Aug. 2, 2021 - Canfor Pulp Products Inc. on July 29 reported second quarter 2021 results. The company reported operating income of $51.0 million for the second quarter of 2021, up $46.1 million from the operating income of $4.9 million reported for the first quarter of 2021, in large part reflecting materially higher Northern Bleached Softwood Kraft (NBSK) pulp unit sales realizations, and to a lesser extent, an 8% increase in shipments following transportation disruptions experienced in the first quarter of 2021. These factors more than offset the impact of a 3% stronger Canadian dollar and market-related fibre cost increases in the current quarter.
Commenting on the company's second quarter results, CPPI's Chief Executive Officer, Don Kayne said, "We are encouraged by our improved operational and financial performance in the second quarter, which enabled us to capitalize on the favourable pulp market prices."
Following the sharp improvement in market fundamentals earlier in the year, global pulp market conditions were more stable in the second quarter. Demand was solid through the first part of the current quarter but a moderation in purchasing activity from China saw some downward pressure on prices in that region, particularly in June.
The upward trend in NBSK US-dollar pulp list prices to China from the first quarter continued in April, with prices reaching a near-record high of US$995 per tonne in April, before declining in May and June, to end the quarter at US$910 per tonne. As a result, the current quarter US-dollar NBSK pulp list price to China averaged US$962 per tonne, up US$79 per tonne, or 9%, compared to the previous quarter. Prices to North America (before discounts) saw sharp increases in the current quarter, largely in response to the uplift in China prices earlier in the year, up US$296 per tonne, or 23%, from the previous quarter, to US$1,598 per tonne.
As a result of the higher prices as well as a favourable timing lag in shipments (versus orders), NBSK pulp unit sales realizations recorded a substantial increase in the current quarter, which significantly outweighed the stronger Canadian dollar. Average Bleached Chemi-Thermo Mechanical Pulp (BCTMP) unit sales realizations showed more modest gains from the previous quarter, as positive trends in BCTMP US-dollar pricing early in the quarter more than offset the effects of a sharp decline in demand and prices as the quarter progressed, particularly for the printing and writing segment.
Pulp production was 290,000 tonnes for the second quarter of 2021, broadly in line with the previous quarter, principally reflecting improved operating rates at the company's Northwood and Prince George NBSK pulp mills throughout much of the current quarter, largely offsetting a decrease in operating days associated with the completion of a scheduled maintenance outage at the company's Intercontinental NBSK pulp mill (approximately 15,000 tonnes).
Pulp shipments were up 20,000 tonnes, or 8%, from the previous quarter, mainly due to the uptick in global pulp demand early in the current quarter, combined with increased vessel shipments in the current period, as global transportation challenges experienced in early 2021 eased somewhat in April and May 2021, before coming under pressure again in June.
Pulp unit manufacturing costs saw a slight increase compared to the previous quarter as increased fibre costs more than offset the benefits of higher production and seasonally lower energy prices and usage in the current quarter. The higher fibre costs reflected increased market prices for delivered sawmill residual chips (linked to Canadian dollar NBSK pulp sales realizations) combined with a seasonal improvement in chip quality, offset by a lower proportion of higher-cost whole log chips in the period.
Operating income in the company's paper segment was $0.9 million, down $3.3 million from the previous quarter, as increased slush pulp costs linked to higher Canadian dollar NBSK market pulp prices more than offset improved paper unit sales realizations.
Looking forward, global softwood kraft pulp markets are projected to soften somewhat through the third quarter of 2021, driven by the current tepid Chinese demand and above-average global pulp inventory levels combined with the traditionally slower summer months. Weakness experienced in the high yield BCTMP markets, especially in Asia, late in the second quarter is anticipated to continue early into the third quarter of 2021, before a projected stabilization in prices through the balance of the period.
The recent wave of extreme heat across Western Canada has put further pressure on an already constrained global logistics network. As a result, early in the third quarter of 2021, the company has experienced limited and intermittent rail service to and from its pulp mills. While the company continues to monitor and adapt to the unfolding logistic situation, it anticipates that these transportation disruptions will result in lower projected shipment volumes for the third quarter of 2021.
Results in the third quarter of 2021 will also reflect the impact of scheduled maintenance outages at the company's Prince George and Taylor BCTMP ("Taylor") pulp mills, as well as incremental downtime at Northwood and Taylor reflecting both the aforementioned weather-related rail disruptions and pulp mill inventories nearing capacity as well as, in the case of Northwood, digester-related operational upsets in July. Combined, the currently anticipated third quarter downtime is projected to reduce NBSK pulp production by approximately 30,000 tonnes and BCTMP production by an estimated 12,000 tonnes.
Bleached kraft paper demand in North America is currently anticipated to show continued strength through the third quarter of 2021, largely driven by ongoing tight supply in the region. Offshore bleached kraft paper markets are also anticipated to be strong over the same period. A maintenance outage is currently planned at the company's Prince George paper machine in September 2021 with a projected 5,000 tonnes of reduced paper production.
Mr. Kayne noted, "The summer heat and wildfire conditions are impacting our pulp business, and we continue to actively monitor the ongoing weather-related situation, particularly with regards to transportation, while ensuring the health and safety of our employees which remains our top priority."
Canfor Pulp Products Inc. is a leading global supplier of pulp and paper products with operations in the central interior of British Columbia (Canada) employing approximately 1,300 people throughout the organization. Canfor Pulp owns and operates three mills in Prince George, BC with a total capacity of 1.1 million tonnes of Premium Reinforcing Northern Bleached Softwood Kraft Pulp and 140,000 tonnes of kraft paper, as well as one mill in Taylor, BC with an annual production capacity of 230,000 tonnes of Bleached Chemi-Thermo Mechanical Pulp. For further information, visit: www.canfor.com.
SOURCE: Canfor Pulp Products Inc.
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