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– The paper markets continue to be characterised by a summer lull. For recycled corrugated case material, it remains to be seen whether the discounts granted in July/August will become part of the normal price range or will be rescinded again in September. If no lasting upturn in business materialises in the coming weeks, prices could also come under long-term pressure; some producers are worried about their margins, especially considering that the development of recovered paper prices is not foreseeable. Cartonboard manufacturers see inventory destocking throughout the supply chain as the cause of weakening demand. They said customers had bought more than they actually needed during times of tight supply and were now drawing from their inventories, but added that “the pipeline would have to be filled again shortly.” The majority of market participants polled by EUWID believes economic growth in Germany will continue to be good in the last four months of the year, if somewhat slower. Newsprint suppliers are also expecting autumn to bring strong demand.
Publication paper
Publishers in Germany have reluctantly accepted the recently negotiated price hikes for newsprint. “We had to swallow the bitter pill”, they commented. The extension of some smaller contracts is still pending for September/October, EUWID respondents said. In these cases, the paper manufacturers also want to increase prices in line with the half-year agreements by 1.5% to 3%. Buyers, on the other hand, do not see any urgent need for price hikes and want to achieve stable prices until year-end for the expiring contracts. After all, media representatives said, the demand for newsprint in Germany was declining.
After summer demand showed to be significantly weaker than expected in many cases, market insiders expect a slight decrease in deliveries in 2011. “Less paper is being used and the paper industry cannot remove its capacity this quickly”, buyers said.
However, paper manufacturers, who are counting on strong newsprint demand in autumn, stressed that the price trend from the half-year negotiations was clear. In this regard, suppliers and purchasers both told EUWID that prices for deliveries as of September or October were raised by an average of €10/t, where contracts allowed. As a result, the emphasis of the EUWID price range has clearly moved toward €520 per tonne free delivered. Smaller and some medium-sized publishing companies are paying prices above this level, according to manufacturers. It was also noted that yearly contracts without a clause remained unchanged.
In view of a stagnant or even declining publication paper market in Western- and Central Europe, manufacturers say it was indispensable to act globally and embrace business opportunities in growing markets to create new earning opportunities. Enormous growth opportunities for European players exist in regions such as South East Asia, insiders note. In China, for example, more than 2,000 newspapers and 900 magazines are developing new needs.
Furthermore, industry representatives expect that the completion of the takeover of Myllykoski by UPM will not result in chaos, but rather greater responsibility of the market leader. „UPM now has to live up to this new role”, observers contend.
Packaging paper
Summer calm continues to rein over the German market for recycled corrugated case material. The decline in demand in recent months resulted in summer discounts or special offers being granted for paper deliveries in July and August. According to producers, these rebates amounted to a maximum of €20/t and had become widespread by August. Attempts to extend the discounts to €25/30 had been resisted thus far, but they could be revived in the price negotiations for September, insiders said. There had already been first demands for additional price reductions of around €10 per tonne, EUWID was told.
Assessing the market situation in a proper way was currently difficult, EUWID respondents said. It is unclear whether the slow order intake is a seasonal phenomenon or the consequence of a weakening economy. In the first scenario, there was the possibility that the recently granted discounts would not be adopted into the normal price range, that is, would not affect prices in price lists and would disappear again in September. In the case that weak economy was behind the slow pace of order flows, autumn demand could be expected to be below spring levels and prices would remain under pressure. In this case, manufacturers showed great concern about their profit margins, particularly because of uncertainty about future recovered paper prices.
However, no market participants believe there will be a continuous deterioration in recycled containerboard prices. They also view a lasting decline in deliveries as improbable. Across Europe, inventory levels were still at a relatively low level, EUWID was told. This could, however, change very quickly in either direction, noted sceptics.
The situation is significantly more stable for white-top testliner. Paper could not simply be obtained overnight, EUWID respondents said. Summer discounts had not been a major topic of discussion. Price reductions - when there were any at all - had topped out at €10/t in the summer months.
Board
The summer and holiday season has left its mark on the cartonboard market. As can be heard everywhere, particularly from board manufacturers, there have been noticeable seasonal effects for weeks, which explained the somewhat weaker demand for all cartonboard grades. Furthermore, the lagging demand is attributed to inventory destocking taking place across the entire supply chain. A few months ago, during periods of tight supply, converters and customers had stocked up on goods and the pipeline was now being depleted, explained one board producer. The order backlog for both virgin fibre and recycled board had normalised again compared to “the busy months of 2011 and 2010.” There were no problems supplying board to the market at the moment, respondents said.
Manufacturers of recycled board said that volumes were smaller, but business was nevertheless consistent and capacity utilisation rates were at a “reasonable” level. However, they hoped that the lower capacity utilisation in August was due to seasonal effects as a result of the holiday season in key customer markets in Southern Europe and that they would be able to report stronger order backlogs again in September.
Efforts were being made to maintain supply-demand stability, too. Production lines have been idled in the case demand was not sufficient, one major board maker said. Over recent weeks, up to 10% of capacity had already been temporarily taken off the market “without any excitement” and this time had been used for needed maintenance and repairs, he added.
Delivery times for GD board are said to be 1-2 weeks. EUWID respondents pointed out that there was no major slump in the fast-moving consumer goods market and therefore a consistent level of activity in the near future could be expected.
In the recycled board segment, high recovered paper prices continued to be a headache that was worsened by rising energy costs. In a few cases, there was talk of smaller downward price corrections for GD board, but this does not seem to be representative of the bulk of the market. Since the majority of prices for recycled board were already fixed until the end of the third quarter and some contracts were reportedly already signed until the end of the year, from today’s vantage point, stable business development could be expected for now, respondents said.
Producers of virgin fibre board also complained about a difficult cost situation putting continuing pressure on their profit margins. This situation was not made any better by the fact that demand in this segment was also slackening, EUWID was told. For GC board, the same two arguments, seasonal effects and destocking, are mentioned by way of explanation as for GD board.
Demand for virgin fibre board on the German market is described as constant, while there is more uncertainty with regard to the southern and eastern European countries. Converters, who are overall sufficiently busy, can reportedly get goods in 2-3 weeks on average.
Against the backdrop of increasing capacities and therefore better availability, the fear of a new price war was undeniable, said one board manufacturer.
31.08.2011
Markets
- German paper market still suffering from seasonal effects and inventory destocking
- Sharp increase in worldwide pulp stocks in July
- World market pulp statistics
- Inventories and consumption of pulp consumers in Europe
- Will India’s pulp market follow in China’s footsteps?
- Russian pulp and paper industry still hoping for strong investors
- Spain’s new waste legislation gives rise to debates in the recovered paper industry
- Expansion plans in the pulp sector will lead to substantial growth in hardwood pulp capacities
- Stagnation in Finnish paper production in first half-year
- Baypapier: energy policy is threat to paper industry
- More capacity increases reported again in Europe
Companies
- Ahlstrom considering job cuts at Karhula and Mikkeli mills
- Segezha Packaging mill in Saransk standing still after fire
- Italy’s paper industry calls for change
- Mayr-Melnhof establishes third packaging site in Turkey
- Kipas Holding to enter recycled containerboard market
- Hunsfos Fabrikker in financial dire straits
- Bong to cease envelope production in Belgium
- Tullis Russell to axe 43 jobs in Markinch
- ICT commissions a new tissue machine in France
- New Page to indefinitely close Port Hawkesbury mill
- Abitibi Bowater invests and cuts jobs at Iroquois Falls mill