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Canfor Pulp Products reports sales, pulp production up in Q2 2019

July 26, 2019 – Canfor Pulp Products Inc. has reported its second-quarter sales and operating income are up from Q1 2019, but down from the year-ago period.

The company also says it will extend a previously announced curtailment at its BCTMP mill by a further five weeks to September 9, 2019.

Operating income was $18.4 million for the second quarter of 2019, up $0.3 million from the first quarter of 2019, but down $67 million from Q2 2018.

Reported results for the second quarter of 2019 included a $13.4 million finished pulp and raw material inventory write-down at period end. After adjusting for this, Canfor Pulp Products’ operating income was $31.8 million for the second quarter of 2019, up $13.7 million from the previous quarter.

Sales were $319.5 million in Q2 2019, up from $304 million in Q1 2019 but down from $396.4 million in Q2 2018.

The company’s operating results reflected a solid operating performance at its pulp and paper mills, which it says more than offset the effects of pricing declines due to continued elevated global market pulp inventory levels and weaker demand, particularly in China and Europe.

“The second quarter saw an improved operational performance at all of our pulp mills, and strong collaboration across our various business areas as we navigated the various challenges presented by sawmill curtailments in the period,” says Don Kayne, Canfor Pulp Products Inc.’s chief executive officer, in a release. “As a result of our planned summer market and fibre-related downtime, we will be well placed to run at full capacity through the fall and winter, when we anticipate market conditions and prices will be improved.” 

On July 25, 2019, the board of directors declared a quarterly dividend of $0.0625 per share, payable on August 14, 2019 to the shareholders of record on August 7, 2019.

Pulp prices
After showing a modest recovery in March, northern bleached softwood kraft (NBSK) pulp prices to China, the world’s largest pulp consumer, fell sharply, declining US$130 per tonne, or 18 per cent, to end the quarter at US$600 per tonne. The average US-dollar NBSK pulp list price to China for the second quarter of 2019 was US$653 per tonne, down US$57 per tonne, or eight per cent, from the previous quarter.

Prices to other global regions, including North America and Europe, also came under significant pressure as the quarter progressed, but quarter-over-quarter showed more modest declines. Notwithstanding the significant decline in global pulp list prices, the company’s average NBSK pulp unit sales realizations showed a more moderate decrease compared to the previous quarter, primarily reflecting the company’s geographic sales mix and the timing of shipments (versus orders).

Energy revenues increased in the current quarter as seasonally lower energy prices were more than offset by increased power generation, driven by improved productivity and a full quarter with Northwood’s new Turbo Generator Condensing turbine in operation.

Pulp production
Pulp production was 300,000 tonnes, up 26,000 tonnes, or nine per cent, from the previous quarter reflecting improved operating rates at all pulp mills throughout most of the current quarter. During the second quarter, Canfor Pulp Products completed scheduled maintenance outages at its Intercontinental NBSK pulp and Taylor bleached chemi-thermomechanical pulp (BCTMP) mills, which reduced pulp production by 11,000 tonnes and 6,000 tonnes, respectively. Pulp shipments were up 29,000 tonnes, or 11 per cent, from the previous quarter reflecting the increase in pulp production.

Pulp unit manufacturing costs were moderately lower than the previous quarter, principally reflecting improved productivity and seasonally lower energy usage. Fibre costs showed a modest decline, with lower market-based prices for sawmill residual chips (linked to Canadian dollar NBSK pulp sales realizations) offsetting increased seasonal pricing adjustments and a higher proportion of higher-cost whole log chips. The latter reflected the impact of curtailments on the supply of sawmill residual chips, which will continue into the third quarter.

Operating income in the company’s paper segment was $8.1 million, up $2.2 million from the first quarter of 2019, reflecting both lower slush pulp costs, linked to lower Canadian dollar NBSK pulp prices, and a solid operating performance.

Pulp outlook 
Global softwood pulp markets are projected to remain challenging through the third quarter of 2019 given the current oversupply in global pulp markets and typically seasonally slower demand in the summer months. Reflecting the difficult market conditions, in combination with fibre supply constraints and higher fibre costs resulting from recent sawmill curtailments, the company is taking previously announced phased summer curtailments at its Intercontinental and Northwood NBSK pulp mills in Prince George, BC, as well as at its BCTMP mill in Taylor, BC.

In addition, the company announced that it will be extending the curtailment at its BCTMP mill by a further five weeks to September 9, 2019. Combined, the summer curtailments will reduce third-quarter pulp production by an estimated 75,000 tonnes of NBSK pulp and 50,000 tonnes of BCTMP, respectively. Maintenance outages are also scheduled at the Prince George NBSK pulp mill and at the company’s paper mill in September 2019, with a projected 6,000 tonnes of reduced NBSK pulp production and 4,000 tonnes of reduced paper production, respectively.

Towards the end of 2019 and into 2020, global inventory levels are forecast to move towards a more balanced range reflecting a gradual drawdown of inventory that will include the anticipated impact of the conversion to dissolving pulp of two large NBSK pulp mills outside of North America by the end of 2019, as well as production curtailments. Given the impacts of recently announced sawmill curtailments and closures in the BC Interior, fibre costs are projected to remain under pressure as a result of an increased proportion of higher-cost whole log chips, which are currently in tight supply. Bleached kraft paper demand is anticipated to decline slightly through the balance of the year.

Read the full Q2 2019 Canfor Pulp Products financial report.