RBC CAPITAL MARKETS — Lumber prices haven’t shown signs of rebounding yet, as OSB continues to have triple digit declines – According to Random Lengths, the Framing Lumber Composite fell by $16 w/w to $463, the 11 th consecutive weekly drop. Buying demand has been slow to come back, with the recent curtailments in BC over the last few weeks, losing its upward pressure on pricing. In OSB markets, the Composite fell $137 w/w to $586, with distributors holding back orders waiting for the first sign of a bottom to this drop.

Sierra Pacific Industries is acquiring Seneca Sawmill Company – We view the acquisition as a positive for the industry, continuing the trend towards consolidation. Seneca Sawmill Company operates three sawmills in Oregon with a combined annual capacity of 650 mmfbm. In addition, the company owns over 165k acres of Oregon timberlands. While no financial metrics were provided, precedent transactions in the area suggest that the valuation could be in the $1 billion range. We estimate that the Top 5 North American lumber producers (West Fraser, Weyerhaeuser, Canfor, Interfor, and Sierra-Pacific) now account for ~38% of North American capacity, up from 32% pre-pandemic.

OCC prices are up $40/ton m/m as demand outpaces supply – According to RISI, OCC prices are up to $159/tonne, the highest level since August 2017. OCC prices have increased for seven consecutive months as domestic buyers are competing for volume with export markets. Integrated producers such as IP and WestRock have begun to integrate their double-lined kraft (“DLK”) cuttings because it is now cheaper than buying OCC in spot markets. Alternative buyers such as insulators have been coming up short on old newspaper supply and have instead been switching to other grades.

CMPC announced plans to add 350k tonnes/year of BEK capacity by Q4/23 – According to the company, its board of directors has approved a $530MM investment at its Guaíba mill in Brazil. The project should reduce production costs and make the mill one of the most efficient in the world.

Georgia-Pacific declared force majeure at its Foley dissolving pulp mill last week – According to RISI, the company informed customers last week that production on the mill’s dissolving pulp line went down causing a significant reduction in production. The force majeure does not apply to fluff pulp customers. The mill has annual production capacity of 513k tonnes/year, composed of 48% fluff pulp, 34% specialty cellulose, 13% acetate dissolving pulp, and 5% viscose grade DP.