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Mercer International reports net loss in Q1 2020, but ‘steady’ demand for pulp

May 1, 2020  By P&PC Staff

Mercer International Inc. has reported its first-quarter 2020 results, citing a net loss of $3.4 million (or $0.05 per share).

This is compared to net income of $51.6 million (or $0.79 per basic share and $0.78 per diluted share) in the first quarter of 2019 and a net loss of $72.7 million (or $1.11 per share) in the fourth quarter of 2019.

The company saw a decrease in operating EBITDA to $57 million in Q1 2020 from $123.8 million in the first quarter of 2019, but an increase from negative $34.2 million in the fourth quarter of 2019.


“The outbreak of the COVID-19 pandemic in the first quarter has presented a number of challenges and I am proud that our people have risen to meet these head on,” says David Gandossi, chief executive officer, in a statement.

“The current working environment and resultant work changes have not been easy and I want to thank all our employees for working cooperatively to implement new procedures to keep safety at the forefront and for looking out for one another. Despite these new procedures, our mills continued to run well in the first quarter of 2020.

“Despite weak product pricing, our solid first quarter financial results reflect strong production, effective cost control, steady demand for both pulp and lumber and favourable currency movements.

“On the pulp side, we experienced modest price increases off trough price levels in the fourth quarter of 2019 as demand was generally steady. Overall, our sales volumes were held back slightly as we worked through pandemic-related logistical challenges early in the quarter. On the lumber side, our recent sawmill upgrades allowed us to take advantage of strong demand and upward pricing momentum in the U.S. market to report record quarterly operating income for our wood products segment.”

Pulp segment

In the first quarter of 2020, pulp segment operating income decreased to $21.4 million from $93.5 million in the same quarter of 2019.

The decrease was primarily due to lower pulp sales realizations partially offset by the positive impact of a stronger dollar and lower per unit fibere costs.

In the current quarter of 2020, the NBSK pulp realized sales price decreased by approximately 26 per cent to $561 per ADMT from $757 per ADMT in the same quarter of the prior year due to high producer inventory levels and market uncertainty as COVID-19 spread through China.

NBSK sales volumes decreased by approximately six per cent to 438,326 ADMTs in the current quarter from 466,893 ADMTs in the same quarter of 2019 due to logistics issues early in the current quarter related to closures, restrictions and other effects related to the COVID-19 pandemic.

Mercer’s Canadian pulp mills recorded a non-cash write down of inventory carrying values of $5.7 million in the current quarter as a result of lower pulp sales realizations and high fibre costs.

Per unit fibre costs decreased in the current quarter by approximately 12 per cent from the same quarter of 2019 primarily due to lower per unit fibre costs for the company’s German mills.

In Germany, per unit fibre costs benefitted from the continuing availability of beetle damaged wood. Per unit fibre costs in Canada were flat but remained at historically high levels due to strong fibre demand in the mills’ fibre procurement areas.

Wood products segment

In the first quarter of 2020 the wood products segment operating income increased to a record $5.6 million compared to $1.6 million in the same quarter of 2019.

The increase was primarily due to record production and lower per unit fibre costs. Production increased by approximately five per cent to 116.4 MMfbm of lumber in the current quarter from 110.7 MMfbm in the same quarter of 2019 primarily due to capital improvements at the mill.

In the current quarter, per unit fibre costs decreased by approximately 25 per cent from the same quarter of 2019 primarily as a result of the continuing availability of beetle damaged wood.

Average lumber sales realizations decreased by approximately three per cent to $348 per Mfbm in the first quarter of 2020 from approximately $359 per Mfbm in the same quarter of 2019 primarily due to lower pricing in Europe partially offset by higher pricing in the U.S. market.

European lumber pricing declined due to an increase in the supply of lumber processed from beetle damaged wood which generally obtains lower prices. U.S. lumber pricing increased due to strong demand in the current quarter.

Market outlook

Although there is a great deal of global business uncertainty resulting from the COVID-19 pandemic and its effect and societal responses are evolving and can change quickly, in the second quarter Mercer says it expects to see steady pulp demand from tissue and hygiene producers but a weakening in demand from printing and writing paper producers.

On the pulp supply side, in the upcoming quarter, the company expects certain mills to curtail production as a result of fibre shortages resulting from sawmill downtime.

Further, some pulp mills have announced some sporadic curtailments resulting from COVID-19. Additionally, various pulp mills globally have delayed their annual maintenance schedules as a result of the current pandemic. This is expected to curtail production in the later part of the year or early part of next year.

On the lumber side, Mercer is currently expecting weakening lumber markets and lower lumber sales realizations in the second quarter of 2020 due to a drop in housing starts and business slowdowns and disruptions resulting from the pandemic in the company’s major markets.

Read the full Q1 2020 Mercer International financial report.

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