It was another challenging month for lumber markets, with prices for virtually all species and dimensions trending lower. After recovering modestly at the beginning of the month, SYP 2×4 prices are off by $10 over the past two weeks to $317. S-P-F 2×4 prices have moved lower for four consecutive weeks and now sit at $357. Producers are losing money in all regions at this point.  After demand from R&R disappointed heading into the spring, demand from new residential construction has now joined the malaise. Downtime announcements to date have had little impact on prices. A much greater supply response is needed. 

OSB prices are finally rolling over, as weaker demand from new residential construction has left the market oversupplied. Benchmark NC 7/16″ prices are off by $100 in the past two weeks—to $350—while prices in the other producing regions range from $295 to $310. With demand expected to remain sluggish and new supply finally coming to market, we expect further pricing downside in Q3. In plywood, prices are also in retreat, but from a lower starting point compared to OSB. A recent uptick in offshore imports (for both plywood and OSB) is exacerbating North American oversupply, and further price declines seem assured.

Pulp prices are seeing diminished momentum, at best, and in some cases prices declined in June. Spot NBSK rose $21 in the U.S. in June but slipped $24 in Europe. In China, the PIX has been at $820 for four weeks, but industry reports suggest resale values are falling even as offshore suppliers try to hold the line. Some supply constraints are easing, others are coming (i.e., CFX’s 300kmt NBSK shut). Spot hardwood prices rose in NA and Europe by $15–21 in June, but the China PIX BHK has been cycling around $740 for the past four weeks. Producers may be able to hold the line on pricing for a time, but we believe levels have peaked. Pricing headwinds include seasonally slower demand and anticipation of new supply.

Prices were unchanged for almost every grade of paper this month, with many grades popping into positive demand territory. However, operating rates are not robust. Prior upward momentum in uncoated woodfree grades is fading (even as NORPAC looks to push prices up again due to high pulp prices). Domtar’s machine closure at its Ashdown mill this month will help reduce supply, but further upside in prices seems unlikely at the moment, save for some upcoming contractual resets. Newsprint prices in the domestic market have been stable of late. The bottom may be in. Export prices are moving up in some key markets. 

Box demand appears to be rising mildly this quarter; however, the big gains are in exports, where volumes are climbing sharply (but seem to be nearing a peak). Some non-integrated players continue to offer very low-priced tons in export markets. Despite being on the rise, export pricing remains at a massive discount to domestic levels.  Producers announced June price hikes ($50/$80 liner/medium) and have gained traction (or did they just get the outstanding amounts from the January hikes? Either way, prices went up in June). Given the state of the market (bloated inventories, idled swing mills, mild demand growth) this pricing success (+$40 in June) came sooner than expected.

Boxboard demand and shipments appear to be nudging up in Q2, based on early indications, after six consecutive quarterly declines. Part of the y/y improvement is due to easy comparisons, so it’s not that the market is all that strong. Although Billerud is abandoning its conversion project at Escanaba, it will still migrate to packaging grades and keep importing a rising volume of tonnage from Europe. URB is the only grade that has had a somewhat successful price hike this year (it gained $30, while all other grades saw prices stay flat or fall). Now, URB producers are embarking on another increase for July (+$70). Producers of other boxboard grades may attempt another upward move themselves, but a backdrop of better demand is needed.