RBC Notes January 9, 2022
Paper, Packaging & Forest Products
The Continuous Digester – What we learned this week
Lumber and OSB prices continue to rise significantly – According to Random Lengths (“RL”), the Framing Lumber Composite increased $73 w/w to $1,111, as supply shortages sent Southern Pine prices up rapidly as 2x4's posted triple-digit w/w gains. In OSB markets, the OSB Composite increased $54 w/w to $815 as weather-related and logistical issues slowed sales volumes; open-market offerings from mills remained limited. For next week, RBC ElementsTM forecasts that the RL Framing Lumber Composite will increase $58 w/w to $1,169 and that the RL OSB Composite will increase $95 w/w to $910.
We published our 2022 Pulp & Paper Outlook – For more details, please click here.
OCC prices declined for the third consecutive month – According to RISI, North American OCC prices are down $5-10/st to begin 2022, as supply has begun to catch up to strong demand. SOP prices moved $10/st higher in January as there was an uptick in demand (especially from Georgia-Pacific mills) due to gradually improving away-from-home tissue ("AfH") demand; however, the rebound in Omicron cases has AfH suppliers reconsidering the 2022 demand outlook.
Omicron is impacting containerboard supply, but no large volume declines have been reported –
According to RISI, there have been some negative impacts of the pandemic on industry supply as "more people are calling in sick", which could result in weaker production volumes during Q1/22. Another boxmaker noted that there has been some downtime but no loss of complete shifts. The FBA will report Q4 box shipments on February 1, with RISI expecting a 2.5-2.9% y/y growth rate for the full year.
More converting capacity on the way; Green Bay Packaging building a "super plant" in Fort Worth –
The company announced that it will build a 600,000 sf. plant by mid-2023, replacing an older 200,000 sf. facility. The plant will include a 110-inch corrugator along with other state-of-the-art equipment. Other companies set to start-up new converting capacity include IP, Saica, Kruger, Atlantic Packaging, and McKinley Packaging.
Lumber prices are up 102% since the Bank of Canada used Lumber as an example to show that inflation was transitory – According to the Financial Post, BOC governor Tiff Macklem cited the example of lumber prices when calling inflation transitory in October 2021. At the time, Mr. Macklem noted that most of the upward pricing pressure is coming from "unique circumstances" such as supply chain issues; while this is a key factor, it seems that buyers are willing to pay elevated prices as housing demand remains strong. We examine the relationship between rising inflation and lumber price changes in Exhibit 1.