial system is demonstrated by the 3-month Euribor being well above the ECB’s refi-rate. Inflation risks are growing with both energy and food prices rising. The record-strength against USD helps to contain those pressures but further weakens the competitiveness of the EU export industries. Japanese economic growth has been disappointing. The risk of a serious slowdown in the US dims the outlook for the remainder of 2007 and for next year. On the other hand, Japan is likely to see less impact from the US sub-prime mortgage problems and the recovery from the crisis should be rather painless. GDP projections for this year have been revised downwards to just under 2%. For next year, most forecasts predict the growth to be a fraction above 2%. China should continue to raise interest rates in order to cool down the investment boom and put a lid on the recently rapidly risen inflation rate. After the 50 basis point drop of the US prime rate, this is difficult as the hikes would widen the interest rate gap and increase the pressures to allow the Chinese currency to appreciate. On the other hand, keeping the rates low would increase the inflation rate, already now in excess of 5%. This, in turn, could lead to a “hard landing” later on. Paper statistics in Europe for the August performance are not out yet. Judging by the pulp consumption numbers from UTIPULP, there has not been much change from August 2006. Inventories of paper were up moderately during summer months. Order books continue to be better on packaging sector than in printing and writing. In the US, bleached board and kraft papers are the strongest grades. Price increases are attempted, at least partially successfully, also in several other grades of paper in which the demand is not up from last year but where the combination of capacity reductions, other production losses, risen costs and dollar weakness support the pricing initiatives. Newsprint remains the weakest link with inventories rising and prices falling. Asian paper demand continues to grow rapidly and so does production capacity. New tissue or liner or white paper machine orders or other capacity increases seem to be announced in almost every week in some part of Asia. In market pulp, supply problems continue to be the key driver. The start-up of the new BHKP mill in Uruguay appears to be delayed for political reasons. Forest workers’ strike in BC is now on its third month. One mill and one line are down for wood supply and cost reasons in BC and two pulp mills are not producing in Asia and some other run at reduced capacity. The record strength of Euro against the USD and CAD at par against the USD is an additional reason for the producers to come out with new pricing initiatives. Market pulp shipments went up 5.2% in August against August 2006, according to PPPC. Pulp inventories stayed unchanged at 30 days, but, seasonally adjusted, they came down by one day. Consumer inventories were unchanged but down from end August 2006. European port stocks were on the lowest level recorded. The PIX NBSKP European index moved up by $5.9/tonne, or by 0.7%, to $820.07/tonne. The clear 1.4% further strengthening of Euro against USD caused the Euro-value to drop. The index in Euro decreased by 3.7 Euro, or 0.6%, to 583.72 Euro/tonne. Producer stocks in BHKP were down, seasonally adjusted, by 3 days from July and 4 days from end August 2006. Market BHKP shipments were up, according to PPPC, by 10.5% against August 2006. Year-to-date, shipments are 5.8% above last year’s deliveries. Two mills are not running in Asia and new production from Latin America is coming out at a lower pace than expected. New price increases have been announced by eucalyptus and other market BHKP producers in all key markets. The 1.4% strengthening of the Euro against USD led our PIX BHKP benchmark to drop in Euro. The index lost 7 Euro, or 1.35%, and closed at 512.49 Euro/tonne, up now by only 3 Euro from the turn of the year. Converting the value into USD kept the index unchanged at $720.00/tonne. On the European newsprint market, imports from outside have accounted for all of the minor demand increase. In January-June, the exports of newsprint from Europe to markets outside the region were down but in July a large increase was recorded, mainly to the Asian market. The substantial 1.0% strengthening of the Euro against a basket of non-EMU currencies affected the index and caused a drop from last week by 1.1 Euro or 0.2% to 537.06 Euro/tonne. In coated mechanical papers, there appears to be a turn to the better going on in the North American market after a weak first half. In Europe, European demand showed a healthy 3.4% increase during the first 7 months but total shipments by the European producers were down with a 17% decline in exports outside the region. At least one producer has announced a price increase for any additional sales tonnage. Most of the change for our benchmark came again from the exchange rate movements. The 1.0% strengthening of the Euro against non-EMU currencies led our PIX LWC index to a retreat by 1.7 Euro, or 0.25%, to 666.39 Euro/tonne. The coated woodfree sector shows similar trends than LWC. US prices are moving up after the countervailing duties affected the prices of the imports from Asia. In Europe, the regional demand is up but exports down. Clear 1.0% strengthening of the Euro against non-EMU currencies added to the downward pressures. Our CWF index lost 3.6 Euro or 0.5% and closed at 696.49 Euro/tonne. The uncoated woodfree market is in decent balance on both sides of the Atlantic Ocean. Demand has not been great, total deliveries are, in fact, down slightly both in Europe and in the US but the supply reductions have improved the supply/demand ratios. The 1.0% strengthening of the Euro against non-EMU currencies also pushed the prices southward. Our B-copy index retreated by 3.4 Euro or 0.4% from last week, to 848.96 Euro/tonne. On the US packaging market, August shipment box numbers showed a decline from last year. Production numbers were down, too, but operating rates were high with less production capacity. Exports were quite strong and the box inventories remained at a low level. European liner and box plants have good order books. Also here, price increase attempts continue with higher prices announced for white-top grades from October. Recovered paper based grades are pushed up by RCP costs which are up by about 40% since the beginning of the year, depending on the grade and on the market. Exchange rate movements continue to work against the prices in Euro. Last week Euro strengthened by 1.4% against USD and about 1.0% against the non-EMU currency basket. Both changes have some negative impact on our benchmarks. The PIX Kraftliner index inched down by Euro 0.04 or 0.01%, closing at 526.41 Euro/tonne. With the exchange rate impact, the White-top Kraftliner index lost Euro 0.18, or 0.03%, and closed at 701.59 Euro/tonne. In testliners, the changes reflect still the impact of the September 1 price increase attempt. The PIX Testliner 2 index moved up by Euro 0.19, or 0.04%, ending at 464.05 Euro/tonne. PIX Testliner 3 gained slightly more, Euro 0.49, or 0.11%, to 445.80 Euro/tonne. With the exchange rate impact, PIX RB Fluting showed a minor decrease Euro 0.22, or 0.05%, and closed at 433.25 Euro/tonne. In recovered papers, prices in the Asian market are reported partly flat, partly still moving up. In Europe, prices of OCC showed this time some decreases whilst quotes for ONP/OMG showed further changes upwards. The PIX OCC 1.04 dd index retreated by Euro 0.84, or 0.8%, ending at 105.24 Euro/tonne. The gap between OCC and PIX Testliner 2 index widened to Euro 358.81. Against Testliner 3, the differential grew to Euro 340.56, and against RB-Fluting it increased to Euro 328.01. The PIX ONP/OMG 1.11 dd index gained 1.4 Euro, or 1.1%, closing at 127.73 Euro/tonne. The differential to PIX Newsprint index narrowed again, this time to 409.33 Euro/tonne.