Vecht 125 - 2911 ER - Nieuwerkerk aan den IJssel - The Netherlands 


Market News November 2013

USA market

The fact that Chinese mills seem to have difficulty to compete on the end product and recovered paper, wonders whether a new market trend could lead to a new pricing norm, as the Asian mills seem to have difficulty to compete on price.

The export to Central America declined due to better local recovery rates, so far this year in Mexico the recovery rate increased with more than 10%. Also from India the demand is weak, more mills are opening their own collection depots.

In general the order books of mills are weak and operational rates are between 70-75% maximum.

The drop in exports increased the purchase by Local US mills so far this year with 6% for OCC. Other grades like ONP, high grades, pulp substitutes and mix paper declined so far this year, with a huge drop for ONP of 18,5% so far.
The US mills increased the Mix paper price, the higher domestic pricing was caused by increased export during the summer, in one area the differential between export and domestic was near to $ 38 per mt. Export is taking mix at higher prices assumable a result of the Green Fence creating now a bubble in the price. ONP and mix price differential was not more than $ 11 reducing availability of ONP and lower qualities with significant higher outthrows.

In the USA the OCC market dropped with $ 5,5 per metric ton, the biggest drop since Spring for the domestic mils. The US mills prices came with the decline in the L.A. and San Francisco area $ 22 per metric ton under the export prices.

Some US market experts are questioning the fact whether the market is characterized with a new price gap between domestic and export.

Other grades kept in general stable, only SOP dropped in two regions of the USA and mix paper which increased in the North East of the USA. Some of the largest mills dropped prices between $ 5,5 and $ 16,5 per metric ton for SOP, among them Kimberly Clark.

An important supply/demand factor according the American Forest & Paper Association was a 4% decline in export summing up to 720.000 -765.000 mt. The USA mills did not chase the export prices this year due to the fact the export market is so table this year which is exceptional for OCC, no volatility.

In the two most important export area’s for the USA, LA/San Francisco and New York/New Jersey, the price differential between the local and export prices increased to $ 26 – 30 per metric tons. Pulp substitutes prices were kept stable, however demand for certain grades like HWEC, seemed to soften a bit.

For the pulp market, the long fibre bleach softwood increased to almost $ 1000 where the short fibre of bleached eucalyptus is expected to soften as beginning next year new capacity will start up in Brazil and Uruguay of about 2.8 million tons a year.

EU market

Deflation in Europe is it already hitting us?

Before going into the paper market itself, first an important economic note about deflation as this ghost is coming more clear to the European economy.

The European economy seems to have a new phenomenon called deflation. The last inflation figures in the European Zone is just 0.7% year-over-year, under the norm of the ECB which is just under 2%. Looking at individual countries the inflation rates are even worse, Spain 0.5%, Portugal 0.3%, Greece -1.0%. Analysing the figures, the conclusion can be made that after taking out inflationary tax increases, 10 out of the 17 EU member countries of the Euro currency union are in deflation.

Although you think deflation is good as prices of goods and services are getting cheaper, it is under the surface bad as companies profits are declining, leading to lay off employees. Consumers will have less money to spend and so companies are forced to decrease prices more, creating a downward spiral. In addition, consumers will delay their purchases as they expect products to get cheaper any moment soon. Cash will become king, deflation also creates additional problems with regard to debt, which is a hot topic in Europe. While inflation helps debtors by making the real costs of their borrowings decline, deflation does the opposite. This is what happened in Japan since the year 1995, even today their economy is still dealing with it as it is helped by monetary and fiscal stimulus programmes.

What are the factors of a deflation? High unemployment, financial crises and recession, all are there in Europe.

To make it short, deflation as we can learn from Japan is a situation which is difficult to get out. Could it be already effecting our Paper and board market?

European Recovered paper market

Traditionally the last quarter of the year has been a business cycle where significant tons floated into the export market. As seen in the USA market the Asian mills seem to have difficulty to compete on both ends, end product and waste paper as margins are squeezed.

The big procurement companies based in the Netherlands are further reducing their prices, could we argue about obsolete business models or is their weak performance temporary? Most probably time will tell.

Domestic prices are relative to the export more competitive, in the traditional European production areas stable, some mills lightly softening, however one large German mill near the Polish border even increased the price with € 5 per ton. Regional differences where the traditional regions price strategy differs due to different supply/demand curve compared with the Eastern part of Europe.

The middle grades and in specific SOP, prices are expected to soften beginning December with minimum € 5 per ton, it seems this commodity is following the same trend as happened this month in the USA, a softening.

Higher grades are still stable, although mills try to soften this market as well due to their current mode of thought, a boomerang effect could be the consequence with even higher prices due to an unbalanced supply/demand curve.
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