Helped with a large drop in gasoline prices, US consumer inflation, with -0.6%, recorded its biggest monthly decline since 1949. However, this was all energy-driven. The core inflation was steady at +…
Helped with a large drop in gasoline prices, US consumer inflation, with -0.6%, recorded its biggest monthly decline since 1949. However, this was all energy-driven. The core inflation was steady at +0.2%. Retail sales increased modestly. US trade gap hit a new record of 90 billion in November. The combination of the worsening of the trade balance, the re-emerged worries over the current account deficit and the recently raised prime rate in Europe started re-weakening the USD anew against Euro. For the year 2006, prospects appear good but downside risks clearly outnumber the upside ones.
Within the paper industry, packaging grades have the strongest demand drive and after substantial closures of capacity also the most improved supply/demand ratio. In the US, shipments were up nearly 3% in November and, even if the annual shipments by the box plants are still below 2004, year-to-date, the operating rates inched up to 95.4%. Further price increases have been announced from the turn of the year both in the North American and the European markets.
The printing and writing sector demand is fractionally above last year’s numbers in Europe but below 2004 in the US where both uncoated woodfrees and newsprint shipments are down several percentage-points. Price increase announcements are out in the both key markets for virtually all printing and writing grades, except for cut-sized uncoated grades in the US. The resistance to the attempts to raise prices during the fall was quite hard and the success rate of the producers’ efforts varied a lot. In some grades no gains were seen, in some others most of the attempted increase was achieved.
From the turn of the year, the increase attempts cover also those grades where most/some of the contracts are on annual basis, typically newsprint and uncoated mechanical grades in Europe.
According to the industry analysts, the likelihood of the attempted price increases of going through is better than those attempted in the fall. Economic growth has improved also in Europe and the advertising budgets are better than what they were for 2005. Still, a lot of resistance will be seen. One of the reasons is the over-capacity in the printing sector and the very competitive whole-sale market. Price negotiations between the producers and buyers of paper and paperboard have started and are expected to be tough.
On the pulp market, the information is contradictory. Some say spot lots are plentiful. Others claim there is a clear drop in the offers of additional volumes. One thing from the supply side is undisputed. The list of closures is getting longer, affecting mainly the BSKP-grade. The latest announcement, again from Canada, is the approaching closure in mid January of 275 000 tons of pulp at Western Pulp’s Squamish mill. The rise of costs, the strength of CAD, Real, Euro and some other currencies against the USD, the reductions of supply (most of them still coming up), the drop of the European and Asian port stocks at the end of November and a small decline in the European consumer inventories are setting the stage for the expected pulp price increase announcements. At least one BSKP market pulp producer is so far out with a 30 USD/ton increase announcement in Europe and a 20 USD rise in the US market from January. Meanwhile, the struggle continues to maintain the recently established levels.
On the US pulp market some spot volumes continue to be offered. On the other hand, the recent news of further capacity closures in North America will send buyers looking for alternative supply sources in the US and Canadian markets as well as in Europe and Asia. The strength of the CAD continues and strains the economies of Canadian market pulp production. At least one producer has so far announced a price increase in the US market from 640 to 660 USD for NBSKP, effective from January. There were virtually no changes in the prices reported to us over last week’s activities and the NBSKP index showed no change and remained flat at 640.00 USD/ton.
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