A new sound?
The month of May is characterized as ”a new spring a new sound” in nature, however not in our market.
Domestic mills in the USA dropped OCC prices with $5 per ton, the export prices increased $3–5 per ton, with stable prices for the higher grades. CFR levels to main port China are around $200-202 per ton for USOCC, 3 years ago US OCC was still sold at $270 per ton main port China, what a difference. The generation in the US market is strong while demand is not that strong. Some mills are having maintenance downtime reducing demand.
The economic figures of the largest economy in the world improved, Wall street reacted however negative, 280.000 new created jobs by the government and industry over the month of April. Unemployment figure went down to 6,3% (lowest % since Lehman Brothers).
In China the HSBC Market Economics China Manufacturing Index contracted for the fourth month in a row under 48,1. The Chinese economy is in a long cycle of continued weak growth momentum which is creating a structural problem. To reach the set GDP of 7,3% for 2014 is getting more and more a challenge for the Chinese leaders. This number is the lowest growth % since the year 1990 for the Chinese economy. One of the reason is that the Chinese Government is controlling the credit loans.
Order books of Chinese paper mills are weak, high inventory positions of end products due to imbalance of supply and demand situation.
The threat of war between Russia and Ukraine is pushing down the prices in Europe of the end product due to lower demand. OCC prices for May export market started with prices of Euro 100 FAS to the port, gradually going up with €2-3 per ton, currently being at €105/MT FAS to the port. The higher Sea freight costs and limited space on vessels is still playing her part.
APP announced to slow down their tissue expansion plans in China and Indonesia and to carry it out after the year 2015. The original plan was to build 52 new tissue machines at its mills in China and Indonesia, with a whopping combined capacity of 2.784 million tons a year.
In Mexico Kimberly Clark is for June scheduling the start-up of its new 60.000 tons a year tissue paper machine. Concerned machine will increase Kimberly Clark Mexico capacity by 10%. With six mills in Mexico, Kimberly Clark currently has a production capacity of 675.000 tons a year of tissue paper.
The market expectation for the tissue market is a margin recovery as pulp market temporary softens. The softening is a pause not a down cycle. NBSK was jumping 24% over 18 months through March in the USA. A small decline of USA pulp prices but on the longer term due to low new capacity outlook, (only Mesta group expected to add 800.000 tons in Finland) market remains quite tight.
The start-up of the Montes del Plata mill in Uruguay (a joint venture of Stora Enso and Arauco) is expected to be delayed to July. The installed capacity of this mill is 1,3 million tons of bleached eucalyptus kraft pulp. This mill was originally supposed to start up in the first year of last year, with the latest delay due to problems obtaining required environmental permits.
The delays of news start-ups of hardwood pulp capacity will lead to a muted impact on softwood pulp producers as soft wood pulp prices have substantially de-coupled.