Fundamental changes coming ahead in the European market?
Looking at the surface of the market and taking the price as result of the supply-demand curve not many changes are taken place just normal cyclical price adjustments, some experts call the market even boring. This is correct taken a short window view as December prices will soften on export and the domestic market another time on most grades except the higher exceptional grades. For the middle and long term however the forces working under the surface of the market seems to fundamentally changing the powers in the whole supply chain.
The European market in that respect is at the forefront of changes, the latest rumour is that Stora Enso and UPM are at the doorstep of a collaboration or even a merger in the newsprint market. What will it do with de-inking in the market?
De-inking prices will soften further and not just on the spot market, long term contracts with too high unrealistic prices of € 175-178/mt mill delivered are simply refused by the mills in the declining market of newsprint. The new accepted prices by the mills seem to be € 125 per ton, a reduction of € 50/mt. Can we blame the mills? Or must be blame the ones who created bubbles in the market due to too high tendered contracts? Could it be the reason why Veolia seems to have payment problems and even seems to be in suspension of payment? Will it give even more financial budgetary issues by municipals already having great difficulties making proper budgets due to the financial crises?
De-inking prices will soften further on the spot market where € 105 delivered mill will no longer be a mission impossible.
Prices for OCC will drop as well for the coming month currently export having prices of € 112 per ton and will go down further as the US market will decline in the month ahead. In the US market there is simply abundant supply of OCC especially now, the period after Thanksgiving holiday where the mills will drop back on their stock during the month of December. It is not a question if but with how much the price will come down in the US market.
This will have consequences for the export out of Europe where the target price will most probably be € 100 per ton with the local market above this price making the export strategically dead.
The European mills make use of the weakness in the Asian market where mills can buy better quality or the lowest quality at the other side of the spectrum in other markets, why pay relatively more in Europe?
In Europe the mills make use of the Asian weakness who are losing market share not only at inland destinations but gradually more near the ports. Where are the good days export was flourishing in Europe, will they ever come back?
The Asian mills are using Europe as gap filler in their overall procurement plan (except UK) forced by squeezed margins on their end product. But what will be the consequence when the economy will strengthen? Many answers can be given but it goes without saying that their current strategy of procurement will most likely not be sustainable in a changing market as the changes currently working under the surface of the market will create a future new market structure with different powers working.
The tissue mills are on the right track with the SOP prices softening € 5 per ton as announced in our November market newsletter.
Better grades is still a different market with stable prices mainly due to successful increased pulp prices.