Jun 14, 2007. /Lesprom Network/. Although market pulp deliveries to the North American market have been quite strong this year, the recent announcements of downtime, especially in the LWC sector, cast a shadow over the future BSKP delivery prospects. While the BSKP market continues to be relatively tight, only part of the producers have announced price increases, typically by $20/tonne, from June 1. After the 10% rule was applied, our NBSKP benchmark continued to remain flat at $810.00/tonne. In US newsprint, the losses continue, both in the regional shipments as well as in the prices. Both of our benchmarks moved again down from last week. The 30lb benchmark dropped by $1.5/tonne, or by 0.25%, to $581.03/tonne. The 27.7lb benchmark dropped this time a little bit more, i.e. by $2.5/tonne, or by 0.41%, to $619.76/tonne. In the US, the bigger-than-expected decline in the trade deficit and the fastest growth seen in a year in the non-manufacturing sector were positive news which also strengthened the USD against Euro. On the other hand, the recent increases in the inflation drivers – especially the rise in the unit labour costs - and the smaller-than-expected gain in the productivity suggest financial conditions which are less supportive of growth. In Europe, the ECB raised, as was widely expected, the interest rates last week to 4.0%. One or two more rate hikes are expected before the end of the year, the next one most likely already in September. Economic growth has continued above expectations and the purchasing managers’ buying plans were bullish. Judging by the wage raises or demands in various EU countries, the inflation risks continue to rise. Another negative piece of news was a drop in German industrial production which had been rising rapidly in the recent months. In Japan, GDP-growth is projected at 2.5% this year and the next. An interest rate hike is still expected to be seen before the end of the year, even if the inflation rate is projected to be negative for the year as a whole. With the low value of the yen and interest rates at neutral range or maybe rather still supporting the growth, capital expenditures continue to grow, especially those dealing with the export industries. China prepares itself for the Olympics. This shows e.g. in the persistent growth of the infrastructure investments. Inflation pressure is building up, in spite of the continuing over-supply situation in many sectors. Big increase in pork prices (over 40%) has added to the inflation fears. The next interest rate hike and/or other restrictive measures may not be too far away. European paper numbers over the month of April were positive as far as the European regional demand was concerned. Adding together the wood-containing paper numbers from CEPIPRINT and the woodfree numbers from CEPIFINE, European demand was up in April by 4.4% and for the first four months by 2.3% against 2006 data. With exports outside the region down by a double-digit percentage, total shipments from the European producers were up only 0.5% in April and actually down by 0.5% year-to-date. Volumes in the packaging sector and in tissue have grown which means a small plus for the total paper and paperboard shipment number for Europe in January-April 2007. In the US, containerboard sector appears to be improving slightly. In woodfrees, volumes are not great but with supply reductions and import duties on coated woodfree, pricing looks positive. In newsprint, the slide downwards has continued, both in terms of shipment volumes and prices. Also coated mechanicals are facing problems. The supply/demand balance remains fairly tight in the pulp markets. In BSKP, several producers, but not all of them, have announced pulp price increases, typically by $20/tonne from June 1. European buyers are resisting this latest round of increase attempts, especially as the USD has slightly strengthened against the Euro over the past two weeks. The NBSKP European benchmark moved up by $5.8 or 0.7% to $785.40/tonne. The 0.6% weakening of Euro against USD raised the Euro-value more. After conversion, the index moved up by 8.1 Euro or 1.4% to 588.36 Euro/tonne. In BHKP, the low volumes of birch pulp are helping to keep the BHKP market as tight or maybe even tighter than the BSKP sector, in spite of bigger capacity increases. Some integrated companies are buying market pulp, mainly eucalyptus, to fill the gap from the shortfall of birch pulp. Most BHKP producers have announced pulp price increases from June 1, typically by $20/tonne. The 0.6% weakening of the Euro against USD created an upward push on our PIX BHKP benchmark, which rose by 8.05 Euro or 1.6% to 513.64 Euro/tonne. Converting the index value into USD led to a slightly smaller upward change and the benchmark moved up by $6.35, or 0.93%, to $685.66/tonne. In newsprint, demand in Europe has continued to grow, helped by the increases in free delivery papers. European demand was up by 1.5% for the first 4 months, largely covered by increased imports, mainly from Canada but also from Russia. An approximately 0.1% weakening of the Euro against non-EMU currencies helped the PIX Newsprint benchmark into a minute rise. The index moved up by Euro 0.04, or 0.01%, to 538.50 Euro/tonne. In coated mechanical reels, the severe drop in exports outside the region – down by 16% over the first 4 months – has kept the regional market very competitive in spite of a healthy 3.7% increase in the European demand in January-April. Some of the production volumes appear to have increased the inventory levels. The EUR weakened during the week by about 0.1% against the basket of non-EMU currencies but this was not enough to fight the downward pull. The PIX LWC benchmark lost 3.1 Euro, or 0.45%, and ended at 678.70 Euro/tonne. In coated woodfrees, the export volumes have been declining but for the regional demand, the CEPIFINE data shows a decent 3% gain year-to-date. The upward impact from the 0.1% weakening of the Euro against non-EMU currencies was too small to make much change. The PIX Ctd WF index ended up losing 2.8 Euro, or 0.4%, and closed at 716.44 Euro/tonne. In uncoated woodfrees, demand in Europe was up by 1.3% in January-April, according to CEPIFINE. Export volumes were down but they play a smaller role in this grade than in the coated papers or SC. The 0.1% weakening of Euro against non-EMU currencies supported, in a small way, the upward push of the benchmark. The PIX A4 B-copy index gained 2.1 Euro/tonne, or 0.25%, ending at 838.01 Euro/tonne. In packaging sector, the capacity growth has been strong, especially in China and other Asia. Fortunately the growth in the world economy, in the international trade and in the packaging needs has also been quite substantial. The over-capacity which plagued Europe in 2005 and still in early 2006 has melted away and the over-supply in China has not spilled outside the region anywhere near as dramatically as in coated woodfrees. In North America the improved export volumes, helped by the USD weakness, have kept the containerboard market in a balance, in spite of the weaker economic performance. Asian demand growth started to bring up the RCP-prices again. In European containerboards, the earlier announced price increases continue to go through, mainly in the recovered paper based grades. Currencies played some role this time, with the USD strengthening by 0.6% against the Euro and the basket of non-EMU currencies also strengthening against the Euro but only by about 0.1%. In brown kraftliner, the PIX Kraftliner benchmark gained 1.2 Euro/tonne, or 0.22%, and closed at 530.07 Euro/tonne. In white-top kraftliner, our index inched up by Euro 0.03, or 0.00%, and closed at 694.79 Euro/tonne. The PIX Testliner 2 benchmark came up this time by 2.9 Euro, or 0.65%, to 451.23 Euro/tonne. The PIX Testliner 3 index gained 5.4 Euro, or 1.3%, and closed at 432.30 Euro/tonne. The PIX RB Fluting went up by 4.7 Euro, or 1.13%, ending at 418.91 Euro/tonne. Recovered paper prices have gone up again in Asia, after softening a bit in April and early May. In Europe, prices of our benchmark grades also headed higher. The PIX OCC 1.04 dd benchmark gained 1.25 Euro, or 1.4%, and closed at 93.31 Euro/tonne. As the prices of RCP-based containerboards rose more, the differentials continued to widen: the gap against PIX Testliner 2 increased to Euro 357.92, to Euro 338.99 compared to PIX Testliner 3 and to Euro 325.60 against PIX RB Fluting index. In old newspapers and magazines, price quotes received last week showed upward adjustments and the PIX ONP/OMG 1.11 dd index moved up by Euro 0.61/tonne, or 0.54%, to 113.39 Euro/tonne. The differential to PIX Newsprint index narrowed to 425.11 Euro/tonne.