West Fraser Timber Co Ltd T.WFG

TD Notes

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Trees Weekly

Lumber Price Correction Gains Pace, Led by U.S. South

 Forest product equity declines accelerated last week as the lumber commodity price correction continues. The average share-price decline of 5.2% for our coverage universe last week compared with a modest decline of 0.2% for the S&P/TSX Composite and a small gain of 0.1% for the S&P 500. Building on the recent trend, weakness was weighted to wood-heavy equities (lumber and OSB producers were down 7.0%, on average, last week). Share prices for our coverage universe are 17.4% below mid-January 2022 peaks. Sector valuations are contracting even with prospects for positive revisions to 2022 consensus estimates.

 Lumber price weakness is weighted to the U.S. South. The benchmark Western SPF 2x4 price declined 11% last week to US$1,200/Mfbm and is down 14% from the recent high two weeks ago. The gap between the cash price and the nearest futures contract (US$965/Mfbm for May delivery) remains high. Cash market price declines were particularly severe in the U.S. South last week — especially for narrow widths; the regional composite price declined 14% last week and is down 22% since mid-March. Market reports noted tepid buying interest as mortgage rates continue to rise at a rapid rate.

• OSB prices pull back from the peak. For the first time since last August, North American OSB prices declined. The benchmark North Central price declined 4% w/w to US$1,225/Msf. Prices in western Canada and the U.S. Southwest declined 5%. Overall price levels remain exceptional, but reports referenced falling demand from the DIY segment.

• Final March pulp prices show broad positive momentum. Fastmarkets RISI published final month-ending pulp prices late last week. The list NBSK price in North America increased US$100/tonne to US$1,615/tonne (matching the nominal record from June 2021). Effective NBSK transaction prices in China increased US$110/tonne to US$985/tonne. Further increases are on deck for April as freight hurdles and downtime have added to market tension.