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Canfor Pulp reports results for year-end and Q4 of 2022

Canfor Pulp Products shared its 2022 year-end and fourth-quarter results. 2022 was a difficult year for Canfor Pulp, as strong global pulp market fundamentals and near-record high pulp list prices were more than outweighed by the impact of global supply chain disruptions, fibre shortages in British Columbia as well as operational efficiency and reliability challenges at all of the company’s pulp mills.

Early in 2023, after an extensive analysis of its operating footprint and the long-term supply of economic residual fibre, Canfor Pulp made the decision to permanently close the pulp line at its Prince George Pulp and Paper mill. As a result of this decision, as well as the ongoing challenges to the business posed by fibre availability and costs, the company recorded an asset write-down and impairment charge totalling $49.6 million in its results for the three and twelve months ended December 31, 2022.

Highlights from the results include the following:

• 2022 adjusted operating loss of $59 million; adjusted net loss of $43 million, or $0.66 per share
• Q4 2022 adjusted operating loss of $42 million; adjusted net loss of $34 million, or $0.52 per share
• Q4 pulp production faced with fibre shortages and challenging winter weather conditions
• After year end, announced permanent closure of pulp line at Prince George Pulp and Paper mill to right-size operating footprint tied to long-term supply of economic residual fibre

Before taking account of adjusting items, largely comprised of the aforementioned asset-write down and impairment charge, the company’s operating loss was $58.6 million for the current year, down $90.5 million from the adjusted operating income of $31.9 million for the prior year. The company reported an operating loss for 2022 of $106.0 million, versus an operating loss of $65.5 million for 2021.

For the fourth quarter of 2022, the company reported an operating loss of $91.1 million. After taking account of adjusting items, the company’s operating loss for the fourth quarter of 2022 was $42 million compared to an adjusted operating income of $18.1 million for the previous quarter. The loss in the current period principally reflected the impact on pulp production of material reductions in the company’s residual fibre supply, as well as challenging operating conditions due to winter weather in B.C.

Commenting on the company’s 2022 and fourth quarter of 2022 results, CPPI’s president and chief executive officer, Kevin Edgson, said, “This was a difficult quarter to end a challenging year for Canfor Pulp. Our pulp business faced many uncontrollable challenges this year, but especially in the fourth quarter, including material fibre supply disruptions as a result of sawmill curtailments. The decision to shut down the pulp line at Prince George Pulp and Paper mill was extremely difficult, but necessary, in order to right-size our operating platform and set the company up for a sustainable long-term future. We are working to support our employees through these transitions and regret the impact these decisions have on our employees, their families and the local community. We want to recognize our employees for their dedication and resilience as we work through these significant changes in the organization.”

Following the strong global pulp market conditions experienced mid-year, market fundamentals came under modest pressure in the current quarter, driven by a decline in demand and purchasing activity, particularly from Asian markets, as well as an uptick in global pulp market supply, primarily from Europe and South America. These factors were combined with the sustained effect of elevated global softwood pulp producer inventories which, at the end of December 2022, remained on the high end of the balanced range at 43 days of supply. As a result, the current quarter US-dollar Northern Bleached Softwood Kraft pulp list prices to China averaged US$920 per tonne, down US$49 per tonne, or five percent, from the previous quarter.

Q4 challenges

The fourth quarter of 2022 was a challenging period for the company’s pulp mills, with pulp production down 18 percent from the previous quarter, as a shortage of economic fibre, combined with challenging winter conditions in B.C., significantly impacted operating performance, particularly at the company’s Intercontinental and Northwood NBSK pulp mills. Pulp production in the current period also reflected ongoing downtime at the company’s Taylor Bleached Chemi-Thermo Mechanical Pulp mill, which commenced in the first quarter of 2022 and continued through the balance of the year. As a result of a reduction in the long-term supply of fibre in the Peace region, the company does not see a path forward to restarting the Taylor mill at this time and is exploring alternative uses for the site.

Segment results

Operating income in the company’s paper segment was $1.9 million, down $2.2 million from the operating income of $4.1 million in the previous quarter, as modestly higher paper unit sales realizations, largely tied to the four percent weaker Canadian dollar, were more than outweighed by a moderate uplift in chemical costs and increased spend on operating supplies quarter-over-quarter.

In recent weeks, global softwood kraft pulp market conditions have experienced a modest uptick as unplanned global supply outages, principally stemming from fibre-related downtime in Western Canada, has more than outweighed weak global macroeconomic conditions. Reflecting this favourable momentum, the Company announced a U.S. $30 per tonne increase to its NBSK pulp list price to China in February 2023 to U.S. $970 per tonne. Looking forward, global softwood kraft pulp markets are projected to remain relatively stable through the balance of the first quarter of 2023, as persistent high global pulp inventory levels and additional hardwood pulp capacity predicted to come online in 2023, combine with steady Chinese demand. Notwithstanding the projected increased supply, global pulp pricing is anticipated to remain above historic average price levels in the short-term.

As a result of the recent announcement, the company’s results in the first quarter of 2023 will reflect the impact on production and shipments of the wind down the company’s pulp line at Prince George. Looking forward, the company is focused on optimizing a sustainable operating footprint, improving operational reliability and closely managing manufacturing and fibre costs.

No major maintenance outages are planned for the first and second quarters of 2023. In the third quarter of 2023, a maintenance outage is currently planned at Northwood, with a projected 25,000 tonnes of reduced NBSK pulp production.

Bleached kraft paper markets are projected to weaken somewhat through the first quarter of 2023, with a modest slowdown in demand anticipated as global kraft paper inventories return to more normalized levels. A maintenance outage is currently planned at the company’s paper machine in the second quarter of 2023 with a projected 5,000 tonnes of reduced paper production.

Complete results are available here.