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Canfor Reports Results for Third Quarter of 2020

General News

Canfor Corporation (“The Company” or “Canfor”) reported its third quarter 2020 results:


– Third quarter of 2020 reported operating income of $300 million, adjusted operating income of $347 million
– Record-high adjusted lumber earnings of $387 million, driven by unprecedented surge in lumber prices and strong operational performance across all regions despite the impact of the coronavirus pandemic
– Total net debt of $526 million at September 30, 2020, improvement of $331 million from prior quarter; available liquidity of $1.1 billion; net debt to capitalization of 18.6% at September 30, 2020
– Adjusted shareholder net income of $259 million, or $2.07 per share
– Vida Group (“Vida”) completed acquisition of Bergs Timber Production AB (“Bergs”) sawmill assets
– Cumulative cash deposits of $548 million on countervailing and anti-dumping duties at September 30, 2020

Financial Results

For the third quarter of 2020, the Company reported operating income of $299.6 million, up $202.7 million from the second quarter reported operating income of $96.9 million, reflecting a marked increase in lumber segment earnings, marginally offset by lower pulp and paper segment earnings.

After adjusting for countervailing (“CVD”) and anti-dumping duties (“ADD”) of $50.7 million in the lumber segment and an inventory write-down recovery of $3.0 million for the pulp and paper segment, the Company’s operating income was $347.3 million for the third quarter of 2020, up $289.2 million from similarly adjusted operating income of $58.1 million in the second quarter of 2020.

Adjusted lumber segment results of $387.4 million, an all-time record, were up more than five-fold quarter-over-quarter, as a significant surge in demand outpaced available supply in the current quarter, following widespread industry curtailments earlier in the year in response to the coronavirus (“COVID-19”) outbreak. As a result, North American benchmark lumber pricing jumped to unprecedented levels in the third quarter of 2020, resulting in record results for the Company’s Southern Yellow Pine (“SYP”) and European Spruce/Pine/Fir (“SPF”) operations and a significant improvement in the results for the Company’s Western SPF operations.

The sharp rise in North American lumber demand saw US housing starts peak at 1,487,000 units in July, posting a year-over-year gain of 23%. Over the balance of the quarter, home construction activity remained strong, particularly for the single-family housing market (which consumes a higher proportion of lumber). For the third quarter of 2020, on a seasonally adjusted basis, US housing starts averaged 1,430,000 units, up 33% from the previous quarter, due to a significant uptick in both single and multi-family housing starts, and to a lesser extent, strength in the repair and remodeling sector driven by increased home centre demand. Canadian housing starts followed similar trends to the US, with August housing starts climbing to their highest levels since September 2007 (averaging 262,000 units) and third quarter of 2020 starts averaging 239,000 units, up 25% from the second quarter of 2020.

Offshore demand from China was somewhat steady in the current quarter as the effects of the pandemic stabilized in Asian-Pacific markets. Activity in Korea and Japan, however, was slower in the current quarter, resulting in correspondingly lower shipment volumes.

Western Europe and Scandinavian lumber demand experienced further growth in the current quarter largely in response to the continued strength in the repair and remodeling sector. With most business in Europe conducted based on pricing negotiated quarterly in advance, pricing gains for the Company’s European SPF business in the third quarter of 2020 did not keep pace with those in North America; however, prices are projected to show solid increases in the fourth quarter of 2020.

The North American Random Lengths Western SPF 2×4 #2&Btr price climbed considerably at the end of the prior quarter and continued its run up through the third quarter, reaching an all-time high of US$955 per Mfbm early in September, before dropping in October as prices began to correct. The current quarter average North American Random Lengths Western SPF 2×4 #2&Btr price was US$768 per Mfbm, up US$411 per Mfbm, or 115%, compared to the previous quarter. Conversely, offshore lumber prices experienced modest declines quarter-over-quarter, due in part to the nature of pricing, much of which is negotiated monthly or quarterly in advance. Overall, however, the Company’s Western SPF average lumber unit sales realizations still saw substantial increases in the current quarter, with the unprecedented North American pricing levels significantly outweighing modest declines in offshore realizations, a timing lag in shipments (versus orders), and a 3 cent, or 4%, stronger Canadian dollar in the current period.

The North American Random Lengths SYP East 2×4 #2 price rose for a record consecutive twenty-four weeks beginning in the second quarter and into the third quarter of 2020, reaching a high of US$1,025 per Mfbm at the end of September, and a record of US$1,035 per Mfbm early in October, before declining sharply in recent weeks. The Company’s SYP lumber unit sales realizations were materially higher than the prior quarter, principally reflecting a US$319 per Mfbm, or 69%, increase in the average SYP East 2×4 #2 price to US$782 per Mfbm, with similarly strong price gains seen for most wider width dimensions, offset to a small extent, by a time lag in shipments (versus orders).

The Company’s European SPF unit sales realizations were significantly higher quarter-over-quarter despite a more modest increase of 5% in the average European indicative SPF lumber benchmark price to SEK3,414. This was principally driven by a favourable geographic sales mix, combined with a 5% weaker Canadian dollar (compared to the Swedish Krona (“SEK”)).

Total lumber shipments, at 1.37 billion board feet, were 19% higher than the previous quarter, principally due to increased production.

Total lumber production, at 1.42 billion board feet, was 36% above the prior quarter primarily reflecting a return to more regular production rates following COVID-19 market-related curtailments across the Company’s Western SPF and SYP operations early in the second quarter, offset in part by four weeks of seasonal production downtime at the Company’s European SPF operations in July and August.

Lumber unit manufacturing and product costs improved slightly compared to the previous quarter, primarily reflecting a moderate improvement in unit costs at the Company’s Western SPF and SYP operations, largely driven by improved productivity, combined with an ongoing focus on reducing spend. Unit manufacturing and product costs in the Company’s European SPF operations experienced a modest increase quarter-over-quarter, principally as a result of the seasonal production downtime in the current quarter.

In the fourth quarter of 2020, it is currently anticipated that the Department of Commerce (“DOC”) will finalize its CVD and ADD rates announced earlier in the year for the first period of administrative review (“POR1”). Based on the preliminary determination, the Company’s current combined cash deposit rate of 20.52% is expected to be reset to 4.63%. In conjunction with the finalization of these rates, an additional recovery will be recognized in the Company’s consolidated financial statements to reflect the difference between the accrual rate (15.84%) and final rate for POR1, currently estimated at $141.6 million (US$105.7 million).

Results in the pulp and paper segment for the third quarter of 2020 reflected weak global pulp market conditions as well as significant fibre-related and previously deferred scheduled maintenance downtime, stemming from the ongoing impact of COVID-19, combined with a strong Canadian dollar. The significant effect of COVID-19 on lumber sawmill operating rates in the British Columbia (“BC”) Interior in the previous quarter materially impacted residual fibre supply to Canfor Pulp Products Inc.’s (“CPPI”) Prince George (“PG”) based operations heading into the current quarter, resulting in a four-week curtailment at CPPI’s Intercontinental Northern Bleached Softwood Kraft (“NBSK”) pulp mill and PG NBSK pulp and paper mill in July.

During the scheduled outage at CPPI’s Northwood NBSK pulp mill (“Northwood”), the mill’s recovery boiler number one (“RB1”) was assessed by Management to be in stable condition. Regarding the mill’s recovery boiler number five (“RB5”), the previously announced capital upgrades to the upper furnace are ongoing and progressing well. In mid-October, Management made the decision to extend the outage on RB5 to enable the replacement of the lower furnace, in order to ensure the safe and reliable operation of the boiler. The estimated capital cost of the lower furnace upgrade is $30 million, with the work anticipated to take between 70-80 days during the fourth quarter on one production line, which will reduce NBSK pulp production by 60,000 to 70,000 tonnes. This lower furnace replacement, in conjunction with the upper furnace upgrades, is projected to ensure RB5’s continued operation for another 15 to 20 years. In light of the assessments made by Management with regards to RB1 and RB5, the previously considered option of a new “super” recovery boiler (“RB6”), at an estimated cost of $400 million, will now not be required.

Notwithstanding the anticipated correction of lumber prices, some of which has been experienced in recent weeks, lumber market fundamentals are forecast to reflect continued solid demand with low levels of supply chain inventory persisting into early 2021. Prices are likely to remain strong in the fourth quarter of 2020, as demand remains elevated and supply slowly recovers following severe shortages in the field.

Lumber prices to Asian-Pacific markets are projected to show an improvement through the fourth quarter of 2020. Inventory levels in China are estimated to decline, supporting a modest price recovery late in the fourth quarter of 2020 and into early 2021. Demand from Japan is anticipated to remain stable with tight inventory levels likely to yield higher pricing for the fourth quarter of 2020.

European prices are anticipated to improve through the fourth quarter of 2020 with lean inventories and the traditional lag in contract pricing, supporting the positive pricing outlook.

Looking forward, global softwood pulp demand is anticipated to show a slight improvement in the fourth quarter of 2020, as markets continue to recover from the economic impact of COVID-19 and elevated inventory levels slowly begin to normalize following the seasonally slower summer months. CPPI’s results in the fourth quarter of 2020 will reflect the continuation of Northwood’s scheduled maintenance into early October, as well as the aforementioned capital-related outage on one production line at Northwood (with the second production line continuing to operate over this period), combined with higher associated maintenance costs and lower shipment volumes.

Bleached kraft paper markets are anticipated to soften somewhat through the balance of 2020, particularly in North America, following seasonally higher summer demand. Offshore bleached kraft paper markets are anticipated to be relatively stable over the fourth quarter of 2020.

Commenting on the Company’s third quarter results, Canfor’s President and Chief Executive Officer, Don Kayne, said, “We are extremely impressed with the exceptional efforts and relentless execution of our teams to ensure a safe work environment during these unprecedented times. While we were very pleased with the significant increase in global lumber pricing and the performance of our all our operations in the third quarter, we anticipate a moderation in prices through the fourth quarter. Although we forecast lumber demand to remain strong in 2021, we will continue to focus on strengthening our balance sheet to mitigate future potential volatility in global markets. Our pulp business continues to be challenged with global oversupply of product and tepid demand, but market conditions appear to be slowly improving, with various market price forecasts for 2021 guiding to a modest recovery of prices.”

For the full third quarter results, click here.

About Canfor Corporation

Canfor is a leading integrated forest products company based in Vancouver, British Columbia (“BC”) with interests in BC, Alberta, North and South Carolina, Alabama, Georgia, Mississippi and Arkansas, as well as in Sweden with its majority acquisition of Vida Group. Canfor produces primarily softwood lumber and also owns a 54.8% interest in Canfor Pulp Products Inc., which is one of the largest global producers of market Northern Bleached Softwood Kraft Pulp and a leading producer of high performance kraft paper. Canfor shares are traded on The Toronto Stock Exchange under the symbol CFP. For more information visit


Pat Elliott – Vice President Corporate Finance & Strategy – – (604) 661-5441

Source: Canfor Corporation