Canfor Reports Record Fourth Quarter 2017 Income on Pulp Demand from China, Pricing
The strong surge in demand for pulp in the current quarter, principally from China, was partly in response to new regulations by the Chinese government restricting the import of recycled mixed paper.
Feb. 22, 2018 - Canfor Pulp Products Inc. ("CPPI") (TSX: CFX) [on Feb. 22] reported fourth quarter 2017 results and quarterly dividend.
The Company reported record operating income of $66.8 million for the fourth quarter of 2017, an increase of $45.7 million from the $21.1 million reported for the third quarter of 2017, as the Company benefited from a sharp improvement in market conditions, and the associated near-record high US-dollar pricing for Northern Bleached Softwood Kraft ("NBSK") pulp combined with significant increases in Bleached Chemi-Thermo Mechanical Pulp ("BCTMP") US-dollar pricing. The strong surge in demand in the current quarter, principally from China, was partly in response to new regulations by the Chinese government restricting the import of recycled mixed paper. This development, in combination with already solid demand, a modest decline in the Canadian dollar and various unforeseen global pulp supply disruptions, paved the way for a significant increase in NBSK pulp unit sales realizations quarter over quarter.
Average BCTMP unit sales realizations also saw strong gains, reflecting the good market conditions and the favourable foreign exchange movement in the fourth quarter of 2017. Energy revenues also increased, for the most part, reflecting strong power generation combined with seasonally higher energy prices.
Pulp shipments and production volumes were broadly in line with the previous quarter. The impact on pulp production of the previously announced unscheduled outage at the Company's Northwood NBSK pulp mill in November, was offset in part by improved productivity across all NBSK pulp mills, including the Northwood mill following the outage. After taking account of scheduled and unscheduled outages in each period, total pulp production for the fourth quarter was slightly above that of the third quarter. The anticipated benefit of a slipped vessel shipment from the previous quarter into the fourth quarter was offset by a delayed vessel shipment over the year end due to adverse weather conditions.
Pulp unit manufacturing costs were largely consistent with the previous quarter, as increased maintenance spend combined with higher energy usage in the current quarter, primarily due to the aforementioned unplanned outage, was offset by lower chemical costs and improved productivity towards the end of the period.
Operating income in the Company's paper segment at $7.4 million for the fourth quarter of 2017 was up $2.5 million from the third quarter of 2017, largely reflecting a modest increase in paper unit sales realizations, due to higher market-driven US-dollar pricing combined with the 1% weaker Canadian dollar, and, to a lesser extent, an increase in paper shipments, partially offset by higher paper unit manufacturing costs resulting from increases in slush pulp costs (linked to higher Canadian dollar NBSK market pulp prices) in the current quarter.
Commenting on the Company's fourth quarter's results, CPPI's Chief Executive Officer, Don Kayne, said, "With our solid operating performance in the quarter and the Northwood pulp mill recovering well after its upset in November, we were able to take advantage of the material improvement in pulp market conditions to deliver record-high operating income for the fourth quarter."
Global softwood kraft pulp markets are projected to remain well positioned through the first quarter of 2018, with continued strong shipments into Asian markets, particularly China, and sustained demand in other markets. The Company has announced NBSK pulp list price increases of US$10 per tonne to China for January 2018, and two consecutive price increases to North America, each of US$30 per tonne, for February and March 2018. A balanced kraft pulp market is projected to continue into the second quarter of 2018, when many pulp producers have their traditional spring maintenance outages.
The BCTMP market is seeing some reduced demand in the first quarter of 2018, which is resulting in downward price pressure. Early 2018 weather related transportation disruptions are projected to result in delayed shipments and modestly higher costs for the first quarter of 2018.
The pulp outlook for the remainder of the year is more uncertain given incremental pulp capacity currently projected to come online and the potential for the reinstatement of some import permits for recovered paper in China through 2018.
On February 22, 2018, the Board of Directors declared a quarterly dividend of $0.0625 per share, payable on March 14, 2018 to the shareholders of record on March 7, 2018.
Canfor is a leading integrated forest products company based in Vancouver, British Columbia with interests in BC, Alberta, North and South Carolina, Alabama, Georgia, Mississippi and Arkansas. 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. To learn more, please visit: www.canfor.com.