June and 2Q2014 International Trade (Pulp, Paper & Paperboard)

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The picture that emerges for the U.S. pulp, paper, and paperboard sector from reviewing recent U.S. trade data is modestly stronger domestic demand but weakening global demand. June's net pulp, paper, and paperboard exports posted a small decrease over May's level, dropping 0.3 percent. June exports fell by 0.8 percent relative to May; imports fell 1.6 percent. While June's net exports declined, the pace slowed markedly from the prior two month's month-to-month ("M2M") change in net exports.

In the aggregate, 2Q2014's net exports were down over 2 percent from 1Q's trade activity; exports quarter-to-quarter ("Q2Q") were down 0.9 percent and while Q2Q imports expanded by 1.5 percent. Despite M2M and Q2Q declines, June's net exports were 3.8 percent higher than June 2013's level; June exports were 5.1 percent higher than prior year levels and imports 7.9 percent higher. Year-to-date ("YTD") activity through June net exports is 1.7 percent lower than the prior YTD level; YTD imports have expanded by 2.8 percent and exports declined by 0.3 percent.

The six-month export trend became more negative, steepening from a 0.6 percent drop on trend between December and May to a 1.6 percent trend reduction between January and June. The six-month trend on imports remained positive but declined, dropping from a 6.9 percent increase on trend between December  and May to a 3.8 percent increase between January and June.  The net export six-month trend remained essentially unchanged between the period ending in May (-4.1 percent) and June (-4.2 percent).

In terms of notable shifts in country-level details:

• Pulp exports (13.2 million tonnes YTD) have increased by 0.4 percent compared to prior YTD levels. China remains the chief destination of U.S. pulp by a wide margin, representing 56.5 percent of YTD shipments compared to Mexico, the second-ranked destination at 7.4 percent. Nevertheless China's exports have declined by 1.3 percent YTD compared to the same period in 2013. Mexico's receipt of U.S. pulp export are up by over 11 percent YTD and India's, the third ranked destination for U.S. pulp exports, are up by 20 percent. Among 2013's top 10 destinations, the most significant change is Italy where U.S. pulp exports are off by nearly 31 percent from prior YTD levels. 

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• Paper and paperboard exports (1.2 million tonnes) dropped by 6.5 percent (85,000 tonnes) on a YTD basis. The "loss leader" is India (57,000 tonnes, -44.2 percent from prior YTD) followed by China (13,000 tonnes, -36.3 percent) and Mexico (10,000 tonnes, -3.6 percent). Bucking the general decline in paper and paperboard exports, YTD paper and paperboard exports compared to prior YTD levels to Canada are up by 44,000 tonnes (+16.0 percent). Costa Rica, Guatemala, and Peru are also receiving higher levels of U.S. paper and paperboard exports; Costa Rica's YTD receipts are up by over 13,000 tonnes (+48.5 percent), Guatemala's are up nearly 5,000 tonnes (+18.8 percent) and Peru's up over 4,000 tonnes (+66.1 percent). 

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• Pulp imports (3.1 million tonnes YTD) have dropped 1.8 percent compared to prior YTD levels. The most significant drop is from Brazil, which has fallen by 12 percent from prior YTD imports. Imports from Canada are up by 0.5 percent YTD compared to prior year levels. Canada and Brazil, the 1st and 2nd ranked pulp import sources, respectively, account for over 94 percent of the pulp imported. As a supply source, Indonesia has climbed from being the 12th ranked supplier during the first three months of 2013 to the 8th ranked supplier during the first six months of 2014, posting a YTD increase of nearly 66 percent. 

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• Paper and paperboard imports (1.7 million tonnes YTD) have expanded by over 12 percent YTD (186,000 tonnes) compared to prior YTD activity. Once again Canada leads the way, accounting for 85 percent of the increase (158,000 tonnes). Once again Canada is by far the most significant source of imported paper and paperboard in 2014, accounting for 89 percent of all paper and paperboard imported. One notable development on a percentage basis is Australia, which has vaulted from being the 29th ranked supplier during the first six months of 2013 to the 8th ranked supplier during the first six months of 2014, posting an eye-popping increase over 53,000 percent -- from 13 tonnes to 7,105 tonnes. 

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.