Investing.com — RBC Capital Markets expects a cyclical recovery in containerboard and tighter supply in the lumber market to bolster North American producers in 2025, despite lingering challenges from high interest rates and subdued housing demand.
RBC highlighted International Paper and Smurfit WestRock (NYSE:WRK) as top picks in the containerboard sector, citing improved pricing strategies and efficiency gains.
Among lumber producers, RBC favours Interfor, Canfor (TSX:CFP), and West Fraser, expecting a 15% rise in lumber prices next year due to recent capacity reductions.
Elevated 30-year mortgage rates, at 6.72% as of December 19, are likely to limit demand for wood products, with RBC forecasting only a modest 3% uptick in single-family housing starts.
Permanent curtailments of about 5% of North American lumber capacity are expected to drive a tighter market, with Random Lengths Composite pricing rising to $460 per thousand board feet, up from a 2024 average of $400.
Pricing momentum is building, with anticipated $20 per ton increases for linerboard and medium in January. International Paper and Smurfit WestRock, which control nearly half the North American market, are focusing on value over volume, potentially supporting margin expansion.
Ongoing discussions around tariffs and trade policies could impact market dynamics, though specific policy directions remain unclear.
RBC also highlighted outperform-rated small-cap names like Clearwater Paper (NYSE:CLW) and Rayonier Advanced Materials (NYSE:RYAM) as worth watching. It raised price targets for CAS and SW while trimming forecasts for several lumber names.
The brokerage’s Q4 2024 EBITDA estimates are ahead of consensus for seven stocks, including Interfor, West Fraser, and Weyerhaeuser (NYSE:WY).