Aug 08, 2007. /Lesprom Network/. In the US, job growth was weaker than expected in July. Unemployment rate went up to its highest level this year. Service sector activity moderated. The new signs of weakness of the economy have sent the stock values down and re-weakened the USD. Purchasing managers’ index was lower than projected but consumer confidence was high conflicting with other polls which show that two thirds of the Americans think that the US economy is already in a recession or headed towards one in 2008. In Europe, the purchasing managers’ index retreated slightly. The strength of the Euro is taking its toll on EU’s export performance, the clearest driver of the European economy in the past year and a half. The long term interest rates have turned down, at least temporarily but ECB is still expected to raise the short-term rate in September. In Japan, the latest business sentiment survey (Tankan) shows that the Japanese producers are growing less confident of their near-term outlook. Rising costs and an upcoming interest rate hike (?) are the main causes of concern. Private consumption outlook remains cloudy with the risk of an expected consumption tax increase. Business investments at above 5% annual rate are the main driver for the projected 2.5% GDP increase this year. In China, credit lines were tightened again last week when banks were ordered to increase their reserves, for the 6th time this year. This move was widely expected after the release of the nearly 12% real GDP-growth in the 2nd quarter as yet another effort to cool down the excessive growth of the Chinese economy. Chinese leaders aim to reduce poverty through the high economic growth and measures taken have a limited impact only. This 0.5% raise of the reserve requirements is a good example as it is not expected to restrict lending from the cash-rich banks. The latest statistics on the paper industry show a slowdown both at the European as well as in the US. The half-year numbers out of AF&PA on the US data show paper production down by 3.2% over the first 6 months, compared to 2006. In paperboard, decline was less at 0.5%. The total p&pb production, down by 1.7%, shows better performance than the demand. With paper and paperboard exports up by 6.5% and imports down by nearly 6%, US p&pb shipments to the domestic market declined by as much as 3.7%. In Europe the regional demand for printing and writing papers is up by 1.5% (6 months’ data from CEPIPRINT and 5 months’ data from CEPIFINE). With exports down nearly 10%, total shipments from the CEPI countries were flat in early 2007 against 2006. There are many pricing initiatives out. The risen and still rising energy costs, wood and pulp prices and exchange rate movements support these initiatives, even if demand for paper products in the Western world is weak in 2007. In market pulp, the lively demand in the Asian markets and the persisting limitations on the practical supply continue to maintain a tight supply/demand balance. BC coastal forest workers’ strike has increased pulp supply concerns in China and other Asia and trading houses and other buyers are again more active. Short supply of shipping space is yet another worry. The PIX NBSKP European benchmark moved up by the final $0.19, or 0.02%, to the earlier announced $800.00/tonne. The 0.3% strengthening of Euro against USD pulled the Euro-value down. After conversion, the index in Euro retreated by 1.7 Euro, or 0.3%, to 584.20 Euro/tonne. BHKP market, while expecting major capacity increases in the near-term future, is at present just as tight, if not even tighter than softwood. In this grade, demand growth has been fast and supply problems persistent. Consequently, several major producers separately announced a $20/tonne price increase from August 1. This increase is partially through already in the values received at the turn of the month. The 0.3% strengthening of the Euro against USD exerted some downward pull in our PIX BHKP benchmark, which moved up by 3.0 Euro, or 0.6%, to 515.76 Euro/tonne. Converting the value into USD pushed the index up by $6.3, or 0.9%, to $706.28 /tonne. Newsprint data from US and now also from Europe is disappointing. US shipments, helped by an 8% increase in exports, were down over 5% during the first half. In Europe, shipments from CEPI countries were down over 3%. Regional demand (read apparent consumption) was, however, up by 1% due to increased import volumes. The minute 0.1% strengthening of the EUR against non-EMU currencies tried to pull the PIX Newsprint benchmark marginally down. However, our index gained Euro 0.18/tonne, or 0.03%, and closed at 539.03 Euro/tonne. In coated mechanicals, shipments in the US were down by 2% during the first half. In Europe the corresponding number, according to CEPIPRINT, was similar or -1.5%. Regional demand was up by 2.8%, however, the difference explained by a drastic drop in exports outside the region (-18% over the first 6 months). Euro strengthened by 0.1% against the weighted basket of non-EMU currencies exerting a minor downward pull on our benchmark. The PIX LWC index lost 1.8 Euro, or 0.26%, and ended at 672.87 Euro/tonne. In coated woodfree papers, the US first half 2007 shows a drop of 1.5% but with a clearly improving trend on the monthly numbers. European data over the first 5 months, reported by CEPIFINE, showed no change against 2006 in total shipments, negatively impacted by a clear decline in exports, but the regional demand was up by 2.7%. The slight 0.1% weakening of the non-EMU currencies against Euro helped to pull the benchmark lower. The PIX Coated woodfree index lost 4.4 Euro, or 0.6%, and closed at 712.60 Euro/tonne. In uncoated woodfrees, the US market is in a good balance despite a drop in shipments by nearly 3%. Supply reductions have followed the drop in demand quickly. Yet another set of closures was just decided by Domtar, removing more than 200 000 tonnes of UFS capacity. CEPIFINE statistics over Jan-May showed no change in total shipments and a minor 0.4% gain in regional demand. The minor strengthening of the Euro against the non-EMU basket did not prevent an increase in the benchmark price. Our PIX A4 B-copy index climbed up by 4.4 Euro, or 0.5%, to 846.35 Euro/tonne. In packaging sector, slowdown of the economic growth hurts the US demand and better than expected expansion of the European economy has supported the linerboard market here. The US manufacturing index (ISM) came out with disappointing drop to 53.8 from 56.0 in June. This is bad news for box volumes. Over the first half 2007, US shipments of containerboard were down just 0.1% with a decrease in virgin fibre based products and an increase in the recycled grades. Demand in EU has continued to be satisfactory, even if the partially exchange rate-related increase in imports eats into the volumes of the producers within the region. Pricing initiatives continue on both sides of the Atlantic Ocean, supported by the risen costs, more specifically by a hike in the export grades of recovered paper, compared to 2006 or early months of 2007. Our benchmarks were on a rise, even if the currencies worked against that trend. Euro strengthened by 0.3% against the USD and marginally, or by 0.1%, also against the basket of non-EMU currencies. The PIX Kraftliner index for brown virgin fibre linerboard gained Euro 0.33, or 0.06%, and ended at 529.45 Euro/tonne. The PIX White-top Kraftliner moved up by 2.2 Euro, or by 0.3%, and closed at 699.76 Euro/tonne. In the recovered paper based containerboards, the index movements were also slightly upwards. The PIX Testliner 2 benchmark went up by Euro 0.85, or 0.19%, to 456.36 Euro/tonne. The PIX Testliner 3 index gained Euro 0.54, or 0.12%, and closed at 438.75 Euro/tonne. PIX RB Fluting headed marginally higher, too, going up by Euro 0.14, or 0.03%, and ended at 426.84 Euro/tonne. Recovered paper demand has continued to be good both on the European as well as US markets with increases in the production of RCP-based packaging products. Demand from China is again up from the previous year, too. After a rapid rise of the prices of the export grades in late June/early July and subsequently also on the regional markets in late July, price movements have slowed down. Our PIX OCC 1.04 dd benchmark lost this time Euro 0.14, or 0.14%, and closed at 98.76 Euro/tonne. The gap against PIX Testliner 2 index widened to Euro 357.60, against Testliner 3 to Euro 339.99 and against RB Fluting to Euro 328.08. In old newsprints/old magazines grade, the PIX ONP/OMG 1.11 dd index moved up by Euro 0.10, or 0.08%, to 120.20 Euro/tonne. The differential to PIX Newsprint index widened very marginally to 418.83 Euro/tonne.