TD Notes Trees Weekly
Modest Gains for North American Wood Product Commodity Prices
CAS Capitulation Stands Out in Otherwise Quiet Week for Equities
Forest product equities were generally quiet last week, with the notable
exception of CAS. That equity traded down 27.3% on Thursday and Friday as poor
Q4/23 results and weak guidance dismantled much of the goodwill with investors
that the management team had rebuilt over the past year (see note). On average,
equities in our coverage universe have retreated 16.7% from recent highs (late
December for most).
Lumber prices crept higher last week. The Western SPF 2x4 cash price ended
last Thursday at US$432/Mfbm — up 1% w/w, with similar gains posted across other
grades and regions. The composite lumber price remains 16% below Q3/23 peaks
and, as evidenced by Q4/23 results, most sawmills are EBITDA-negative. In our view,
the extended price trough indicates more inventory through distribution channels
than is being suggested by producers' assessment. Equities with exposure to
lumber: CFP, IFP, WFG, WEF, and MERC.
Oriented strand board (OSB) panel markets have started to improve in the U.S.
South. The North Central OSB benchmark was stable at US$400/Msf, but prices
in the U.S. South improved 3-5% w/w. Anecdotal commentary cited mills pulling
back offerings by the end of the week, pushing order files into March. Equities with
exposure to OSB: LPX and WFG.
Containerboard producers are struggling to cope with ongoing old corrugated
container (OCC) cost inflation. Average U.S. OCC prices have increased 214%
since early 2023 as declining collection rates have coincided with increased
competition for fibre. Recycled containerboard producers have not been able to
increase prices at the same rate and relative margin compression was evident in
Q4/23 results. We believe incremental downtime will help to stabilize markets. CAS
has disproportionate OCC exposure in the North American packaging sector.