On Tuesday, December 5, we will host RBC Capital Markets’ annual Forest Products Conference in person in Toronto. The event will feature a series of in-depth, interactive discussions with senior executives in the industry along with one-on-one meetings and small group discussions. In attendance will be eight forest products companies from our coverage group (please see pages 4–11 for topical questions for each). To register to attend the event in-person and request one-on-one meetings, or to request a link to listen to the sessions virtually, please contact your RBC Institutional Salesperson.
Key topics for our discussions include:
The outlook for 2024 – Where are current expectations for NA housing starts, in both the U.S. and Canada, and what are the outlooks for single-family starts and multi-family starts? With the rapid increase in interest rates over the last 21 months, home affordability has become a significant headwind to building material consumption. Coupled with the significant home price appreciation experienced over the last five years, new home construction has slowed and repair & renovation spending has weakened. On the positive side, NA demographic trends remain very favourable, with Millennials now representing the largest generation and into their prime home-buying years. In addition, current consensus has the U.S. Federal Reserve starting to cut rates in 2024.
What’s up with renovation & repair – Relatively high mortgage rates have also kept homeowners in their current homes, as trading up to a bigger home is unattractive given the significant jump in mortgage rates (who would want to leave their <3% 30-year mortgage for a similar loan in the 7%+ range?). This trend has assisted the R&R market, as additions, extensions, or bump-outs all use lumber and panel products.
Supply-demand appears balanced in lumber; tipping to over-supply soon in OSB – NA lumber markets have been relatively over-supplied through 2023 as strong European imports at the start of the year led to weak lumber prices. Fortunately, import levels have substantially dropped, providing a better supply situation going forward. On the OSB side, the start-up of two mills at the end of 2023 (plus the re-start of a mill damaged by fire in 2022) will likely lead to an over-supply in 2024 as production volumes ramp up at these mills. Without a material pick-up in overall OSB demand (principally from higher new home construction activity) or curtailments at higher-cost facilities, we believe OSB prices will remain close to break-even into 2025.
Packaging demand appears to have bottomed; curtailments have lowered net capacity add – Box shipments have improved sequentially in each of Q223 and Q323 (shipments were up 1.2% q/q and 0.4% q/q, respectively), and mill closures by Cascades, WestRock, and International Paper have combined to limit the net capacity add to just over 2% in 2023–24. We also note that one major producer has just announced a significant price increase, effective January 1, 2024.
Pulp markets are seeing some light – With the significant drop in global pulp inventories (down from 57 days in April 2023 to 39 days currently), pulp prices have seen a bit of a lift since the summer. But all is not what it seems, as China has bought substantial pulp volumes at rock-bottom prices. Without an increase in pulp consumption in China (with its economy muted and trying to find a way forward), we think it will take some time to see a material increase in pulp consumption.