Canfor Reports Results for First Quarter of 2023
Canfor Corporation (“The Company” or “Canfor”) reported its first quarter of 2023 results:
- Q1 2023 adjusted operating loss of $146 million; adjusted shareholder net loss of $145 million, or $1.20 per share
- Strong earnings from the Company’s European operations and more modest earnings from its US South operations outweighed by continued pricing pressure on its Western Canadian operations
- Increased lumber production & shipments notwithstanding North American market-related challenges; uplift in pulp production despite ongoing fibre constraints
The Company reported an operating loss of $208.5 million for the first quarter of 2023, compared to an operating loss of $308.0 million in the fourth quarter of 2022. After adjusting for certain one-time items, including a $62.1 million inventory write-down in the current period, the Company’s operating loss was $146.4 million for the first quarter of 2023, a $17.4 million improvement compared to an adjusted operating loss of $163.8 million for the fourth quarter of 2022. These results reflected improved pulp and paper segment results, offset in part by a decline in lumber segment earnings.
Commenting on the Company’s first quarter results, Canfor’s President and Chief Executive Officer, Don Kayne, said, “This was another challenging quarter for our lumber business. Strong earnings from our European operations and more modest earnings from our US South operations were overshadowed by ongoing weakness in Western Spruce/Pine/Fir lumber pricing, which resulted in further temporary capacity reductions across our Western Canadian sawmills. In addition, we announced and began implementing a restructuring of our British Columbian lumber operations to better align manufacturing capacity with the available long-term fibre supply. Despite improved earnings, this was also a difficult quarter for our pulp business, driven by the wind down of the pulp line at the Prince George Pulp and Paper mill. While these restructuring decisions for both our lumber and pulp business will create a more sustainable operating footprint for Canfor going forward, we sincerely regret the impact on our employees, their families, contractors and our local communities.”
Lumber Segment Highlights and Outlook
For the lumber segment, adjusted results decreased $6.8 million quarter-over-quarter as strong earnings from the Company’s European operations and more modest earnings from its US South operations, were more than offset by the challenging results from its Western Canadian operations. Overall, lumber segment results were primarily driven by a moderate decline in most North American benchmark lumber market prices, with the average North American Random Lengths Western Spruce/Pine/Fir (“SPF”) 2×4 2&Btr price and the average Southern Yellow Pine (“SYP”) East 2×6 #2 price both down 6% quarter-over-quarter. These factors were offset in part by slightly higher market pricing in Europe. In addition, the current quarter reflected moderately higher production and shipment volumes across all three lumber operating regions, primarily due to increased operating days in the US South and Europe, as well as reduced market-related temporary downtime in Western Canada (approximately 240 million board feet in the current period versus 250 million board feet in the prior quarter).
North American lumber market conditions remained under pressure through most of the first quarter of 2023. Residential construction activity was in line with the previous quarter but continued to be impacted by housing affordability constraints stemming from persistent inflationary cost pressures and high interest rates. These ongoing housing sector challenges more than offset slightly improved demand in the repair and remodeling sector and led to a decline in most North American US-dollar benchmark lumber prices in the current quarter.
Offshore lumber demand and pricing to Asian markets experienced continued weakness in the first quarter of 2023, most notably in Japan and Korea, due to the combined impact of high inflation and interest rates as well as elevated lumber inventory levels in those regions. In China, despite the introduction of government stimulus measures early in the current period aimed at reviving the domestic economy, lumber demand and pricing continued to be negatively impacted by high inventory levels in that region.
In Europe, and to a greater extent the United Kingdom, lumber demand and pricing experienced a modest improvement through the first quarter of 2023, reflecting a slight uptick in residential construction activity combined with restricted supply from Russia and Belarus. These factors more than outweighed the impact of ongoing weakness in the do-it-yourself sector during the period.
Looking ahead, global lumber market conditions are anticipated to face continued challenges through the second quarter of 2023 as general economic uncertainty accompanied by affordability pressures are projected to continue to weigh on demand. Notwithstanding these headwinds, in the longer term, underlying global lumber market fundamentals are forecast to be solid, principally reflecting strong demographic trends, consistent demand driven by an aging housing stock and low inventories of new homes. Demand in the repair and remodeling sector is anticipated to be strong through the second quarter of 2023, despite inflationary pressures, due to an aged housing stock and seasonal factors.
Offshore lumber demand in Asia is forecast to experience ongoing weakness in the second quarter of 2023 but improve through the latter half of the year as inventories in that region return to more balanced levels. In Europe, lumber demand is anticipated to be solid in the second quarter of 2023 as modest demand in the residential construction segment is combined with a seasonal uptick in the do-it-yourself sector.
Results in the second quarter of 2023 will also reflect the impact on production and shipments of the permanent closure of the Company’s Chetwynd sawmill and pellet plant, as well as the temporary closure of its Houston sawmill following their wind down in April 2023.
In the US South, the construction of the Company’s greenfield sawmill in DeRidder, Louisiana, is progressing well and its ramp-up in production is anticipated to commence in the second quarter of 2023 and continue through the balance of the year.
Pulp and Paper Segment Highlights and Outlook
For the pulp and paper segment, the adjusted operating loss was $21.6 million for the first quarter of 2023, a $20.4 million improvement compared to an adjusted operating loss of $42.0 million for the fourth quarter of 2022. These results for the most part reflected a 13% increase in pulp production and an associated decline in pulp unit manufacturing costs.
Following the strong global pulp market conditions experienced in 2022, market fundamentals came under modest pressure late in the first quarter of 2023. Relatively stable demand in the quarter was outweighed by an uptick in global pulp producer inventories, which, at the end of February 2023, were well above the balanced range, at 50 days of supply, an increase of seven days from the 43 days of supply at the end of December 2022 (Market conditions are generally considered balanced when inventories are in the 32-43 days of supply range). Consequently, the Northern Bleached Softwood Kraft (“NBSK”) US-dollar list price on orders to China saw a modest decline, falling US$48 per tonne to US$865 per tonne in March 2023. For the current quarter overall, US-dollar NBSK pulp list prices to China averaged US$891 per tonne, down US$29 per tonne, or 3%, from the previous quarter.
Looking forward, global softwood kraft pulp markets are anticipated to continue to weaken through the second quarter of 2023, as relatively stable demand is projected to be overshadowed by above-average global pulp producer inventory levels.
Results in the second quarter of 2023 are also forecast to reflect the impact on pulp production and shipments of the closure of Canfor Pulp Products Inc.’s (“CPPI”) pulp line at the Prince George Pulp and Paper mill. No major maintenance outages are planned for the second quarter of 2023.
For the full first 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, 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 – VP, Corporate Communications – email@example.com – (604) 661-5225
Source: Canfor Corporation