Canfor Pulp Reports Results for First Quarter of 2022

Overview

Q1 2022 reported operating loss of $26 million; net loss of $20 million, or $0.31 per share
Notable uptick in global US-dollar pulp list prices in Q1; ongoing global supply chain challenges resulting in majority of price gains being realized in Q2 and Q3
Lower furnace rebuild of recovery boiler number one ("RB1") completed mid-April; focused on optimizing production performance going-forward
Together with Canfor Corporation, announced the implementation of a comprehensive plan to achieve net-zero carbon emissions by 2050
Available liquidity of $111 million at March 31, 2022

The Company reported an operating loss of $26.0 million for the first quarter of 2022, compared to an operating loss of $137.2 million for the fourth quarter of 2021. After adjusting for a $1.1 million recovery in its inventory write-down provision in the current period, the Company's operating loss was $27.1 million for the first quarter of 2022, a $14.0 million improvement compared to a similarly adjusted operating loss for the fourth quarter of 2021 of $41.1 million.

On April 11, 2022, Kevin Edgson joined CPPI as President and Chief Executive Officer. Commenting on the Company's first quarter's results, Kevin said, "This was another difficult quarter for Canfor Pulp, as the ongoing global supply chain crisis continued to impact not only our operations and shipments, but our ability to realize on a sharp increase in NBSK pulp list prices. Despite these challenges and operational upsets, we continued to preserve our strong cash position. I am working closely with CPPI's leadership team to begin the process of undertaking a comprehensive business review and will be developing a plan to improve operational reliability and optimize fibre supply. In the coming months, with the Northwood pulp mill recovering well after its RB1 capital-upgrade, we are focused on getting our production performance back on track."

The Company's operating results in the current period principally reflected supply-driven increases in Northern Bleached Softwood Kraft ("NBSK") pulp US-dollar prices that were significantly moderated by the ongoing impacts of global supply chain challenges and transportation disruptions in British Columbia ("BC") on the Company's operations and shipments. As a result, the Company's NBSK pulp and Bleached Chemi-Thermo Mechanical Pulp ("BCTMP") unit sales realizations were broadly in line with the previous quarter. In addition, current quarter results included the impact of capital-related downtime at the Company's Northwood NBSK pulp mill ("Northwood") related to the rebuild of the lower furnace of RB1. The lower furnace replacement was completed mid-April, with a total capital cost of approximately $30.0 million and total reduction in NBSK pulp production of 90,000 tonnes (10,000 tonnes in the fourth quarter of 2021, 70,000 tonnes in the current quarter and a further 10,000 tonnes in April 2022).

Global pulp markets tightened significantly during the first quarter of 2022, principally driven by the ongoing global transportation challenges and combined with unplanned pulp supply disruptions, largely due to labour disruptions in Europe and logistic constraints in BC. As a result, NBSK US-dollar list prices on orders from China saw a sharp increase during the period, reaching near-record highs of US$985 per tonne in March, to average US$899 per tonne for the current quarter, up US$176 per tonne, or 24%, from the previous quarter. Prices to North America also experienced strengthening, although not to the same degree as China, up US$55 per tonne, or 4%, from the prior quarter to US$1,527 per tonne (before discounts). Despite the uplift in global US-dollar pulp pricing, global softwood pulp producer inventories at the end of February 2022 were at 45 days supply, up two days from December 2021, well above the balanced range and largely reflecting the aforementioned supply chain constraints.