Global Trends Review, May 06-12, 2013: OSB prices plateaued; China’s GDP slowed down

The slight decline in North American OSB and softwood plywood prices seen in the first half of April has intensified in the past fortnight, EUWID Wood reported. The slump in OSB prices, in particular, is being attributed mainly to rising supply that now exceeds demand in all regions. This increase is being fuelled primarily by the restart of mills that had been offline indefinitely and by an upswing in output at mills that are up and running. Some OSB producers have reacted to this supply surplus by cutting their prices, sometimes significantly. Prices for short-notice purchase of large volumes were slashed by up to $45/1,000 sqft again in the second half of April.

International Wood Markets reported earlier that OSB prices have plateaued as the supply chain begins to come into balance due to new capacity from two mills re-entering the market. Canadian analytic company also noted that particleboard and MDF prices were showing steady gains as a result of tight supply. Meanwhile, SPF J-grade [northern spruce, pine and fir product for the Japanese market – ed.] remains strong and stocks remain below normal, with price holding as importers adjust to devalued yen and record-high US dollar prices.

Construction Products Association of United Kingdom (CPA) predicts a 2% fall in construction output in 2013. The CPA is also anticipating medium-term growth, with an upturn of 1.9% in 2014 and 3.8% in 2015, as TTJ reported. CPA economics director Noble Francis said the most concerning element of the forecast decline in 2013 was the 7% fall predicted in private commercial sector output – the largest construction sector. “Despite this, we are already encouraged by signs of improved market activity, primarily driven by private housing and infrastructure,” he said. “We anticipate that government policies such as Help to Buy will boost private housing, which is expected to rise 19% in just two years.”

Businesses in Germany’s woodworking sector ended February with a 3.6% decline in turnover to €1.109bn, on the heels of a 0.6% improvement in January, EUWID Wood announced quoting country’s Statistical Office. Domestic revenues improved 2.3% to €833.9m, while foreign turnover decreased 7.3% to €274.9m. However, it should be noted that this February had two workdays fewer than last year.

At a total of 888,700 m3, Sweden exported 6.6% less softwood lumber and planed products in February 2013 than it did in the same period of last year. In doing so, softwood lumber exports to customers within Europe fell disproportionately heavily by roughly 15% to 566,700 m3. Exports to Africa also fell well short of last year’s figure at 139,300 m3. In contrast, exports to Asia were raised by 7% to 160,600 m3. Starting from a relatively low baseline, lumber exports to North America were almost trebled year-over-year to 22,000 m3 in February.

Log prices in Sweden rose throughout the country in the first quarter of 2013. According to EUWID Wood, the average price of sawlogs rose by roughly 2.7% against the previous quarter to SEK465/m3 ex-forest and pulpwood prices went up by an average of 1.5% to SEK288/m3. Owing to the price decay that occurred during the course of the year, however, both figures are still below the level of the first quarter of 2012. The current figures for logs and industrial wood are down by 8.2% and 9.6% respectively.

China’s GDP slowed down

China’s National Bureau of Statistics has published preliminary results for GDP for the first quarter of 2013. The latest data show that China’s gross domestic product growth unexpectedly slowed to 7.7% in the first quarter of 2013, down from 7.9% during the final quarter of 2012, ITTO reported. The rate was weaker than analysts’ expectations, but stayed above the 7.5% target for 2013 set by the government.

Meanwhile, a new price index for the Chinese redwood sector, to be called the Chinese Composite Redwood Import Price Index, is to be launched soon. In the context of the new index “redwood” is a general description of high value timbers such as rosewood, padauk and red sanders. The index underwent a trial in late 2012. It is expected that with the launch of the price index, speculative trading can be avoided so that traders and enterprises have a means to accurately assess supply and demand conditions.

Freight rates for shipping containers from China to Central Europe remained volatile in the first few months of 2013, ITTO said. Rates first softened during the course of February, slipping to just $1,800-2,000/container by the month’s end. However, freight rates then quickly bounced back to around $2,300 per container at the start of March. At the middle of the month, several shippers launched a fresh attempt to raise prices to $2,700 or in some instances even $3,000 per container. However, these endeavours went nowhere, with rates in fact plunging again to around $1,800 per container in the first few weeks of April. Shipping companies are now confirming this rate for shipments up until the end of May, although some importers are still waiting to put pen to paper as they rather expect freight rates to soften further now.

European newsprint sector repeats American downward scenario

Western European newsprint demand is largely repeating the North American shrinking scenario, as John Maine, Vice President, World Graphic Papers, RISI said in his blog. American market used to be much larger than the market in Western Europe. At its peak in 1999, the North American market was 13 million tonnes, while Western European demand never passed the 11 million tonne mark. Today, the North American market is a mere 4 million tonnes, while Western Europe is much larger at 7.4 million tonnes (using 2012 numbers), Maine said. Europe did not immediately follow the downward trend of North American newsprint industry. The incursion of electronic media was slower to take hold in Europe, sapping less of newspapers’ advertising revenue and circulation base. The success of free weekly newspapers also propped up the European market for a number of years. From 2000 to 2006, Western European newsprint demand stayed more or less on a plateau of 10 million tonnes to 10.5 million tonnes. However, the region finally succumbed to the same forces that brought down newsprint demand in North America, but with a seven-year delay, Maine concluded.

Catalyst Paper reported that the company’s second quarter maintenance costs will be impacted by a total mill outage at Crofton. The number one paper machine at that operation will remain indefinitely curtailed. “The Chinese economic rebound has driven pulp shipments and prices up,” said Catalyst President and CEO Kevin J. Clarke, “But we had much tougher conditions on the paper side of the business.” The company has posted a net loss of $9.8 million in the first quarter of 2013.

Mondi will shut down one of its two newsprint machines at its Merebank site in South Africa on falling domestic demand. According to a company spokeswoman, the affected PM 4 has an annual capacity of 110,000 t of newsprint. After the closure, the mill would continue to operate one newsprint machine with a capacity of 120,000 tpy. However, the company’s South Africa division generally performed well in the first quarter. The good performances of the South Africa and Packaging Paper divisions were cited as main reasons for Mondi’s improved overall results in the first quarter of the year. Underlying operating profit rose from €120m in Q1 2012 to €162m in the same period this year.

Another company with strong presence in South Africa, Sappi, also reported operating profit excluding special items of $40 million. This was adversely impacted by the weak performance of the European business. Commenting on the result, Sappi CEO Ralph Boettger said: “Despite the interventions and major cost reductions that have taken place, we expect the European business to only achieve a breakeven operating profit excluding special items for the full year. This performance necessitates further action and we are evaluating a number of options that could result in capacity and cost reductions in our European business. Further measures are also being implemented in the Southern African business. The Specialised Cellulose and North American businesses are expected to continue to perform according to plan.”

Ahlstrom announced price increases on its specialty paper materials produced by the Label and Processing business. The price increases will be made to compensate for the continued high cost of raw materials and energy. The price increases will be worldwide and will become effective on July 1, 2013. The increase will be up to 7%.

Metsä Fibre increases the price of its Botnia Nordic Pine pulp grade, effective immediately. The new price is $870 per tonne, CIF Metsä Fibre’s frequently used European ports of destination. All other terms and conditions remain unchanged.

Prepared using corporate press releases, Timber Trades Journal, ITTO, International Wood Markets, ForestTalk, and EUWID Wood.