Market Conditions and Pricing in Fourth Quarter
Canfor Corp. reported sustained pressure on global lumber market conditions and pricing through most of the fourth quarter. The company also faced challenges in accessing economically viable fibre in British Columbia. However, there was a moderate uplift in global pulp market fundamentals in the fourth quarter.
Lumber Segment Performance
Canfor’s lumber segment posted a wider operating loss, mainly due to the challenging period for the company’s Western Canadian operations. Quarter-over-quarter declines were more modest in the US South and Europe. The current period results were primarily driven by continued deterioration in global lumber market prices following pricing pressure seen in the previous quarter.
Market Overview
North American lumber market conditions remained subdued throughout most of the fourth quarter, with market softness continuing from the prior quarter. Downward pressure on North American benchmark pricing persisted early in the current quarter. However, an unanticipated uptick in housing starts, production curtailments (particularly in BC), and steady activity in the repair and remodel sector led to a slight improvement in North American benchmark pricing towards the end of the current period.
Future Outlook
Global lumber market conditions are expected to face continued pressure through the first quarter of 2024. Affordability challenges are projected to persist, despite recent declines in mortgage rates in the US. Operational disruptions, geopolitical tensions, and curtailments in Western Canada are anticipated to help reduce inventories to more normalized levels. Demand in the repair and remodel sector is expected to remain relatively steady in the first quarter of 2024, with a slight decline from 2023 levels.
Market Fundamentals Remain Solid
Despite the near-term challenges, the global lumber market fundamentals remain strong in the long term. Demographic trends support the need for additional new home construction activity, with an aging housing stock and low inventories of new homes available.
Pulp and Paper Segment
The narrower operating loss in the pulp and paper segment is mainly due to a moderate improvement in global pulp market conditions. There was a 20% increase in pulp production quarter-over-quarter.
Global Softwood Pulp Market
After a weak second and third quarter of 2023, global softwood pulp markets showed moderate improvement in the current quarter. This was driven by a slight uptick in demand and purchasing activity in major regions. Global pulp producer inventories returned to a more balanced range, with 40 days of supply by December 2023. The positive pricing momentum in US-dollar NBSK list prices to China continued into the current period, peaking in November 2023.
Future Outlook
Looking ahead, global softwood kraft pulp markets are expected to remain subdued through the first quarter of 2024. While producer inventories are balanced, demand uncertainty is expected due to the deceleration in China NBSK pulp list prices. This trend is anticipated to continue into the seasonally slower spring period in China.
Fibre Supply Challenges
Due to ongoing uncertainty about economically viable fibre availability in BC and a weak North American lumber market, Canfor Pulp Products Inc. foresees a challenging fibre supply environment for its pulp mills. This includes sawmill residual chips and whole-log chips. CPPI will closely monitor operating conditions and adjust operating rates at its pulp mills to align with economically viable fibre supply.