Pulp and Paper Canada

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Canfor Pulp posts operating loss of $27.6M in Q3 2020


October 23, 2020
By P&PC Staff/Canfor Pulp Products

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Photo: Annex Business Media

Canfor Pulp has reported an operating loss of $27.6 million, and net loss of $18 million, or $0.28 per share, in its third-quarter 2020 financial results.

This is compared to an operating loss of $6.3 million reported for the second quarter of 2020.

After adjusting for a $3.0 million recovery in its inventory write-down provision, the company’s operating loss was $30.6 million for the third quarter of 2020, $32.5 million unfavourable compared to similarly adjusted results for the second quarter of 2020.

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The company says its operating results for the third quarter of 2020 reflected weak global pulp market conditions as well as significant fibre-related and previously deferred scheduled maintenance downtime, stemming from the ongoing impact of the COVID-19 outbreak, combined with a three-cent (or four per cent) stronger Canadian dollar.

The significant effect of COVID-19 on lumber sawmill operating rates in the British Columbia Interior in the previous quarter materially impacted residual fibre supply to Canfor Pulp’s Prince George–based operations (PG) heading into the current quarter, resulting in a four-week curtailment at the company’s Intercontinental Northern Bleached Softwood Kraft (NBSK) pulp mill and PG NBSK pulp and paper mill in July.

“We are extremely proud of the exceptional efforts of our teams to execute on our strategy to ensure a safe work environment, including a strong focus on COVID-19 safety procedures and protocols,” says Don Kayne, CPPI’s chief executive officer, Don Kayne said, Our pulp business continues to be challenged with global oversupply of product and tepid demand, but market conditions appear to be slowly improving, with various market price forecasts for 2021 guiding to a modest recovery of prices.”

Pulp prices

Global pulp market conditions were weak during the current quarter, with the ongoing sharp decline in demand for printing and writing papers offsetting improved demand for tissue products.

Global softwood pulp producer inventories at the end of August 2020 remained significantly above the balanced range at 43 days of supply, an increase of one day supply compared to June 2020.

NBSK pulp list prices to China averaged US$572 per tonne, broadly in line with the prior quarter, while average US-dollar NBSK pulp list prices to North America at US$1,133 per tonne (before discounts, which were largely unchanged quarter-over-quarter), were down US$25 per tonne or two per cent, reflecting softer demand in that region.

As a result of the weak markets, the four per cent stronger Canadian dollar and the timing of shipments (versus orders) in the previous quarter, the company’s NBSK pulp unit sales realizations experienced a moderate decrease compared to the prior quarter.

Bleached chemi-thermomechanical pulp (BCTMP) demand fell sharply during the third quarter with average BCTMP unit sales realizations well down compared to the prior quarter, reflecting a significant decline in average US-dollar prices combined with the stronger Canadian dollar.

Energy revenues were broadly in line with the prior quarter, as decreased energy generation due to reduced production was offset by slightly higher energy prices.

Pulp production

Pulp production was 227,000 tonnes for the third quarter of 2020, down 33,000 tonnes, or 13 per cent, from the previous quarter, primarily reflecting the quarter-over-quarter impact of downtime.

In the current quarter, decreased operating days primarily reflected the aforementioned curtailment, which reduced pulp production by 38,000 tonnes. This was combined with a scheduled maintenance outage at the company’s Taylor BCTMP mill, which reduced pulp production by 10,000 tonnes, and, to a lesser extent, several operational issues at Canfor Pulp’s PG pulp mill.

Northwood outage and upgrade

In September, the company’s Northwood NBSK pulp mill commenced its scheduled maintenance outage, which was completed on one production line in early October; this outage reduced pulp production by 20,000 tonnes in the current quarter and by a further 15,000 tonnes in October 2020.

In the second quarter of 2020, the company’s pulp production was impacted by a three-week COVID-19 related curtailment at Northwood, which reduced pulp production by 35,000 tonnes.

During Northwood’s scheduled outage, the mill’s recovery boiler number one (RB1) was assessed by management to be in stable condition.

Regarding the mill’s recovery boiler number five (RB5), the previously announced capital upgrades to the upper furnace are ongoing and progressing well.

In mid-October, management made the decision to extend the outage on RB5 to enable the replacement of the lower furnace, in order to ensure the safe and reliable operation of the boiler.

The estimated capital cost of the lower furnace upgrade is $30 million, with the work anticipated to take between 70-80 days during the fourth quarter on one production line, which will reduce NBSK pulp production by 60,000 to 70,000 tonnes.

This lower furnace replacement, in conjunction with the upper furnace upgrades, is projected to ensure RB5’s continued operation for another 15 to 20 years.

In light of the assessments made by management with regards to RB1 and RB5, the previously considered option of a new “super” recovery boiler (RB6), at an estimated cost of $400 million, will now not be required.

Pulp shipments

Pulp shipments were in line with the previous quarter, as the 13 per cent decrease in pulp production was offset by a drawdown of inventory in the current quarter during the downtime.

Pulp unit manufacturing costs were moderately higher than the prior quarter primarily reflecting reduced production in the current quarter.

Fibre costs showed a slight decline over the same period, largely driven by lower market-based prices for sawmill residual chips (linked to Canadian dollar NBSK pulp sales realizations) in the current quarter.

Operating income in the company’s paper segment was $5.0 million, down $2.4 million from the previous quarter, principally due to reduced paper production and shipments as a result of the aforementioned curtailment.

This was offset in part by slightly higher paper unit sales realizations and marginally lower paper unit manufacturing costs in the current quarter. The latter was due to moderately lower slush pulp costs largely driven by decreased Canadian dollar NBSK pulp unit sales realizations.

Looking forward, the company anticipates global softwood pulp demand to show a slight improvement in the fourth quarter of 2020, as markets continue to recover from the economic impact of COVID-19 and elevated inventory levels slowly begin to normalize following the seasonally slower summer months.

The company’s results in the fourth quarter of 2020 will reflect the continuation of Northwood’s scheduled maintenance into early October, as well as the aforementioned capital-related outage on one production line at Northwood (with the second production line continuing to operate over this period), combined with higher associated maintenance costs and lower shipment volumes.

Bleached kraft paper markets are anticipated to soften somewhat through the balance of 2020, particularly in North America, following seasonally higher summer demand.

Offshore bleached kraft paper markets are anticipated to be relatively stable over the fourth quarter of 2020.

To read the full Q3 2020 financial report from Canfor Pulp, click here.