After an encouraging finish to 2023, the U.S. housing market took a step backward to start the year, with weak starts in January and middling sales data offering no indication that the beginning of the next U.S. housing upcycle is imminent. U.S. home sales data for January were a little more encouraging than starts data, with seasonally adjusted new-home sales ticking up 1.5% month-over-month (MoM) and 1.8% year-over-year (YoY) to 661,000 units after the December data were revised lower to 651,000.

It took longer than expected, but, after a sluggish start to the new year for North American lumber markets, we have seen a wave of sawmill capacity curtailment announcements this quarter. …Lumber markets have been stuck in first gear so far this year. S-P-F 2x4s have traded in a narrow range ($428–445) over the past eight weeks and are at $434 this week. Weakness has been more pronounced in SYP, and 2x4s have been languishing around $370 for the past month ($375 currently). A wave of capacity closure announcements this quarter will help tension lumber markets over time (perhaps Q2), while a seasonal uptick in demand around the spring building season should see prices migrate higher in the next couple of months.

In a significant deviation from more recent trends, the announced shuts in past few quarters have been spread across several major lumber producing regions, including the U.S. South (270MMbf in Q1) and the Pacific Northwest (305+MMbf in Q1), and have not been focused exclusively in high-cost British Columbia (520MMbf in Q1) this time around. While it can take several months for a capacity closure announcement to actually impact market supply, these shuts will help to better balance North American lumber supply and demand over time (particularly if they coincide with green shoots appearing in the housing market). 

Against a backdrop of declining U.S. residential construction activity, North American OSB markets enjoyed a surprisingly strong year in 2023. Just when it looked as if cracks were spreading in OSB markets, prices did an about-face last week and moved up again in several regions. NC 7/16″ is at $400 (down $15 this month) and prices elsewhere range from $330 to $400. OSB supply and demand remain well balanced for now, and some inventory replenishment ahead of the spring building season should boost prices in the coming weeks. However, new capacity is coming online in the first half of 2024 (Tolko, Martco); oversupply remains a risk if a recovery in housing is slow to materialize. Plywood prices have been flat out west while moving lower in the south.

Several North American pulp producers have announced new softwood price increases for March. Outside of China, softwood pulp prices continue to experience mostly upward pressure, but demand remains uncertain. Closures and downtime, as well as higher shipping and fibre costs, are supportive of the $50/$80 NBSK price hikes announced by some producers for February/March in North America. However, with slack demand in China during Lunar New Year (LNY) and still-weak paper markets in North America and Europe, progress on recent price increases has been slow. In hardwood, Suzano is out with March price increases of $30 for China and $80 for North America/Europe. Again, post-LNY Chinese sentiment and demand will be critical in determining the next move on pricing.

Prices for all paper grades are expected to migrate lower through the year unless more capacity exits. Prices were unchanged for almost every paper grade in February, although deals were available for larger volumes, most notably in super-calendered (SC) and newsprint. Offshore prices remain weak but there are some signs of a bounce in newsprint prices in Asia. Uncoated woodfree prices held during the month following reductions to start the year, but imports are rising for cut-size grades in particular. However, Domtar has slated the indefinite curtailment of a machine at its Ashdown mill for the end of Q2.

Box demand appears to be improving (slowly) this quarter. That trend is expected to persist over the next couple of years. Oversupply has been a risk but has been managed by downtime and a raft of closures; Cascades’ closure of its Trenton, Ontario mill will further reduce supply. Export volumes are robust (pushing volumes out of the domestic market). Export prices are low but firming. The big news this month was that PPI Pulp & Paper Week (PPW) showed traction on the announced January price hikes, with linerboard up $40 (of $70) and medium rising by $60 (of $100). More should be recognized in the coming months.

Boxboard demand was miserable for Q4—falling by double digits—but prices held up well last year despite the depressing demand figures. The weakest grade remains solid bleached sulfate (SBS), where prices reportedly fell further this month. Producers have embarked on $40‒50 hikes for clay coated boxboard (CRB), coated unbleached kraft (CUK) and uncoated recycled paperboard (URB) for February, but, despite positive indications on both conference calls and channel checks, PPW did not show any increase on these grades for this month (however, we suspect they are forthcoming). As demand recovers this year, prices will keep migrating upward, with SBS eventually participating in the rally.