Interfor Corp T.IFP

TD Notes

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Trees Weekly

Exiting 2021 with Momentum; Lumber & OSB Equities Keep Climbing Remarkable Lumber Price Recovery Gaining Speed

 Positive forest product share-price trends continued last week. The average week-over-week share-price increase of 5.0% for our coverage universe was above gains of 1.2% for the S&P/TSX Composite and 3.8% for the S&P 500. Investors reacted to surging lumber prices and a growing realization that near- term consensus earnings forecasts are potentially conservative. Strong returns last week were led by RFP (+16.8% w/w and +41.9% from the mid-September low). Since Q3/21 lows, the average share-price recovery for our coverage universe is 22.5%.

 Last week's lumber price gain was the fastest on recent record. The benchmark Western SPF 2x4 cash market price increased 18% to US$880/Mfbm, the highest level since late-June and up 129% since late-August. Although the pace of recovery has lagged in the U.S. South, prices there are climbing as well. Overall markets are below exceptional Q2/21 peak levels, but prices are back at levels where even high-cost sawmills in B.C. generate strong margins. We believe that recent price improvement is, in part, related to temporary factors (relatively warm weather and western Canadian shipment constraints).

• The OSB price recovery is trailing lumber, but gains are accelerating. The benchmark North Central price of US$550/Msf increased US$40/Msf w/w — the fastest weekly gain since late-April. Price increases in western Canada and the U.S. South were slightly lower. Reports indicate a growing supply shortage amid stronger-than-normal demand.

• Recycled fibre price declines continue in December. Reference old corrugated container (OCC) prices declined 12% from November and are down 17% from the October peak (still up 142% y/y and well above long-term averages). Fastmarkets RISI referenced higher generation and more supply through the channel.