Trees Weekly
Forest Product Equities Still Sliding Pulp Data Provides Reason for Optimism
Forest product equities in our coverage universe kept sliding last week as lumber and panel price momentum waned. The average share-price decline across our coverage universe over the past week was 2.2%, led by MERC (-13.4% as investors reconsidered poor Q2/23 results) and LPX (-3.6%, building on steep losses in the previous week). Sector losses last week compared poorly against a 0.8% gain for the S&P/TSX Composite and a 0.3% loss for the S&P 500. Since recent highs five weeks ago, the average share-price decline for our coverage universe is 12.9%.
Lumber prices have moderated as distribution channel inventories have normalized. The Western SPF 2x4 benchmark cash price ended last Thursday at US$385/Mfbm — down 3% w/w and the lowest price since mid-June. Commentary in Random Lengths cited buyer apathy, but also referenced normal summer doldrums. Equities with exposure to lumber: CFP, IFP, WFG, WEF, and MERC.
OSB prices holding steady despite macro headwinds. The North Central OSB benchmark price remains at US$510/Msf — flat for three consecutive weeks following a 132% rally since the start of the year. We note that current prices are near pre-COVID-19 records (i.e., consistent with strong margins). Market reports suggest slow demand as buyers process inventories. Equities with exposure to OSB: LPX and WFG.
Pulp mill inventories start correcting from historical peaks. The Pulp & Paper Products Council (PPPC) released relatively encouraging global producer shipment and inventory data for June last week. Shipments increased 6.3% y/y — the first monthly gain since November 2022. Mill inventories declined to 48 days of supply from the peak of 55 days at the end of May. Declines were led by hardwood, but softwood stocks also moderated. Equities with exposure to market pulp: CFX/ CFP, MERC, and WFG.