TD Notes Trees Weekly
Strong Housing Starts and Rate Optimism Drive Share Price Gains
OSB Prices Keep Accelerating
Forest product (FP) share-price performance was sharply positive last week.
The average share-price gain across our coverage set was 7.0%, led by wood-
weighted equities (+8.1%, on average) as investors digested encouraging February
housing starts data (link) and optimism around potential interest rate cuts. Sector
gains outpaced broader markets last week: the S&P/TSX Composite increased 0.6%
and S&P 500 climbed 2.3%.
Lumber prices settled last week following steady gains over the previous
month. The Western SPF 2x4 cash price ended last Thursday at US$463/Mfbm
— unchanged from the previous week, but still up 8% since mid-February. Prices
in other key regions were also generally flat last week. We note that the Western
SPF premium over Southern Yellow Pine is near two-year highs. Anecdotal reports
referenced cautious buying patterns as participants await clarity on spring demand.
Equities with exposure to lumber: CFP, IFP, WFG, WEF, and MERC.
The oriented strand board (OSB) structural panel price surge continues. The
North Central OSB benchmark improved another 9% w/w to US$510/Msf and has
increased 28% since early February. OSB prices in other key regions have increased
46-58% over the past five weeks. We believe that relative OSB market momentum
reflects a concentrated exposure to new home construction (positive momentum
confirmed by February data). Our 2024 price forecasts appear conservative, given
recent strength. Equities with exposure to OSB: LPX and WFG.
Global pulp markets are moving higher. Both softwood and hardwood grades
are in a sellers' market. Since last summer, global northern bleached softwood kraft
(NBSK) prices have increased 19-29% and hardwood pulp prices are up 28-33%.
Market commentary referenced tension tied to improving demand from China and
supply constraints related to unplanned downtime plus a port strike in Finland.
Equities with exposure to market pulp: CFX/CFP; MERC; and WFG.