RBC Dominion Securities analyst Paul Quinn expects “a pretty difficult year” for North American paper and forest products in 2023.
In a research report released Tuesday, he emphasized a “tough” demand backdrop for wood products with rising interest rates having “a negative effect” on the North American housing market. He also thinks new capacity in the pulp and containerboard market could weigh on the sector.
“After a number of years of very strong home price appreciation, affordability was an issue even before rates materially moved higher,” said Mr. Quinn. “We believe that rates will continue to rise over most of 2023 as the Fed tries to corral inflation, but anticipate a cut or two by the end of the year. Unfortunately, that will be too late to save the 2023 home building season, but it may set up 2024 for a rebound in profitability. We are hoping that a difficult 2023 will lead to a number of permanent capacity closures, similar to what we experienced in 2019, with most of the curtailments occurring in BC to balance demand with the declining timber supply.”
“After relatively strong years for pulp & containerboard pricing, new capacity could disrupt supply-demand balances over the coming year. Over the last quarter, linerboard, medium and pulp prices have peaked and are starting to come under some pressure. We expect this to last through Q123 for containerboard and all through 2023 for market pulp. We think the paperboard market will also loosen at the margin as new capacity comes online.”
Mr. Quinn named three other companies as his “top Canadian ideas.” They are:
- Canfor Corp. (“outperform”) with a $30 target. Average: $31.50.
- Cascades Inc. (“outperform”) with an $11 target, down from $12 previously. Average: $10.11.
- Interfor Corp. ( “outperform”) with a $35 target. Average: $35.33.