TD Notes Trees Weekly
Quiet Start to 2024 as Investors Weigh Gains Exiting Last Year
Lumber Prices Keep Inching Higher
Forest product equities started 2024 on a quiet note. The average share-price
decline for our coverage universe last week was 0.6%, with minimal variance. A
sluggish start for the sector mirrored broader markets: the S&P/TSX Composite was
flat w/w, while the S&P 500 declined 1.5%. We note that wood-weighted names have
posted an average share-price gain of 30.7% from the cyclical lows near the end
of October.
Lumber prices increased across most grades and regions last week. The
Western SPF 2x4 cash price ended last Thursday at US$445/Mfbm — up 9%
since mid-December (in tandem with surprisingly strong November U.S. housing
data). Prices in the U.S. South also improved modestly last week and have climbed
10% since early November. Market commentary referenced motivated buyers with
some concern over potential production cuts in Canada. Equities with exposure to
lumber: CFP, IFP, WFG, WEF, and MERC.
OSB prices were flat last week. The North Central OSB benchmark was steady
at US$415/Msf (consistent since early December), as were prices in other relevant
regions. The composite OSB price has increased 18% since mid-October, and
overall levels remain >30% above our assessment of mid-cycle (trend) levels.
Average sector order files extend into early February. Equities with exposure to
OSB: LPX and WFG.
OCC cost inflation carries into early 2024. Fastmarkets RISI reported average
North American old corrugated container (OCC) increasing another US$5-US$10/
ton in January to US$90-US$95/ton in the U.S. Northeast. Average U.S. OCC
prices have increased three-fold since last March and are just now approaching our
assessment of long-term normalized levels. Competition for OCC from new recycled-
based containerboard capacity has contributed to inflation. CAS is a consumer of
OCC.