Canfor Reports Results for Third Quarter of 2022
Canfor Corporation (“The Company” or “Canfor”) reported its third quarter of 2022 results:
- Q3 2022 reported operating income of $108.6 million; quarterly sales of $1.7 billion
- Downward pressure on global lumber market fundamentals and pricing following highs earlier in the year
- Reduced Western Canadian operating schedules & European seasonal downtime led to lower shipments
- Strong global pulp fundamentals & improved pulp production following capital-related downtime
- Shareholder net income of $87.4 million, or $0.71 per share
For the third quarter of 2022, the Company reported operating income of $108.6 million, down $423.0 million from the operating income of $531.6 million reported for the second quarter of 2022, largely reflecting a decline in lumber segment earnings, slightly offset by improved pulp and paper segment results.
Results in the current quarter include an $88.5 million net inventory write-down, principally driven by the lumber segment, as well as a net duty recovery of $97.6 million (US$73.0 million) resulting from the finalization of countervailing (“CVD”) and anti-dumping duty (“ADD”) rates applicable to the third period of review (“POR3”).
Commenting on the Company’s third quarter results, Canfor’s President and Chief Executive Officer, Don Kayne, said, “As global lumber market conditions continued to soften from the highs earlier in the year, our lumber business delivered solid results in the quarter, largely reflecting the benefit of our global diversification strategy. However, the steep declines in global lumber pricing, combined with high log costs in British Columbia (“BC”), led to the difficult decision to extend reduced operating schedules at our Western Canadian sawmills. For our pulp business, our focus on enhancing operational performance and improving reliability while managing persistent supply chain and fibre-related challenges allowed us to realize high Northern Bleached Softwood Kraft (“NBSK”) pulp list prices and recognize improved results in the quarter. While we continue to monitor the current external challenges facing our lumber and pulp businesses, including the fibre situation in BC, we greatly appreciate our employees’ continued efforts in navigating through these difficult conditions.”
Reported results in the lumber segment decreased $450.5 million quarter-over-quarter principally reflecting significant Western Spruce/Pine/Fire (“SPF”) and Southern Yellow Pine (“SYP”) US-dollar benchmark pricing declines in the current period, with the average North American Random Lengths Western SPF 2×4 2&Btr price down US$286 per Mfbm, or 33%, and the average SYP East 2×6 #2 down US$97 per Mfbm, or 17%, and notably lower market pricing in Europe. This downward pricing pressure was coupled with market-related increases in BC log costs as well as substantially lower production and shipment volumes at the Company’s Western Canadian and European lumber operations, which contributed to a considerable uplift in unit manufacturing costs.
In Western Canada, despite an improvement in transportation networks through the current period, reduced operating schedules across the Company’s BC sawmills, which commenced in the second quarter, continued well into the third quarter. In addition, as the third quarter progressed, declining lumber prices and high log costs led to market-driven curtailments at most of the Company’s BC sawmills late September. Combined, these capacity reductions reduced production by approximately 200 million board feet during the period. For the Company’s European operations, reduced production in the current quarter was attributable to regular summer downtime.
North American market fundamentals continued to trend downwards throughout much of the current quarter, as rising interest rates alongside high levels of inflation weighed on housing affordability and led to an 11% decrease in US new home construction activity during the period, particularly for single-family units. Despite general economic uncertainty and declines in US housing starts, demand in the North American repair and remodeling sector remained strong throughout the quarter supported by lower-cost building materials and an aged housing stock.
Offshore lumber demand and prices in Asia showed continued weakness in the third quarter of 2022. In Japan and Korea, reduced consumption was coupled with increased inventory levels in those regions. In China, a slight pick-up in activity was outweighed by the impacts of a severe summer heatwave which caused factory closures and lowered lumber consumption. In Western Europe and Scandinavia, lumber demand and pricing declined sharply as weakness in the “do-it-yourself” sector late in the previous quarter persisted through the current period as inflationary cost pressures and high energy costs reduced consumer spending.
Results in the pulp and paper segment largely reflected materially higher NBSK pulp unit sales realizations, and to a lesser extent, a 2 cent, or 2% weaker Canadian dollar.
Following the completion of capital-related downtime in the first half of 2022, pulp production was up 4% 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 Canfor Pulp Product Inc.’s (“CPPI”) Taylor Bleached Chemi-Thermo Mechanical Pulp (“BCTMP”) mill (“Taylor”), 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 CPPI’s Northwood NBSK pulp mill’s (“Northwood”) scheduled maintenance outage (approximately 16,000 tonnes) as well as the commencement in September of CPPI’s Intercontinental NBSK pulp mill’s (“Intercon”) planned maintenance downtime (approximately 6,000 tonnes in the third quarter and a further 6,000 tonnes in October).
Looking ahead, global lumber market fundamentals are anticipated to face significant downward pressure through the balance of 2022. Decreasing housing affordability, tied to persistent inflation and interest rates, is projected to continue to reduce new home construction activity in North America while the repair and remodeling sector is forecast to experience some softness in the fourth quarter, albeit to a lesser extent, driven principally by seasonal impacts. Offshore lumber demand in Asia is estimated to see ongoing weakness as high inventories in the region persist through the balance of the year. European lumber pricing is anticipated to continue to weaken through the fourth quarter, largely driven by subdued activity in the repair and remodeling segment in that region.
As a result of the challenging market conditions, results in the fourth quarter are forecast to reflect the continuation of reduced operating schedules across the Company’s Western Canadian sawmills, as well as some reduced shifts at the Company’s European operations, which, in the case of Europe, may be less than originally anticipated. The Company will continue to closely monitor the external challenges impacting the business, including global lumber market conditions, supply chain networks, as well as the availability of economically viable fibre in BC, and will adjust operating rates accordingly through the balance of 2022.
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 also anticipated to reflect the continued uncertainties associated with lingering supply chain challenges and the related pressures on CPPI’s operations and shipments. As previously disclosed, it is projected 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 CPPI’s pulp and paper mills.
CPPI’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 BC Interior, with the risk that lower volumes of sawmill residual chips available to pulp mills may cause further downtime at CPPI’s operations. CPPI will continue to closely monitor the supply chain challenges as well as the availability of economically viable chip supply, and will adjust future operating plans accordingly, through the balance of 2022.
For the full third quarter results, click here.
About Canfor Corporation
Canfor is a leading integrated forest products company based in Vancouver, BC with interests in BC, Alberta, North and South Carolina, Alabama, Georgia, Mississippi, Arkansas and Louisiana, as well as in Sweden with its majority acquisition of the Vida Group. Canfor produces primarily softwood lumber and also owns a 54.8% interest in CPPI, 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 canfor.com.
Michelle Ward – Vice President, Corporate Communications – email@example.com- (604) 661-5225
Source: Canfor Corporation