Pulp and Paper Canada

Features Global Trends Markets
US Newsprint & Pulp Indexes – Jan. 10, 2006


February 1, 2006
By Pulp & Paper Canada

Topics

US borrowing for private construction and the growth in housing appears to be slowing down. This indicates, historically, the approaching of a cooler economic climate. Also, if housing price inflation…

US borrowing for private construction and the growth in housing appears to be slowing down. This indicates, historically, the approaching of a cooler economic climate. Also, if housing price inflation ends, asset appreciation comes to a halt and extra liquidity, which has fed consumption, is no longer available. In December, the unemployment rate came further down but the number of new jobs created was clearly lower than expected. The anticipated ceiling in the interest rates and the possible future narrowing of the interest rate gap with Europe helped the U.S. stock market and clearly weakened the dollar.

In Europe, the big question is the interest rate policy. Higher rates would strengthen the Euro, at least temporarily, but they would also slow down inflation. Most analysts expect at least one rate hike.

More hikes would increase the risk that the nearly 2% growth in real GDP, proposed by the Consensus, would not be reached. The start of the year confirms an improvement in economic growth. Both the purchasing managers’ indices (industrial and service sector) were up in December. Also, consumer confidence climbed slightly higher. Unemployment remained unchanged at 8.3%, which is 0.5%-points less than a year ago.

For the paper industry, 2006 started with a hopeful mood, although there is so far only limited statistical, or other evidence of any very clear turn for the better. The optimism stems from several small signals. The key factor is the lengthy poor period to make the comparisons against. However, not much is needed in order to show a positive number. Another factor is the string of capacity closures, which are not ending. Less supply helps the supply/demand balance and pricing prospects, even at low demand growth. Yet another element is the economic growth which appears to be better for some regions, such as Europe and Japan, than perceived half a year ago.

The Chinese decision to reduce the tax relief from exports makes the world markets of those grades which China has increased their exports in, such as coated woodfrees, a much more level and fair battle ground. Still on the supply side, there is a strike threat from the woodlands workers in Ontario. If the strike starts, especially newsprint and pulp production potentially could be reduced after a while.

Finally, there is some statistical evidence as well. In the U.S., containerboard and box inventories are at their lowest levels in 10 years. In Europe, the woodfree numbers over the month of November came out from CEPIFINE more bullish than what had been expected. In coated grades, the growth in exports resumed and helped the total deliveries into a 2.7% gain for November. In uncoated woodfrees the change was more dramatic. Total shipments were up by nearly 6% and the WE demand by more than 9%. Price increase attempts are being made in several grades, both in Europe and in the U.S. So far, success has been limited.

On the pulp market, strengthening of the woodfree paper market in Europe and the recent increase in market pulp demand in China were positive signs. Less positive, even if seasonally common, was the large 174, 000 increase of port stocks compared to November. Against December 2004, Europulp reports port inventories up by 25, 000 tons. Several capacity closures are known about for early 2006, most of them in Canadian NBSKP. The price increase attempt during Q4 to 620 USD/ton for NBSKP in Europe stalled at around 600 USD/ton. Now several major producers have put out an increase announcement relating to the earlier attempted 620 USD/ton for NBSKP from January 1.

In the North American pulp market, a few producers have announced an increase to 660 USD/ton for NBSKP. Several others appear to be holding quiet, at least until the rate of success of the European efforts is made clear. In Asia, price increase attempts are on, typically to 510 USD/ton in China and to 530 USD/ton in Japan. Several pulp production units, according to earlier announcements, will be closed in North America during the first half of 2006. Production in Ontario is threatened by a strike action by woodlands workers. There have been no changes in the prices reported to us [at the time of publication] with an impact on our benchmark. The US NBSKP index showed, therefore, no change, and remained flat at 640.00 USD/ton.

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