West Fraser Timber Co Ltd T.WFG

TD Notes

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Global Pulp Market Update - October 2022 Data

October Y/Y Shipment Increase Weighted to Hardwood Grades Global Pulp Prices Moderating at Orderly Pace

Event

The Pulp and Paper Products Council (PPPC) released "World-20" market pulp data for October today (data from producers representing 82% of global paper- grade chemical market pulp capacity). October shipments grew 2.3% on a year- over-year (y/y) basis, the sixth consecutive positive y/y comp. Hardwood pulp shipments increased 5.2% y/y (versus the YTD increase of 7.7% and full year 2021 decline of 3.7%) while softwood pulp shipments declined 1.1% y/y (versus the YTD decrease of 1.8% and the full-year 2021 decline of 5.1%). Aggregate October- ending mill inventories increased one day versus the preceding month to 43 days of supply. Softwood supplies remain elevated.

Impact: NEUTRAL

There were several puts and takes for October data. Strong hardwood shipments (less relevant for our coverage universe) were countered by lower softwood volumes and elevated overall inventories. Unchanged pulp mill inventories at the end of October versus the preceding month-end compared poorly to historical trends for the month when stocks typically decline. The general flavour of current global pulp supply and demand dynamics remains unchanged: markets are moderating and prices are moving past cyclical peaks. Prices have backed off summer records but the pullback has been orderly to-date.

Pulp producers in our coverage universe: MERC; CFX/CFP; RFP; WFG.

Key Points for October Data

• Volume declines to North America (-6.3% y/y) and Eastern Europe (-12.6% y/ y) were countered by growth to Asia (+7.0% y/y), Western Europe (+1.3% y/y) and Latin America (+3.9% y/y). Shipments to China increased 8.4% y/y. This is the second best y/y comp since October 2020 (with mostly negative y/y comps in between) but runs counter to recent anecdotal reports of weak Chinese demand.

• Softwood days of supply decreased one day m/m to 41 days (versus a long-term average of 32 days). Hardwood days of supply increased one day m/m to 44 days (three days above the long-term average). Mill inventories were flat m/m in October, worse than the 10-year average m/m October decrease of 54,000 tonnes.

  Global pulp prices have moderated versus summer nominal records. The November list price for Northern Bleached Softwood Kraft (NBSK) market pulp is US $1,740/tonne, down US$65/tonne, or 4%, versus the August nominal record. Spot domestic NBSK pulp prices have declined US$85/tonne, or 8%, over the past four months. The current net transaction price for imported NBSK pulp in China is US $936/tonne, down 7% versus July. Increased pulp supply availability and upcoming hardwood pulp capacity additions are shifting momentum in favour of buyers.