Trees Weekly
Divergent Equity Trends; Investors Weigh Q4 Earnings Potential
Cold Temps Could Disrupt Wood Product Freight Logistics
Last week's forest product equity performance was volatile. The average share-
price gain for our coverage universe last week was 1.2%; gains for pulp & paper-
weighted equities (+4.3%, on average) countered losses for most wood-weighted
names (-1.3%, on average). We believe that investors are starting to discount the
potential for poor Q4/23 results for lumber producers (weaker price realizations,
rolling curtailments, and potential inventory valuation provisions).
Lumber prices enter holding pattern following recent gains. The Western SPF
2x4 cash price ended last Thursday at US$445/Mfbm — consistent w/w and up 9%
since mid-December. Market reports referenced severe weather across the continent
and associated pressure on demand. We expect that extreme temperatures in
western Canada will compromise freight networks, which has been a positive lumber
price catalyst in precedent cycles. Equities with exposure to lumber: CFP, IFP,
WFG, WEF, and MERC.
OSB prices treading water. The North Central OSB benchmark remains at US$415/
Msf (unchanged since early December), and prices across other relevant regions
were also flat. The OSB composite price is 18% above the recent mid-October low
and remains above our estimate of mid-cycle (trend levels). We estimate that current
prices yield average EBITDA margins of ~20% across the North American sector.
Equities with exposure to OSB: LPX and WFG.
Divergent pulp price momentum across markets; supply disruptions adding
tension. The preliminary North American NBSK pulp list price for January is US
$1,350/tonne at the bottom end, but reports suggest list prices climbed US$20/tonne
for some buyers. North American NBSK supply outages have contributed to upward
momentum at the margin. Net NBSK prices for imports into China have been flat
at US$730/tonne for several weeks. Softwood pulp price momentum is positive in
Europe. Equities with exposure to market pulp: CFX/CFP, MERC, and WFG.