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Western Forest Products Sees Higher N American Demand for Commodity Products in 1Q — Commodity Comment

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Western Forest Products expects slight increases in demand and prices of its commodity products in North America in the first quarter and remain volatile for the rest of the year.

“Near-term lumber markets are expected to remain variable, but we remain cautiously optimistic as we head into the typically more active spring building season in North America,” the Vancouver-based forest products company said Tuesday.

“Consumers are adjusting to higher interest rates and the potential for interest rate cuts in Canada and the United States could help support modest increases in buyer activity as we progress through the year.

“Demand and prices for Cedar timber and premium appearance products are expected to remain stable.

“Demand and price for Cedar decking products should firm up as we head into the spring, while demand for Cedar trim and fencing products is expected to remain soft until market inventory rebalances.

“In Japan, we anticipate quarterly lumber volumes to remain near those achieved in the fourth quarter of 2023, given domestic Japanese production has been impacted by a prolonged, fire-related operating curtailment at a large Japanese sawmill. We anticipate lumber prices in Japan to modestly improve during 2024.

“Demand for our Industrial lumber products will be product line specific but are expected to remain stable over the near-term.

“North American demand and prices for our commodity products should marginally improve in the first quarter of 2024, but are expected to remain volatile through 2024. In China, lumber demand and prices are expected to marginally improve.”

On its fourth quarter:

Lower lumber shipments and average lumber prices pushed Western Forest’s lumber revenue down 19% to 178.3 million Canadian dollars ($131.4 million), the company said.

“Specialty lumber shipments represented 60% of total lumber shipment volumes in the fourth quarter of 2023, as compared to 40% in the same period last year, yielding a stronger sales mix.

“Japan lumber shipment volumes more than doubled compared to the same period last year, due to a fire-related curtailment at one of Japan’s largest sawmills. Cedar and Industrial lumber shipment volumes were generally flat compared to the same period last year. Commodity lumber shipment volumes declined by 41% compared to the same period last year due to weaker market demand.

“Lumber production was 125 million board feet in the fourth quarter of 2023, as compared to 139 million board feet in the same period last year. Contributing to this reduction, quarter over quarter, was a shift in production from North American markets measured on a gross (“nominal”) volume basis to export markets measured on a net volume basis. In the fourth quarter of 2023 we curtailed certain sawmill operations to match production to market demand and manage inventory levels. A higher specialty mix of production led to increased value-added processing volumes and costs as compared to the fourth quarter of 2022.”

On its full year:

Lumber revenue fell 32% to C$781.6 million, also on lower lumber shipment volumes and average prices.

“Speciality lumber shipments represented 51% of total lumber shipment volumes in 2023, as compared to 44% in the same period last year, yielding a stronger sales mix.

“Cedar lumber shipments decreased 9% compared to the same period last year as buyers managed inventory levels to market conditions.

“Japan lumber shipment volumes decreased 10% compared to the same period last year due to increased supply from Japan, Europe and Russia.”

“Industrial lumber shipment volumes increased 15% compared to the same period last year, benefitting from a full year from our Calvert engineered wood products division and growth in Douglas fir timbers.

“Commodity lumber shipments decreased 29% compared to the same period last year due to weaker market demand.

“Lumber production was 561 million board feet in 2023, as compared to 655 million board feet in the same period last year. Contributing to this reduction, year over year, was a shift in production from North American markets measured on a gross (“nominal”) volume basis to export markets measured on a net volume basis. During 2023 we took operating curtailments at certain sawmills to match production to market demand and manage inventory. We also did not operate our Alberni Pacific Division (“APD”) facility in 2023, which had lumber production of 27 million board feet in 2022.”

Write to Mary de Wet at mary.dewet@dowjones.com

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