Forest Products North America Conference 2022 – the key takeaways

The top talking points from the Forest Products North America Conference in San Diego you should know

Fastmarkets’ flagship forest product event for pulp, paper, packaging and wood product professionals in North America saw experts from all across the industry come together in San Diego this September. Take a look at our highlights video from the event:

Outlooks and panel discussions covered all aspects of the forest product industry and provided insights on the latest developments in the markets, from inflation and supply chain disruptions, to supply and demand trends for key grades.

What did we learn from the event? Here are the top takeaways.

Roaring inflation and low economic growth for the USA in 2022 and 2023

US real GDP is forecasted at 1.7% this year and 0.8% in 2023, after 5.7% growth in 2021.

The strong 2021 growth came during the height of the pandemic when two different presidential administrations approved federal stimulus spending of $4.9 trillion in the USA. The stimulus payments are now no longer and the spotlight has shifted to testy and extra-costly inflation. This has spiked up prices for consumer staples, from a loaf of bread to the cost of gas for a trucker delivering necessity goods and food around the country.

While the peak of inflation may have passed, producer price index (CPI) and consumer price index levels remain high in the USA. The impacts on both the consumer and producer going forward as higher CPI limits the appetite to consume.

In addition, US mortgage rates remain high, the labor market is still extremely tight with limited worker availability and supply chain issues remain for producers.

Supply chain delays continue, along with labor issues and transportation costs

This fall, global shipping container rates have continued to decline but are still four times higher than pre-pandemic levels, while rail and trucking constraints have lingered. Such supply chain woes have impacted the forest products markets in several ways.

Domestically in the US, structural trucking and rail labor shortages, covid-related labor issues, plus competition from other commodities have combined to result in higher transportation costs and longer delivery times.

A ‘new normal’ of higher stocks for pulp with 1 million tonne overhang in 2023

Unexpected downtime for pulp production reaccelerated early this year into a record-setting first quarter. It buoyed pricing momentum and a total of 1.5 million tonnes have been slashed from supplies so far in 2022. Supply chain woes, high transportation costs, and lean consumer inventories have also kept prices and demand elevated.

However, the supply/demand picture should change in 2023, with approximately 1 million tonnes more capacity arriving than fresh demand to be expected.

The impact of Russia’s war in Ukraine on European pulp will continue. The initial deficit of woodfiber and market pulp imports into Europe will need to be replaced via increased domestic production or imports. More unbleached softwood kraft (UKP) and bleached hardwood kraft (BHK) production is expected going forward in Russia. However, uncertainty remains with gas supply, energy prices and inflation will bring more volatility in the market.

Learn more about pulp prices and market developments here >>

Downward risk expected from new capacity and lower box volume in the containerboard market

North American containerboard and corrugated box market are facing a downside risk from potentially excess board capacity and lower US box shipments.

US containerboard inventory at box plants and mills in June was at its highest June level in 20 years and shipments were down in 2022 compared to the previous year.

The large amount of additional containerboard capacity starting up in the next 12-13 months would put pressure on supply and demand, because there will likely not be enough box demand to keep pace with the additional supply.

North American demand for boxes is down so far this year because of shifting consumer behavior, an end of government stimulus funding, and inflation. The inventory bulge, along with the additional containerboard capacity, will make it difficult for box demand to absorb the new capacity in 2023.

Learn more about packaging prices and market developments here >>

China invests in wood pulp while Southeast Asia and India buyers up recovered fiber

Since China’s global ban on recovered fiber at the start of 2018, the largest recycled packaging board producers in China have planned virgin fiber projects and have continued to grow their demand for wood imports.

Wood pulp imports totaled nearly 25 million tonnes in 2021, compared to just below 20 million tonnes in 2016. Domestic virgin pulp production in China also grew from below 30 million tonnes in 2016 to near 35 million tonnes in 2021. For non-wood pulp capacity, it is an estimated 6 million tonnes.

China is still expected to shake up global recovered paper (RCP) markets through its recycled pulp and paper board imports. However, the biggest direct buyers of recovered fiber are Southeast Asian countries and India. Tightening controls on recovered paper imports from these countries, from bans on mixed paper to additional inspection rules, will remain an influential part of global RCP trading.

Learn more about recovered paper prices and market developments here >>

Demand for print books remains firm but continues to decline for newspaper and magazines

Despite all the pressure from digital media, demand for print books remains firm in North America. Book consumption boomed during the pandemic, increasing almost 20% from about 700 million units sold in 2019 to about 830 million in 2021. And sales continue strong in 2022.

On the other hand, newspapers and magazines continue to decline, but at a slower pace than the paper capacity decline. Over the last two years, about 4 million tons of printing and writing paper capacity left the North American market while the demand decline was close to 3 million tons. Paper mill operating rates are at 95% in 2022 compared to 87% in 2019.

Inventories at paper mills have fallen to record lows and coated paper grade levels are close to zero, pushing paper buyers to find alternatives to print their products. In addition, dropping book manufacturing print capacity meant publishers had to look for several different printers to meet their demand for printing books.

Learn more about paper prices and market developments here >>

High mortgage rates deter home buyers, but strong demand persists

Higher mortgage rates have driven fringe buyers out of the housing market, increasing monthly payments markedly amid still record-high home prices in most regions.

Despite affordability headwinds, near-term demographics favor persistent strong demand for housing in the coming years. And while the threat of recession looms large at present, this is not a return to the Great Financial Crisis of 2007-2008. The pandemic-era housing boom featured buyers locking in mortgages at record-low rates, with creditworthiness much stronger than borrowers 15 years ago. Any easing of mortgage rates in the coming quarters would draw in new buyers and stem the slide in sagging home sales metrics.

Learn more about housing market developments here >>

High inflation and recessionary landscape signals change in the wood products markets

Historic volatility in lumber and panels have been an unrelenting feature of the market since the onset of the Covid-19 pandemic in early 2020. But supply and demand fundamentals have again taken root, and markets have settled into a more traditional pattern.

The Random Lengths Framing Lumber Composite Price, a key benchmark in framing lumber markets, climbed from $348 early in 2020 to $1,514 in 2021. With historic volatility as the backdrop, outlooks presented at the conference waded heavily into the expected fallout of a high inflation, recessionary landscape.

Historic years of profitability for producers are coming to an end as housing enters a recession, but the markedly slower DIY and housing markets have not stopped a significant amount of new capacity from entering the market, especially in the U.S. South. High-cost producers in B.C. will continue to shutter due largely to fiber availability issues in the province. Industry consolidation is expected to continue given historic cash-on-hand and a fragmented industry.

Learn more about wood product prices and market developments here >>

Want to learn more about the challenges and opportunities in the forest products markets? Head to our homepage to find out more about the key grades, from prices to news and market analysis and more.

Fastmarkets’ forest products events, formerly known as RISI events, are the industry’s meeting places to discuss, debate, and learn about the latest trends and challenges in pulp, paper, packaging, wood products and more
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