As we approach 2025, the North American markets for containerboard and lumber are poised for a noteworthy turnaround, according to RBC Capital Markets. The anticipated recovery for containerboard stems from a cyclical pattern in the industry, alongside expectations of tighter supply contributing positively to lumber producers. Despite holding onto robust growth expectations, the market continues to grapple with the challenges of high interest rates and a protracted downturn in housing demand, which have kept a lid on overall growth.
International Paper and Smurfit WestRock, both significant players commanding nearly 50% of the North American containerboard market, are spotlighted as promising investments. Their focus has shifted from merely volume-based growth to a more strategic emphasis on value enhancement and operational efficiency. This strategic pivot is expected to bolster their pricing strategies—an essential factor for producers looking to navigate these challenging economic currents. The RBC analysis suggests that these companies, through their improved efficiency measures, are likely to yield higher profit margins and contribute positively to the overall market.
Turning to the lumber sector, RBC’s outlook suggests considerable optimism, with an expected 15% increase in prices due to a strategic confluence of capacity reductions. Upcoming permanent curtailments, approximately 5% of total North American lumber capacity, are anticipated to drive a tighter market, enabling prices to climb significantly. Random Lengths Composite pricing is forecasted to rise to $460 per thousand board feet in 2025, compared to an average of $400 in 2024. These developments indicate a gradual shift towards improved pricing power for lumber producers.
Even amidst an optimistic view for lumber, it’s crucial to recognize that high 30-year mortgage rates—hovering around 6.72%—are anticipated to suppress demand for wood products significantly. RBC’s predictions indicate only a modest increase of 3% in single-family housing starts, reflecting the lingering impact of elevated borrowing costs on consumer behavior. This subdued demand environment continues to complicate prospects for the housing and construction sectors, which typically serve as significant demand drivers for lumber products.
On a broader scale, RBC hasn’t overlooked promising small-cap stocks such as Clearwater Paper and Rayonier Advanced Materials, which have been marked for potential outperformance. RBC has also adjusted the price targets for key industry players while moderating forecasts for several lumber companies, showcasing a nuanced approach to their investment strategy. Their predictive insights align with trends across various producers, with Q4 2024 EBITDA estimates indicating stronger outcomes than the consensus for notable names like Interfor and Weyerhaeuser.
While the North American containerboard and lumber markets will face ongoing external challenges, the confluence of strategic adjustments by leading companies and impending price recoveries suggests a promising outlook for industry stakeholders as we close in on 2025.