Now almost halfway through 2023, economists’ predictions for a recession have yet to materialize as data continues to paint a picture of a resilient Canadian economy, despite pressure from high inflation and steep interest rate hikes. This week’s GDP figures reflected faster-than-expected growth, strong household spending and an early reading of economic growth kicking off the second quarter, adding to the spate of jobs reports that have showed persistent strength in Canada’s labour market. The surprisingly strong data points have some economists reassessing their past calls for a 2023 recession in Canada. Some say a downturn could still be on the way, though it could be uneven and arrive later than previously expected. Doug Porter, at Bank of Montreal said, “at the start of the year, many forecasters were calling for at least a mild recession in Canada in 2023, and obviously we’re a long ways away from that.”
North American containerboard and corrugated demand faltered in late 2022, dragged down by the sharp reversal of these tailwinds and an economy-wide destocking cycle. …Operating rates have also dramatically declined for printing & writing papers. …In 2023, however, the surprisingly robust and persistent recovery in demand has given way to weakness, with the inventory headwinds afflicting much of the rest of the US economy now catching up to paper markets and import pressures rising to record levels. As a result, P&W operating rates have retreated dramatically, with uncoated freesheet operating rates falling to just 81% in February 2023 and coated freesheet operating rates dipping to 64%, the lowest level ever outside of the second quarter of 2020. Weak market conditions are forcing both containerboard and graphic paper producers to turn to downtime, which comes at a cost in that it handicaps mills’ ability to run at an efficient scale.
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Will we have a soft landing with minimal economic impact or will we enter a recession leading to falling commodity demand and prices? The cumulative interest-rate increases, coupled with the recent failures of regional banks in the United States, have also led to a credit-tightening cycle – another recession harbinger. Copper has moved down 8 per cent. …Wheat prices dropped to a two-year low. …Lumber prices are back down to levels we have not seen since the COVID outbreak in 2020, at $339 per thousand board feet. …Companies have shifted to production curtailments over the past two years as a way to put a floor on prices and we are now well below the average cost of production for West Coast lumber ($450-$500 MFBM). If we have a soft economic landing, we could see a sharp rise in lumber prices later in the summer. [to access the full story a Globe & Mail subscription is required]
The lumber-futures contract that soared during the pandemic and heralded the Covid building boom, broken supply chains and inflation will trade in its final session on Monday. The longtime barometer of wood prices and building activity is being retired and replaced with a new lumber-futures contract in an effort to boost trading. …To draw a larger pool of traders, the new futures contract represents a truckload of two-by-fours delivered to Chicago, instead of a train-car full sent to the British Columbia interior. The new futures also allow for eastern species. …The changes are meant to make trading in two-by-four derivatives a more useful tool for sawmills, builders and lumber yards to manage the risks involved in trading actual wood. At 27,500 board feet, instead of 110,000, each contract represents roughly the amount of lumber needed to build a house. Chicago is much closer to booming housing markets than Canada’s inland rainforest and as a delivery point much better approximates freight costs. [to access the full story a WSJ subscription is required]
The U.S. lumber market experiences a positive shift as plywood and softwood prices show signs of stabilization and recovery in April. Plywood prices, which had seen a significant decline in the past, demonstrated resilience with a marginal decrease of 0.2% from March to April 2023. …Softwood lumber, another critical commodity, experienced an encouraging 6.2% increase in prices from March to April 2023. This notable rebound indicates a potential turning point after witnessing substantial declines in previous months. The start of the construction season supports the potential for price stabilization and recovery in the lumber market. As the weather improves and construction activities ramp up, the demand for lumber is expected to increase. …The positive shift in prices from March to April 2023 aligns with the broader trend of a modest increase in the 
Higher interest rates and rampant inflation saw activity in Canada’s housing market slow dramatically over the past year – and they’ve also had a big impact on cost and demand for construction materials, most notably lumber. …Wood business and market consultant Russ Taylor told Canadian Mortgage Professional that while lumber prices from British Columbia mills typically hovered somewhere around $450 per thousand board feet, they’d been below the $400 mark for most of the year to date, with little imminent prospect of an upturn. “BC mills have been operating at a loss pretty much since the start of the year,” he said. …The good news? As the weather gets better and spring continues, opportunities for housebuilding should increase, according to Taylor. “I think the second quarter is going to be the bottom for prices, anyway,” he said. 
Montreal, Quebec—Stella-Jones Inc. today updated its three-year objectives, reflecting the years 2023–2025. The Company will be featuring its new financial targets at its Investor Day, being held this morning in Toronto, Ontario. “Following a record year in 2022, coupled with our outstanding start to 2023, we are excited to share updated financial objectives that reflect Stella-Jones’ performance and growth potential,” said Eric Vachon, President and Chief Executive Officer of Stella-Jones. “In light of our favourable position to meet or exceed our original financial targets, we are raising our 2025 sales target to almost 20% above 2022 sales and the 2023–2025 EBITDA margin goal to 16%, primarily driven by the accelerating demand for our higher margin utility poles business. …Our inaugural investor day today sets the stage for us to share our new targets and build on what we believe is a defining time for us and for the essential infrastructure businesses we serve.”
The densified biomass fuel industry has demonstrated remarkable growth during the first quarter of 2023, reflecting the sector’s expanding presence and increasing demand for renewable energy sources. According to the U.S. Energy Information Administration report, the production of densified biomass fuel in 1Q23 reached approximately 2.66 million tonnes, showcasing a 9% increase compared to the 2.43 million tonnes produced in 1Q22. At the end of 1Q23, the total production capacity of the manufacturers reached 13.02 million tonnes per year, representing an increase of 0.26 million tonnes compared to 1Q22. In 1Q23, there were 78 manufacturers in the industry, indicating a reduction from the 80 manufacturers recorded in 1Q22. In 1Q23, total sales of densified biomass fuel amounted to approximately 2.31 million tonnes, representing a slight decrease of 7% compared to the 2.49 million tonnes sold in 1Q22.
US softwood lumber imports from European suppliers soared further into record territory in the first quarter 2023 after setting all-time highs in 2022. Shipments from the 10 largest European suppliers climbed to 611 million board feet through March, up, 38% from the first quarter of 2022. First-quarter imports from Europe gained 4%, compared to the 584 million board feet shipped in the fourth quarter last year, and sustained the unprecedented surge in shipments that emerged last year. North American exports once again maintained a multi-year fade as US and Canadian shippers lost market share in the largest offshore destinations to Russia, Europe, and other producing regions. Total US imports from offshore suppliers jumped to 750 mmbf through March, up 27% from the year-ago pace. At the first-quarter rate, imports from overseas would reach 3.0 billion board feet this year, which would surpass the record volume of 2.93 bbf set in 2005.
The Conference Board released its Consumer Confidence Index® (CCI) for May. The CCI Index declined in May to a reading of 102.3 (1985=100), down from an upwardly revised April reading of 103.7. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—decreased in May to a reading of 148.6 (1985=100), down from April’s reading of 151.8. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—declined to a reading of 71.5 (1985=100) in May, down from April’s reading of 71.7. The Conference Board notes that The Expectation Index has been below 80—the level associated with a recession within the next year—every month since February 2022, with the exception of a brief uptick in December 2022.
The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.6% in April 2023 to 107.5 (2016=100), following a decline of 1.2% in March. The LEI is down 4.4% over the six-month period between October 2022 and April 2023—a steeper rate of decline than its 3.8% contraction over the previous six months (April–October 2022). “The LEI for the US declined for the thirteenth consecutive month in April, signaling a worsening economic outlook,” said Justyna Zabinska-La Monica, at The Conference Board. “Weaknesses among underlying components were widespread—but less so than in March’s reading, which resulted in a smaller decline. Only stock prices and manufacturers’ new orders for both capital and consumer goods improved in April. Importantly, the LEI continues to warn of an economic downturn this year. The Conference Board forecasts a contraction of economic activity starting in Q2 leading to a mild recession by mid-2023.”
WASHINGTON – U.S. single-family homebuilding increased in April, but data for the prior month was revised sharply lower, suggesting that the housing market slump was far from over even as some segments show signs of stabilizing. The rise in single-family housing starts last month reported by the Commerce Department on Wednesday was concentrated in the West, with the rest of the three regions reporting big declines. Shortages of some materials were likely hampering builders, with the homebuilding backlog surging and completions declining. Single-family housing starts, which account for the bulk of homebuilding, rose 1.6% to a seasonally adjusted annual rate of 846,000 units last month. Data for March was revised down to show single-family homebuilding falling to a rate of 833,000 units instead of increasing to a pace of 861,000 units as previously reported. …But single-family building permits rose 3.1% to a rate of 855,000 units in April, the highest level since last September.
Asia has increased its share of global wood pellet imports to a record 32%. Worldwide trade of wood pellets was practically unchanged year-over-year compared to 2022. This was the first-time shipments failed to rise since 2017 when wood pellets became a globally traded commodity. …Asia, represented by Japan and South Korea, has continued to grow import volumes at the expense of European buyers. In 4Q 2022, this accounted for one-third of the world’s import volume—up from only 18% five years ago. Demand for biomass, including wood pellets, has increased remarkably quickly in Japan. …Japan will be the fastest-growing market in the world in the next 5-10 years. …The US’s woodchip exports have increased by about 40% in the past two years to reach an all-time high in 2022. The overseas shipments represented 73% of total shipments, up from 45% in 2020 and driven by higher demand for softwood fiber by Asian pulpmills.
JAPAN — March total housing starts fell 3.2% to 73,693 units. The decline was led by owner occupied housing, with the segment falling 13.6% for the 16th consecutive monthly decline. …Sluggishness was prevalent in wooden single family housing, falling 6.9% to 36,531 units. Post and beam starts fell 8.2% to 28,033 units. Wooden prefab starts increased 4.7% to 817 units and total prefab housing declined 2.2% to 8,504 units. Platform frame declined 3.0% to 7,681 units. Results of 2×4 starts by housing type were as follows: single family custom homes fell 9.9% to 2,044 units, rental housing edged up 0.5% to 4,702 units and built for sale spec housing declined 9.8% to 861 units. …March total non-residential starts decreased 3.1% to 3,439 units. Wooden non-residential starts dropped 6.8% to 1,242 units and wooden floor area fell 5.4% to 222,243m2. 
RUSSIA — According to recent data from Roslesinforg, foreign sales of Russian timber have continued to decline in the first quarter of 2023, dropping by over 20 percent to 4.5 million cubic meters, primarily due to EU sanctions imposed on Russia following its military operation in Ukraine. …The latest data reveals a continued decline in foreign sales of Russian timber, mainly attributed to the EU sanctions imposed on Russia following its military operation in Ukraine. The EU had been a major market for Russian timber, but the embargo led to a complete halt in sales. Additionally, other countries such as the United States, Japan, and South Korea also reduced their imports of Russian wood products during the first quarter of 2023. This ongoing decline in foreign sales poses challenges for Russia’s timber industry and its export sector as a whole.
AUSTRALIA — Australian timber prices may have fallen from their Covid pandemic spikes but the respite might be short-lived, creating a headache for the critical housing sector and its role in helping address a severe shortfall in new homes. The housing industry is being hit by opposing forces, with rising interest rates designed to cool demand at the same time as a housing shortage stirs it. An impending resumption of the timber export trade to China is also raising questions over whether Australia has enough local supplies to meet its own requirements. …Two big forces are crashing against each other. Developers are holding off building tens of thousands of homes across Australia, despite already gaining planning approval, because of high construction costs. …“Australia needs one billion new timber trees planted to meet growing future demand,” the Australian Forest Products Association says.
