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Mercer International sees Q4 and year-end 2019 net losses amid weak pulp market

Mercer International has reported its fourth quarter 2019 results, citing a decrease in operating EBITDA to negative $34.2 million from positive $50.8 million in the third quarter of 2019 and positive $118.1 million in the fourth quarter of 2018.

In the fourth quarter of 2019, net loss was $72.7 million, or $1.11 per share, compared to net income of $45.0 million, or $0.69 per basic share and $0.68 per diluted share, in the fourth quarter of 2018 and net income of $1.2 million, or $0.02 per share in the third quarter of 2019.

In 2019, operating EBITDA declined to $210.4 million from $364.6 million and the net loss was $9.6 million (or $0.15 per share) compared to net income of $128.6 million (or $1.96 per diluted share) in 2018.

“Our fourth-quarter results reflect significant annual maintenance activities in our pulp segment and weakness in the pulp markets,” says David M. Gandossi, chief executive officer, in a statement.

“High producer inventories, particularly of hardwood pulp, resulted in pricing pressure on both hardwood and softwood. We believe that pricing for both pulps were bottoming going into 2020 and we expect that improving market conditions will support modest upward pricing pressure during 2020.

“However, there may be near-term headwinds on pulp prices and demand in China as a result of the current ongoing coronavirus outbreak. In the first quarter of 2020, we have three days of scheduled downtime at one of our pulp mills.

“In the current quarter our wood segment benefitted from lower fibre costs, which largely contributed to it achieving record quarterly operating income of $5.3 million.”

Pulp segment 

In the fourth quarter of 2019, the pulp segment had an operating loss of $66.6 million compared to operating income of $94.5 million in the same quarter of 2018.

The decrease was primarily due to lower pulp sales realizations and higher annual maintenance costs partially offset by lower per unit fibre costs and the reversal of $13.7 million in accrued wastewater fees.

In the current quarter of 2019, the NBSK pulp realized sales price decreased by approximately 30 per cent to $581 per ADMT, from $830 per ADMT in the same quarter of the prior year due to high producer inventory levels.

NBSK sales volumes increased by approximately six per cent to 416,569 ADMTs in the current quarter from 392,729 ADMTs in the same quarter of 2018 due to the inclusion of MPR for a full quarter and strong demand from China.

In the current quarter, the pulp mills had 54 days (approximately 86,500 ADMTs) of annual maintenance downtime compared to three days (approximately 5,700 ADMTs) of annual maintenance downtime in the same quarter of the prior year.

Mercer International estimates that annual maintenance downtime in the current quarter adversely impacted operating income by approximately $74.1 million, comprised of approximately $54.5 million in direct out-of-pocket expenses and the balance in reduced production.

Per unit fibre costs decreased in the current quarter by approximately 17 per cent from the same quarter of 2018 due to lower per unit fibre costs for the company’s German mills. 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.

Outlook

Going into 2020, the company currently expects continued steady demand to improve markets over the year.

Until recently, the combination of steady demand and falling inventories, along with the supply restrictions created by the shut of an NBSK mill in Nova Scotia and the industry strike in Finland was putting upward pressure on prices.

However, the current ongoing coronavirus outbreak could create inland logistics restrictions or other disruptions that may, over time, begin to slow down paper manufacturing in China and put pressure on pulp pricing and demand.

Read the full Q4 and year-end 2019 Mercer International financial report.