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Canfor Pulp announces Q4 and year-end results for 2021

March 10, 2022  By P&PC Staff/Canfor Pulp Products

Photo: Annex Business Media

Canfor Pulp Products recently reported its fourth quarter and year-end results for 2021.

Here are the highlights from the report:

• 2021 operating income before adjusting items was $32 million; adjusted net income was $25 million, or $0.38 per share


• Fourth quarter of 2021 adjusted operating loss was $41 million; adjusted net loss was $32 million, or $0.49 per share

• 2021 includes an impairment charge of $95 million or $1.06 per share, resulting in a reported operating loss of $66 million for the year, net loss of $44 million or $0.68 per share; fourth quarter of 2021 reported operating loss of $137 million, a net loss of $101 million or $1.55 per share

• Available liquidity was $170 million at December 31, 2021

Financial Results

After facing the many challenges brought on by COVID-19 in 2020, Canfor Pulp’s results showed improvement in 2021. The results reflected the strengthening of global pulp market fundamentals in the first half of the year. This offset the impacts from extreme weather conditions in British Columbia on supply chain and operations, production downtime and global pulp market weakness in the latter part of the year.

At the end of the 2021 year, recognizing increasing challenges to the business posed by fibre availability and costs, the company recorded an asset impairment of $95.0 million. Before taking account of adjusting items, the company’s operating income was $31.9 million for the current year, with an adjusted net income of $0.38 per share, an improvement of $96.5 million from the adjusted operating loss of $64.6 million for the prior year and adjusted net loss of $0.34 per share. The company reported an operating loss for 2021 of $65.5 million, versus an operating loss of $56.1 million for 2020.

For the fourth quarter of 2021, the company reported an operating loss of $137.2 million. After taking account of adjusting items, largely comprised of an asset impairment, the company’s operating loss for the fourth quarter of 2021 was $41.1 million compared to an adjusted operating income of $19.3 million for the previous quarter. The loss in the current period reflected weaker global pulp market conditions, combined with the significant impact of severe weather conditions on the Company’s operations and shipments in the current quarter, most notably at its Northwood Northern Bleached Softwood Kraft (NBSK) pulp mill (Northwood) and its Taylor Bleached ChemiThermo Mechanical Pulp (BCTMP) mill (Taylor), as well as capital-related downtime at Northwood relating to the company’s decision to rebuild the lower furnace of recovery boiler number one (RB1).

Commenting on the company’s 2021 and fourth quarter of 2021 results, Canfor Pulp’s CEO, Don Kayne said, “This was a difficult quarter to end what was an improved year for Canfor Pulp. Our pulp business faced many uncontrollable challenges in the second half of the year, including intense weather conditions in BC and global supply chain disruptions. We once again want to thank our employees for their hard work, resilience, and commitment to safety. The decision to rebuild the lower furnace of Northwood’s RB1 came earlier than anticipated, but this capital rebuild will support the Company’s efforts to achieve more operational stability. Despite these various challenges and upsets, we continued to preserve our strong cash position and ended the year with a solid balance sheet. With the completion of the RB1 rebuild anticipated by the end of March, we are very focused on optimizing our production performance, reducing costs, and maximizing fibre utilization in the coming months.”

Market conditions

For the fourth quarter of 2021, the weaker pulp market conditions experienced towards the end of the previous quarter continued into the current period and, as a result, global softwood pulp producer inventory levels remained well above the balanced range (43 days of supply at December 2021, a decrease of two days from September 2021). After declining in October and November, NBSK pulp prices to China, the world’s largest pulp consumer, showed a modest recovery in December following unexpected global supply disruptions and ended the quarter at US$760 per tonne. NBSK pulp list prices to China averaged US$723 per tonne during the current quarter, as published by RISI, down US$109 per tonne, or 13 percent, from the previous quarter. As a result, the Company’s average NBSK pulp unit sales realizations experienced a corresponding decrease quarter-over-quarter. The downward trend in demand and US-dollar prices for BCTMP, particularly from the printing and writing segment, continued through the current quarter giving rise to a significant decline in the Company’s BCTMP unit sales realizations quarter-over-quarter.

Pulp production

Pulp production was 190,000 tonnes for the fourth quarter of 2021, down 57,000 tonnes, or 23 percent, from the previous quarter, primarily reflecting the quarter-over-quarter impact of downtime. The current quarter was particularly challenging as unprecedented flooding and harsh winter conditions in B.C. significantly impacted the operational performance at all the company’s pulp mills and resulted in material transportation-related downtime at Northwood and Taylor. Production at Northwood was also impacted by the extended outage on one production line at Northwood from early December to enable the replacement of the lower furnace on RB1. Combined, these factors reduced current quarter NBSK pulp production by approximately 100,000 tonnes and BCTMP production by 20,000 tonnes.

In the third quarter of 2021, decreased operating days largely reflected scheduled maintenance outages at the company’s Prince George NBSK pulp mill (PG) and Taylor, as well as incremental downtime at Northwood and Taylor reflecting both weather-related rail disruptions and, in the case of Northwood, digester-related operational upsets in July (combined, reducing pulp production by approximately 42,000 tonnes). In addition, the previous quarter’s pulp production reflected various smaller operational upsets through the quarter (approximately 15,000 tonnes).

The company’s pulp shipments totalled 216,000 tonnes, down 25,000 tonnes, or 10 percent, from the previous quarter, principally due to the impact of weather-related transportation disruptions in B.C. and the associated decrease in production volumes, combined with the ongoing effects of a constrained global logistics network, offset in part by a drawdown of inventory in the current quarter during the aforementioned Northwood RB1 downtime.

Pulp unit manufacturing costs were significantly higher than the prior quarter principally reflecting reduced production in the current period, offset in part by decreased energy usage and lower maintenance spend.

Operating income in the Company’s paper segment was $1.7 million, up $4.2 million from the operating loss of $2.5 million in the previous quarter, as moderately higher paper unit sales realizations, tied to strengthening global paper demand and tight supply, was combined with lower slush costs, linked to lower Canadian dollar NBSK pulp market prices.

Like other central and northern B.C. Interior pulp producers, the company’s supply of sawmill residual chips has been significantly reduced over the last few years, primarily driven by extensive permanent sawmill curtailments in the region. As a result, the company’s fibre purchases have experienced ongoing cost pressures that include an increase in the proportion of higher-cost whole log chips and higher transportation costs.

Fibre supply

Looking forward there remains significant uncertainty with regards to the future of economically viable fibre within B.C. This uncertainty is driven by, among other factors, the lasting impacts of the Mountain Pine Beetle epidemic, wildfire events, future Timber Supply Review determinations by the B.C. government, as well as uncertainties associated with unsettled land and title claims by various Indigenous Nations and outstanding policy, land-use decisions and legislative initiatives by the B.C. government. This includes the B.C. government’s announced deferral of harvesting on 2.6 million hectares of B.C.’s old-growth forests and the potential redistribution of Crown tenure harvesting rights, including Indigenous Nations.

Consequently, the B.C. sawmill manufacturing industry faces a constrained fibre supply environment, where existing sawmill capacity outstrips the available timber supply in B.C. Until this imbalance is corrected, the company anticipates that escalating log cost pressures in B.C. will translate into a higher cost fibre supply for its pulp mills (both for sawmill residual chips and whole-log chips). In addition, it is expected that the long-term aggregate available chip supply will be permanently reduced.

Recognizing these increased fibre costs as well as ongoing uncertainty surrounding fibre availability, the company performed an impairment test for its pulp segment as of December 31, 2021, which resulted in an impairment charge of $95.0 million being recognized in the current year as a reduction to the carrying value of pulp segment assets.

2022 outlook

In early 2022, global softwood kraft pulp market conditions have strengthened somewhat, largely in response to unexpected global supply outages and a heavily congested supply chain network, combined with an uptick in market demand from China. Notwithstanding high inventory levels and the potential for ongoing supply chain driven pricing volatility, global softwood kraft pulp markets are projected to continue to strengthen moderately through the first quarter of 2022, reflecting the ongoing improvement in demand from China coupled with tight global supply. Modest increases experienced in the high yield BCTMP market through the fourth quarter of 2021 are anticipated to continue through the first quarter of 2022.

Despite the recent uplift in global pulp markets, the limited and intermittent rail service in B.C. experienced in recent weeks has put further pressure on an already constrained global logistics network. Consequently, as previously announced, the company’s results in the first quarter of 2022 will reflect a minimum six-week curtailment at Taylor, with a projected 25,000 tonnes of reduced BCTMP production. The company also anticipates that the transportation disruptions will result in lower projected NBSK pulp and paper shipment volumes in the first quarter of 2022. The company will continue to monitor and adapt to the unfolding logistic situation over the coming weeks. In addition, global inflationary cost increases, particularly for chemicals, are projected to weigh on the company’s results in the first quarter of 2022.

Furthermore, the company’s results in the first quarter of 2022 will reflect the impact of the RB1 capital-related outage at Northwood into late-March, including reduced pulp production (approximately 70,000 tonnes) and shipments, as well as higher pulp unit manufacturing costs. As the RB1 rebuild approaches completion a key focus of the company’s kraft pulp mills in 2022 will be on improving operational reliability and closely managing manufacturing and fibre costs.

No major maintenance outages are planned for the first quarter of 2022. In the second quarter of 2022, a maintenance outage is currently planned at Northwood and Taylor, with a projected 25,000 tonnes of reduced NBSK pulp production and an estimated 5,000 tonnes of reduced BCTMP production, respectively. In addition, a maintenance outage is scheduled at the Intercontinental NBSK pulp mill in the third quarter of 2022 with a projected 10,000 tonnes of reduced NBSK pulp production.

Bleached kraft paper markets are anticipated to continue to strengthen through the first quarter of 2022, as growing demand for paper products, largely driven by the environmental, social, and regulatory pressures to eliminate single-use plastics, is combined with tight supply and low inventories in the North American and Asian paper markets.

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