Notwithstanding expectations for slowing global growth in 2024, the new year has brought with it more challenges, including the extension of the Middle East conflict to the Red Sea. The re-routing of ships around the Horn of Africa is adding 10‒14 days to any Europe–Asia transit and impacting 10‒12% of global seaborne trade. Volumes through the Suez have dropped ~40% since the conflict began. …For many exports of pulp and paper & board, the change adds $20‒$60 per metric tonne to container costs in the near-term. Second-order impacts may include keeping more pulp (and paper) in Europe, depressing prices in that market, and keeping more paper & board in Asia, reducing pulp demand there. In other forest products, an interruption in log and glulam shipments from Europe last year drove Pacific Northwest log prices through the roof for the Japanese market; the same may happen again in this context. …If the disruption lingers, there will be significant first- and second-order impacts on the shape of markets in 2024.
It’s been a sluggish start to 2024 for North American lumber markets. …Lumber prices continue to languish. Supply reductions to date have been insufficient to tighten the market, but a short-lived spring rally is likely. OSB prices have held at profitable levels, but cracks are forming and new supply is coming to market (with delays). Rate cuts by the Fed are the overarching focus, with disappointment a possibility. We prefer lumber over panels for the next year or two but expect volatility across the spectrum. …Pulp prices have been facing challenges in their biggest market (China), although prices have nudged up elsewhere. Closures remain a risk for the softwood market. Shipping issues are adding costs and complexity. Tissue producers should benefit from any price slippage, but their own topline prices are under pressure.