Forest Products
The Continuous Digester – What we learned this week
Lumber and OSB markets continue strong performance – According to Random Lengths (“RL”), the Framing Lumber Composite topped $500 for the first time since July as it increased +$22 w/w to $516, the sixth consecutive w/w gain. SYP had strong gains for the week caused by weather-related production problems. In OSB markets, the OSB Composite increased +$7 w/w to $583 despite sales slowing in the US South. For next week, RBC ElementsTM is forecasting that the RL Framing Lumber Composite will increase +$18 w/w to $534 and that the RL OSB Composite will increase +$19 w/w to $602.
Paul Quinn
The National Association of Homebuilders (“NAHB”) continues to push for a resolution to the Softwood Lumber Dispute – In a letter to President Biden, the NAHB noted that news of mill curtailments are stoking fears of another massive price spike this fall and next spring. In addition, the NAHB noted that the upcoming administrative review in November will exacerbate current issues; therefore, the organization is requesting that US Trade Representative Katherine Tai returns to the negotiating table with Canada to develop a new softwood lumber agreement.
Canfor is moving ahead with the construction of a low carbon biofuel plant in Prince George – Arbios Biotech, a joint venture between Canfor and Licella Holdings Ltd., will construct a plant on the Intercontinental Pulp mill site that aims to convert 25k dry tonnes of wood residue into 50k barrels of bio-oil per year. We estimate total capex will be ~C$25-30 million, with the government financing about half (putting Canfor’s contribution at ~C$6-8 million). If successful, we expect that the Arbios JV could build a larger scale commercial plant. For more details on the Tidewater Renewables renewable diesel complex to be located next to the Intercontinental Pulp Mill, RBC Dominion Securities Analyst Matthew McKellar is a good resource (click here for his initiation on Tidewater Renewables).
Idaho Timber reported FQ3 results – Revenue declined 1% y/y to $119 million primarily due to a 22% decline in weekly shipments, partially offset by a 28% y/y increase in average selling price. The company’s EBIT margin fell by 28 percentage points y/y to -2.0%, due to the increased cost of sales as well as charges to adjust its inventory carrying value to substantially lower lumber prices. We expect big inventory adjustments for our lumber company coverage, similar to what Idaho Timber just presented.
Rayonier Advanced Materials announced a specialty cellulose price increase – According to the company, it is increasing prices for all its Cellulose Specialties products by a minimum of 15-30% depending on product grade, effective immediately as contracts allow. The price increases are intended to help offset the accelerating impacts of cost inflation. We expect that most contracts are longer-term and will not be subject to the increase; however, the announcement could help frame upcoming contract negotiations at London Pulp Week (November 7-12).
OCC pricing is finally stabilizing, with average US pricing down $3 w/w to $164/ton – According to RISI, the streak of 11 consecutive months of higher OCC pricing came to an end in October as demand finally pulled back. Notably, RISI noted that “panic buying” and “poaching” from other regions has slowed recently as Green Bay Packaging, International Paper, WestRock, and Cascades all took downtime during September. In addition, Graphic Packaging is no longer building recovered paper inventory ahead of the start-up of its new 500k ton/year CRB machine slated to start up in November.
Mondi Group provided a Q3 trading update – In Corrugated Packaging, Mondi saw strong volumes during Q3 driven by strength across almost all end-markets.