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Canfor Pulp’s Q3 results show improvement in operations over previous quarter

Canfor Pulp Products reported an operating income of $19.2 million for the third quarter of 2022, up $27.3 million from an operating loss of $8.1 million reported for the second quarter of 2022.

The results reflect materially higher Northern Bleached Softwood Kraft pulp unit sales realizations, and to a lesser extent, a two cent, or two percent, weaker Canadian dollar.

Highlights from Q3 2022 are as follows:

• Q3 2022 reported an operating income of $19 million and a net income of $16 million or $0.25 per share
• The global pulp fundamentals were strong, principally led by supply shortages. There was significant uptick in NBSK pulp unit sales realizations
• The company witnessed improved pulp production following capital-related downtime earlier in the year

Commenting on the company’s third quarter results, Canfor Pulp’s president and CEO Kevin Edgson, said in a press statement, “This was a solid quarter for Canfor Pulp, as we focused on enhancing our operational performance and improving reliability while navigating persistent supply chain and fibre-related challenges, in order to realize high NBSK pulp list prices. While we will continue to actively monitor the current external challenges facing our business, including the fibre situation in British Columbia, our immediate focus remains on optimizing productivity while preserving our solid balance sheet.”

Global softwood pulp market conditions remained relatively strong through most of the third quarter of 2022. It principally reflected increased demand, particularly from the North American and European markets. This was coupled with supply shortages and was tied to ongoing global logistical challenges and unforeseen global production disruptions.

Market fundamentals came increasingly under pressure in the latter part of the quarter, however, driven largely by a moderation in purchasing activity from China. Despite relatively steady global market fundamentals, global softwood pulp producer inventories at the end of August 2022 were well above the balanced range at 44 days of supply, four days higher than at the end of June 2022. This was largely due to the ongoing global supply chain challenges.

The strong NBSK US-dollar pulp list prices to China experienced in the first half of the year, continued into the current quarter. Prices reached a near-record high of US$1,010 per tonne in July, before declining in August and September, to end the quarter at US$948 per tonne. Consequently, average US-dollar NBSK pulp list prices to China were US$969 per tonne, down US$39 per tonne, or four percent, from the previous quarter. Prices to North America continued to strengthen in the current quarter, averaging US$1,800 per tonne (before discounts), up US$57 per tonne, or three percent, from the previous quarter.

Following the completion of capital-related downtime in the first half of 2022, pulp production was up four percent from the previous quarter, as NBSK pulp productivity steadily improved as the quarter progressed. Consistent with the prior period, however, NBSK pulp production in the current quarter continued to be limited to available transportation. Concurrently, logistics-related downtime at the company’s Taylor Bleached Chemi-Thermo Mechanical Pulp mill, which commenced in the first quarter of 2022 and continued throughout the second and third quarters, reduced production by approximately 60,000 tonnes in the current period.

In addition, NBSK pulp production in the current quarter included the completion in mid-July of the company’s Northwood NBSK pulp mill’s scheduled maintenance outage (approximately 16,000 tonnes), as well as the commencement in September of the company’s Intercontinental NBSK pulp mill’s, planned maintenance downtime (approximately 6,000 tonnes in the third quarter and a further 6,000 tonnes in October).

Operating income in the company’s paper segment was $4.1 million, down $2.1 million from the previous quarter, as moderately higher US-dollar paper pricing and a weaker Canadian dollar were more than offset by significantly higher slush pulp costs (linked to Canadian dollar NBSK market pulp prices).

Looking forward, global softwood pulp markets are projected to soften somewhat through the fourth quarter of 2022, reflecting tempered pulp demand, particularly from China.

Results in the fourth quarter are anticipated to reflect the continued uncertainties associated with lingering supply chain challenges and the related pressures on the company’s operations and shipments. Canfor Pulp projects that a restart of Taylor will not be contemplated until such time as there is a return to more normal transportation service levels to all of the its pulp and paper mills.

The company’s results in the fourth quarter of 2022 will see the continuation of Intercon’s scheduled maintenance outage into October, with an estimated 6,000 tonnes of reduced NBSK pulp production. In addition, NBSK pulp production in the fourth quarter will reflect a temporary curtailment at Intercon due to a lack of available economic fibre (approximately 16,000 tonnes).

The current weakness in lumber markets may result in extended sawmill curtailments in the British Columbia Interior, with the risk that lower volumes of sawmill residual chips available to pulp mills may cause further downtime at the company’s operations. The company will continue to closely monitor the supply chain challenges as well as the availability of economically viable fibre and will adjust future operating plans accordingly, through the balance of 2022.

Bleached kraft paper markets are projected to experience a modest slowdown in the fourth quarter, particularly in the North American and offshore markets, as global kraft paper inventory levels move towards a more balanced range.