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Mercer International sees dip in Q3 2019 results, reflecting high pulp inventories


November 1, 2019
By Mercer International

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Mercer International has reported its third-quarter 2019 results, indicating a decrease in operating EBITDA to $50.8 million from $86.7 million in the third quarter of 2018 and from $70 million in the second quarter of 2019.

In the third quarter of 2019, net income was $1.2 million, or $0.02 per share, compared to $41.2 million, or $0.63 per share, in the third quarter of 2018 and $10.3 million, or $0.16 per share in the second quarter of 2019.

In the first nine months of 2019, operating EBITDA modestly declined to $244.6 million from $246.5 million in the same period of 2018. In the first nine months of 2019, net income was $63.1 million compared to $83.6 million in the same period of 2018.

“Our third quarter results reflect continuing weakness in the pulp markets,” says David M. Gandossi, chief executive officer of Mercer International. “High producer inventories, particularly of hardwood pulp, resulted in pricing pressure through most of the third quarter. However, late in the quarter we saw softwood producer inventories begin to fall and demand began to increase in China. We have announced an NBSK price increase of $10 per tonne for October in China. Our mills ran well this quarter as we head into a heavy maintenance quarter in the fourth quarter, where three of our pulp mills will have annual maintenance shutdowns.”

The decrease in the current quarter compared to the prior quarter is primarily due to lower pulp sales realizations only partially being offset by lower per unit fibre costs and the positive impact of a stronger dollar compared to the euro on the dollar denominated cash and receivables held at the German mills. Compared to the same quarter of 2018 lower pulp and lumber sales realizations were partially offset by lower per unit fibre costs and higher sales volumes.

Pulp

In the third quarter of 2019, pulp segment operating income decreased to $21.4 million from $68.8 million in the same quarter of 2018. The decrease was primarily due to lower pulp sales realizations partially offset by higher sales volumes and lower per unit fibre costs. In the current quarter of 2019, the NBSK pulp realized sales price decreased by approximately 29 per cent to $609 per ADMT from $852 per ADMT in the same quarter of the prior year due to high producer inventory levels. NBSK sales volumes increased by approximately 41 per cent to 451,171 ADMTs in the current quarter from 319,850 ADMTs in the same quarter of 2018 due to the inclusion of Mercer Peace River Pulp and strong sales volumes to China.

As a result of a decline in pulp sales realizations in the current quarter of 2019, the company recorded a write down of its inventory carrying values at our Canadian mills of $6.9 million.

In the current quarter of 2019, Mercer International received German regulatory approval to reverse a wastewater fee accrual of $7.2 million as a result of certain capital projects.

Per unit fibre costs decreased in the current quarter by approximately 14 per cent from the same quarter of 2018 due to lower per unit fibre costs for our German mills and the positive impact of a stronger dollar on our euro- and Canadian dollar-denominated fibre costs. In Germany, fibre costs benefitted from the continuing availability of beetle damaged wood. Fibre costs in Canada remained at high levels due to strong fibre demand in Celgar’s fibre procurement basket.

The company expects NBSK pulp markets to stabilize in the later part of the year due to lower producer inventories as a result of producer downtime along with steady demand.

In the fourth quarter of 2019, Mercer has three of its pulp mills down for scheduled maintenance downtime totaling 53 days or approximately 83,000 ADMTs.

Read the full Q3 2019 financial report for Mercer International.