Challenging Third Quarter Results For Forestry Firm Canfor

November 10, 2023

PRINCE GEORGECanfor Corporation posted $65.1 million operating loss in the third quarter of 2023, including a $49.3 million loss from Canfor Pulp Products Inc.

Despite stable global pulp market fundamentals, results were challenging as Northwood NBSK Pulp Mill completed its scheduled maintenance and Western Canadian markets experienced curtailments and wildfires. Canfor did continue to see strong results in the southern United States and Europe, and confirmed future investment of approximately $200 million in a new, state-of-the-art manufacturing facility in Houston, BC.

“Although global lumber markets remained under pressure in the quarter, our US South operations continued to deliver strong earnings,” says Canfor President and Chief Executive Officer Don Kayne. “When combined with solid earnings from Europe and slightly better results from our Western Canadian operations, this outcome underscores the importance of our global diversification strategy.

“For our pulp business, this was a difficult quarter as global pulp market conditions continued to be challenged with the oversupply of product and tepid demand, and our operations faced significant planned and unplanned downtime that continued into the fourth quarter.”

Canfor’s decision to build the facility in Houston followed a comprehensive evaluation of the availability of economic fibre in the region, as well as customer requirements, to support a successful investment. The low cost, high efficiency facility will have an annual production capacity of approximately 350 million board feet.

In the fourth quarter of 2023, work began on detailed project engineering and permitting requirements. Vendor and equipment selection is anticipated to be finalized in early 2024, with demolition and site preparation scheduled for the spring.

Meanwhile, looking ahead, high mortgage rates, persistent inflation and geopolitical tensions are forecast to exert pressure on new home construction activity through the balance of the year and into 2024. However, persistent underlying demand for housing in North America, coupled with low supply of existing home inventories, are projected to support the housing sector in the long-term. In the repair and remodeling segment, demand is anticipated to be muted through the fourth quarter of 2023 due to affordability constraints combined with seasonal factors.

In Canada, housing starts averaged 259,000 units on a seasonally adjusted basis in the third quarter of 2023, up 4% from the previous quarter, primarily driven by a 5% increase in the construction of multi-family homes, with a consistent level of activity seen for single-family homes.

Offshore lumber pricing to Asian markets remained relatively stable in the third quarter of 2023, as improved demand in China and Japan was met with elevated inventory levels in those regions, due in part to an influx of supply from Russia and Europe in the previous quarter.

In Europe, lumber demand and pricing saw a modest improvement quarter-over-quarter, especially in the UK, driven largely by ongoing strength in the repair and remodeling segment.

There remains significant uncertainty with regards to the availability of economically viable fibre in BC. This uncertainty is driven by recent wildfire events, combined with the lasting impacts of the Mountain Pine Beetle epidemic, uncertainties associated with unsettled land and title claims by various Indigenous Nations and outstanding policy, land use decisions and legislative initiatives by the BC Government.

Canfor continues to anticipate sustained log cost pressures in BC for its sawmills and a challenging fibre supply environment for CPPI’s pulp mills (both for sawmill residual chips and whole-log chips). With these continued log cost pressures and the projected weaker North American lumber market demand and pricing, Canfor will continue to adjust operating rates to align with demand and economically available timber supply.

Business Examiner Staff

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