West Fraser Timber Co Ltd T.WFG

TD Notes

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Global Pulp Market Update - August 2022 Data

August Shipments Increase; Pulp Inventories Remain Elevated Global Pulp Prices are Moving Past Cyclical Peaks

Event

The Pulp and Paper Products Council (PPPC) released "World-20" market pulp data for August today (data from producers representing 82% of global paper-grade chemical market pulp capacity). August shipments grew 8.3% on a year-over- year (y/y) basis, the fourth consecutive positive y/y comp following mostly negative y/y comparisons over the preceding 12 months. Volume growth for softwood pulp (up 5.8% y/y versus the YTD decline of 2.2% and full year 2021 decline of 3.7%) was complemented by gains for hardwood pulp (up 11.4% y/y versus the YTD increase of 7.3% and the full-year 2021 decline of 5.1%). Aggregate August- ending mill inventories increased one day versus the preceding month to 43 days of supply. Softwood supplies remain elevated.

Impact: SLIGHTLY POSITIVE

Strong shipment growth in August is encouraging and reflects slowly improving logistics. Global pulp mill inventories remain below peak levels from a year ago but have crept up in recent months and were above balanced levels in August (particularly for softwood). Overall, the tight fundamentals which have characterized most of 2022 are easing and prices are beginning to more past cyclical peaks. Anecdotal reports of lean customer inventories is a mitigating factor but overall dynamics point to price pressure in the coming months.

Pulp producers in our coverage universe: MERC; CFX/CFP; RFP; WFG.

Key Points for August Data

• Volume gains in August were led by Asia and Western Europe with shipments up 8.2% y/y and 12.0% y/y, respectively. Shipments to China increased 8.9% y/y, the best y/y comp since October 2020 (with mostly negative y/y comps in between).

• Softwood days of supply increased two days m/m to 44 days (versus a long-term average of 32 days). Hardwood days of supply increased one day m/m to 44 days (three days above the long-term average). Mill inventories increased by an estimated 218,000 tonnes during August, worse than the 10-year average m/m August increase of 123,000 tonnes.

  Global pulp prices are starting to move past cyclical peaks and nominal records. The preliminary September list price for Northern Bleached Softwood Kraft (NBSK) market pulp is US$1,775/tonne, down US$30/tonne or 2% versus the August nominal record. Spot domestic NBSK pulp prices have declined US$50/tonne or 5% over the past two months. The current net transaction price for imported NBSK pulp in China is US$948/tonne, down 6% versus July. Market reports note increased availability of supply as Canadian producers have mostly worked through shipment backlogs.