TD Notes Trees Weekly - Q4/23 Forest Products Sector Earnings Preview
Our Q4 Estimates for Most Lumber Equities are Below Consensus
Forest product equities in our coverage universe will start reporting Q4/23
results on February 8. Since we revised our estimates on January 11 (unchanged
in this note), consensus Q4/23 forecasts have declined, but, in our view, general
expectations remain too high for several names. Our Q4/23 estimates are notably
below consensus for four of the nine names, including the three large lumber
producers: IFP; CFP; and WFG. We expect weak, near-trough results for most
wood-weighted equities, reflecting pressure on lumber and OSB prices (Q4 average
U.S. dollar-denominated North American composite prices declined 12% and 25%,
respectively, on a q/q basis). In some cases, we expect that price pressure will
be compounded by inventory write-down provisions and costs associated with
downtime.
Cash market lumber prices are drifting lower. Western SPF 2x4 prices ended last
Thursday at US$436/Mfbm and have declined 2% over the past month (that follows
a 20% rally between late October and mid-January). The U.S. Southern Yellow Pine
regional composite price has dropped 5% in the past month, led by a 15% fall for the
2x4 benchmark. Reports note a market standoff, with a general view that inventories
through the system are lean and that prices are approaching a floor. Equities with
exposure to lumber: CFP, IFP, WFG, WEF, and MERC.
Canadian OSB prices continue to weaken; U.S. treading water. The North
Central OSB benchmark was unchanged at US$415/Msf (consistent since early
December), but prices in Canada have dropped 7-10% over the past two weeks.
Equities with exposure to OSB: LPX and WFG.
North American pulp prices have positive momentum. January list prices
for northern bleached softwood kraft (NBSK) pulp increased US$30/tonne from
December and are now up 9% over the past three months. Anecdotal reports
indicate that spot prices have rallied to a greater extent. We attribute some positive
momentum to unplanned Canadian downtime (Dryden and Thunder Bay), but
sentiment is improving. Equities with exposure to pulp: CFX/CFP, MERC, and
WFG.