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Canfor Pulp shares its financial results for Q3 of 2023

Canfor Pulp reported an operating loss of $49.3 million for the third quarter of 2023, compared to an operating loss of $37.9 million for the second quarter of 2023. After taking into consideration a net $2 million reversal of a previously recognized inventory write-down, the company’s adjusted operating loss was $51.3 million for the third quarter of 2023, compared to an adjusted operating loss of $31 million for the second quarter of 2023.

These results, states the company, principally reflected the continuation of soft global pulp market conditions throughout most of the current period combined with extensive downtime at its Northwood Northern Bleached Softwood Kraft (NBSK) pulp mill (Northwood) driven by supply chain disruptions and scheduled maintenance, as well as persistent reliability challenges and a delayed restart. When combined, these factors drove a significant unfavourable timing lag in the company’s shipments (versus orders) and led to a substantial decline in its NBSK pulp sales unit realizations in the current quarter.

Commenting on the company’s third quarter of 2023 results, CPPI’s president and CEO, Kevin Edgson, said, “Clearly, this was a difficult quarter for our pulp business as global pulp market conditions continued to be challenged with high pulp producer inventories and tepid demand. Market conditions, however, appear to be showing some signs of improvement, but we remain cautious in our market outlook given general global economic pressures. Operationally, while downtime weighed heavily on our third quarter results, we completed our scheduled maintenance outage at Northwood on time and on budget with positive results received from the inspections of our recovery boilers. Notwithstanding the successful execution of this scheduled maintenance downtime, the restart of Northwood has been hampered with operational challenges. We appreciate the efforts, perseverance and focus of our employees on Northwood’s scheduled maintenance outage and re-start and we are focused on continuing to improve productivity and reliability going forward.”

Highlights from the quarter include:

• Q3 2023 reported operating loss of $49 million; net loss of $36 million, or $0.55 per share
• Stable global pulp market fundamentals throughout the quarter, as a slight uptick in purchasing activity in China was offset by ongoing challenging conditions in other global regions
• Northwood NBSK Pulp Mill scheduled maintenance downtime and inspection of recovery boiler number one completed as planned; restart delayed due to operational challenges

Global softwood pulp market fundamentals were relatively flat through the current quarter, following a significant decline in the preceding quarter. Later in the period, however, buyers started to regain some market confidence, with lower global pulp pricing leading to a slight increase in purchasing activity, as producers worked to reduce their higher-than-average inventory levels. Consequently, US-dollar NBSK list prices to China, the world’s largest pulp consumer, saw some positive momentum towards the end of the quarter, ending September at US$715 per tonne. As a result, average US-dollar NBSK pulp list prices to China for the current quarter were US$680 per tonne, up US$12 per tonne, or two percent, from the previous quarter. Notwithstanding the slight uplift in US-dollar NBSK list prices to China in the current period, the Canfor Pulp’s average NBSK pulp unit sales realizations experienced a significant decrease compared to the previous quarter, principally driven by an unfavourable timing lag in shipments (versus orders), which was exacerbated by the company’s reduced pulp production in the current quarter, and was combined with the ongoing deterioration in pulp market conditions and pricing to other global regions, including North America.

Pulp production was down 28,000 tonnes, or 19 percent, from the previous quarter. Early in the current period, NBSK pulp production was impacted by a labour dispute at the Ports of Vancouver and Prince Rupert which put pressure on an already constrained logistics network in British Columbia. As a direct result, with pulp mill inventories at capacity, the company curtailed Northwood in July for approximately one week, with 10,000 tonnes of reduced NBSK pulp production. In addition, as planned, NBSK pulp production was decreased by the successful completion of a scheduled maintenance outage at Northwood in September (approximately 25,000 tonnes). Later in the period, however, the restart of Northwood was delayed into fourth quarter by numerous operational difficulties, unrelated to the scheduled maintenance downtime, that resulted in a further reduction in NBSK pulp production (approximately 10,000 tonnes in the third quarter). This slow ramp up further emphasizes the general operational reliability challenges at Northwood in 2023, which, in the current quarter, also impacted NBSK pulp production by approximately 20,000 tonnes. In the second quarter of 2023, the company’s pulp production primarily reflected operational footprint changes, which took effect in April, as well as operational challenges at Northwood (approximately 40,000 tonnes).

Operating income in the company’s paper segment was $4.4 million, up $3.7 million from the previous quarter, primarily reflecting a substantial reduction in slush pulp costs, linked to lower Canadian dollar NBSK pulp market prices in the current period.

Looking forward, global softwood pulp markets are anticipated to experience a slight improvement in the fourth quarter of 2023, as elevated inventory levels slowly begin to normalize following the seasonally slower summer months. These factors are projected to be tempered by general global economic uncertainty and pressures.

Canfor Pulp’s results in the fourth quarter of 2023 will reflect the aforementioned operational challenges at Northwood associated with the delayed startup, with a projected 30,000 tonnes of reduced NBSK pulp production, combined with higher associated maintenance costs and lower shipment volumes. These factors are also anticipated to give rise to a larger-than-normal unfavourable timing lag in shipments (vs orders) and thus it is estimated that fourth quarter results will reflect persistently lower NBSK pulp sales unit realizations, regardless of any uptick in USdollar NBSK list prices that may arise.

While no major maintenance outages are planned at the company’s operations in the fourth quarter of 2023, given the ongoing uncertainty with regards to the availability of economically viable fibre in BC, and a projected weaker North American lumber market, it anticipates a challenging fibre supply environment for its pulp mills (both for sawmill residual chips and whole-log chips). Canfor Pulp will continue to monitor operating conditions and will adjust operating rates, to align with economically viable fibre supply, through the balance of 2023 and into 2024. Bleached kraft paper markets are anticipated to continue to soften through the balance of 2023, particularly in North America, as tepid demand is combined with above-average paper inventory levels.