Report by ERA Research

The series of new US tariff announcements include 50% tariffs on ~5% imports from Canada, a 25% tariff on Brazilian imports and 10–12.5% tariffs on virtually all trading partners. The new tariff suites apply to more categories, with the latest possible impact on Canadian exports appearing to be in paperboard and plywood. Although plywood will see some direct impacts (table), public companies in Canada have little exposure. US plywood producers should benefit from lower Brazilian uncoated woodfree imports, although the team expect incremental impact on the names in their coverage universe. Given the inflationary impact on freight/personal transportation from the Iran war, persistently high rates, and escalating domestic energy costs, the team are cautious on the housing market outlook and underlying consumer demand. They see limited benefit to US producers from these latest tariff machinations, with some producers benefiting from one category but hurt by another (e.g., Sylvamo Corp, Rayonier Advanced Materials Inc).

Real Estate

Report by ERA Research

Timber REITs remain undervalued despite trade policy turmoil, expectations for flat US housing starts and falling consumer confidence. Tailwinds for the year ahead include steady timberland valuations and strong comp sales data, continuing investor interest in US timberland and carbon solutions, and potential increased US wood products manufacturing due to escalating duties (and possible tariffs) on Canadian imports. ERA rates all 3 REITs Outperform, valuing them using a NAV method for land assets and a market-based approach for manufacturing assets. Rayonier and Weyerhaeuser both have target prices of $36, offering ~30% upside, while PotlatchDeltic's TP of $50, offers 25% upside.

Report by ERA Research

Pulp exports from Russia’s large forest resource mainly head towards China, therefore Western sanctions will see little direct impact on pulp prices. Nevertheless, ERA Research expects pulp prices to remain stronger for longer in the face of logistical issues that will present themselves, with early-year strength continuing for longer before excess inventories are finally delivered. Recommended trades include LONG Mercer, with another quarter of low maintenance and good shipments expected (TP $16). Despite the strong pulp outlook, investors should EXIT Rayonier Advanced Materials with a heavy maintenance year ahead a key risk.

Report by ERA Research

Russia confirms it will implement a ban on softwood and high-value hardwood log exports from January 1st, 2022 - this will have a meaningful impact on global markets, particularly China, given that China remains heavily leveraged to solid-wood imports from Russia. Analysts at ERA explain why they believe US log exporters will be the biggest beneficiaries, highlighting the potential for price and volume gains for both Rayonier and Weyerhaeuser next year.