TD Woody n youNorth American Wood Products Market Update Canadian Lumber Exports - Offshore Declines Offset U.S. Growth U.S. Dollar-denominated Lumber Prices Under Near-term Pressure
Last Friday, Statistics Canada released international trade data for January. Lumber exports of 2.85 million m3 declined 1.1% on a year-overyear (y/y) basis — an unfavourable comparison versus the full-year 2014 growth rate of 5.0%. Growth in shipments to the U.S. (up 7.0% y/y versus 11.3% growth in 2014) was offset by ongoing declines in exports to Asia.
U.S. dollar-denominated lumber price momentum has been negative over the past two months, but Canadian dollar-denominated prices remain robust. Benchmark Western SPF 2x4 prices have declined US$41/Mfbm (12%) since the beginning of the year and the current price (US$299/Mfbm) is now US$69/Mfbm (19%) below the August peak. We attribute pressure to the strong U.S. dollar, adverse weather, and weaker export demand. We believe that lumber prices are approaching a near-term trough and several lumber-weighted equities offer a compelling risk/reward trade-off. Our top lumber picks are Canfor, Interfor, and Western Forest Products.
Exhibit 2. North American Wood Equities Target Prices & Recommendations
Share Target Total Return Risk Company Ticker Price Price to Target Rec. Rating Lumber-Weighted
Canfor Corp. CFP-T $26.88 $40.00 49% BUY HIGH
Conifex Timber Inc. CFF-T $7.20 $8.00 11% HOLD HIGH
Interfor Corp. IFP-T $19.60 $28.00 43% BUY HIGH
Western Forest Products Inc. WEF-T $2.01 $3.00 53% BUY HIGH
West Fraser Timber Co. Ltd. WFT-T $65.79 $77.00 17% HOLD HIGH
Panel-Weighted Ainsworth Lumber Co. Ltd. ANS-T $3.45 -------------------- Restricted ---------------------- Louisiana-Pacific Corp. (1) LPX-N $16.42 $16.50 0% HOLD HIGH
Norbord Inc. NBD-T $26.48 -------------------- Restricted ----------------------