Interfor Corp T.IFP

TD Notes

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Trees Weekly

Lumber Prices Pass the Peak
Equities Buoyed by Softwood Lumber Trade Rhetoric

• Most forest product equities rebounded last week, following recent pressure. The average share-price improvement for our coverage universe was 2.2%, slightly outpacing gains of 1.7% for the S&P/TSX Composite and 1.2% for the S&P 500. Sector gains last week were widespread, despite indications of slowing momentum across several key commodities (e.g., lumber and pulp). We attribute some strength to constructive rhetoric around potential negotiations towards a bilateral softwood lumber trade resolution between Canada and the U.S. We believe that some investors are factoring a partial refund of Canadian duty deposits since 2017 into valuations.

• Lumber prices step back from the peak. After an unprecedented 13-month run, lumber markets declined across most grades and regions last week. The cash market Western SPF 2x4 price declined 2% last week to US$1,600/Mfbm — the first weekly decline since mid-January. Reference prices also moderated in the U.S. South and eastern Canada. Positive momentum continued for B.C. Coast Western Red Cedar and for bellwether grades in the U.S. Pacific North West.

• OSB prices still climbing, but gains are slowing. The benchmark North Central OSB price of US$1,310/Msf increased 2% for the week, and has improved 5.8x from the trough 13 months ago. Market commentary referenced slowing buyer urgency amid ongoing tight supply.

• Constructive commentary towards potential softwood lumber trade dispute resolution. Last week, U.S. Commerce Secretary Gina Raimondo addressed high building product prices and indicated that talks with Canada regarding a potential bilateral lumber trade agreement are a priority. As a component of the 2006 softwood lumber trade agreement, duties were replaced with a variable export tax structure and most duty deposits were refunded to Canadian sawmills.