VANCOUVER, BC, Oct. 26, 2021 - Canfor Pulp Products Inc. ("The Company" or "CPPI") (TSX: CFX) today reported its third quarter 2021 results:
- Q3 2021 reported operating income of $16 million
- Net income of $12 million, or $0.19 per share
- Available liquidity of $153 million at September 30, 2021
The following table summarizes selected financial information for CPPI for the comparative periods:
The Company reported operating income of $15.8 million for the third quarter of 2021, down $35.2 million from operating income of $51.0 million reported for the second quarter of 2021, as a modest uplift in Northern Bleached Softwood Kraft ("NBSK") pulp unit sales realizations was more than offset by a 15% decline in pulp production and shipments quarter-over-quarter.
Commenting on the Company's third quarter results, CPPI's Chief Executive Officer, Don Kayne said, "Canfor Pulp reported solid financial results for the quarter despite the growing pressures on global pulp market fundamentals, lower production volumes, which reflected our previously announced scheduled and unscheduled downtime, as well as significant supply chain challenges. With our scheduled maintenance shutdowns for this year behind us, we are focused on increasing our productivity going forward."
Following the strong global pulp market conditions experienced in the first half of the year, market fundamentals came under modest pressure in the current quarter, as a decline in demand and purchasing activity from the near-record highs seen in the previous quarter, particularly from Asian markets, was combined with growing global transportation challenges. Global softwood pulp producer levels ended August at 46 days of supply, six days higher than at the end of June, and significantly above the balanced range. As a result, average US-dollar NBSK pulp list prices to China for the current quarter were US$832 per tonne, down US$130 per tonne, or 14%, from the previous quarter. Prices to other global regions remained strong in the current period, with the average US-dollar NBSK pulp list price to North America at US$1,542 per tonne (before discounts), down US$56 per tonne, or 4%, from the near-record highs seen in comparative period.
Notwithstanding the declines in NBSK pulp list prices, the Company's NBSK pulp unit sales realizations experienced a modest increase quarter-over-quarter, primarily due to a delay in shipments (versus orders) from the ongoing global container shortages and logistic challenges, and, to a lesser extent, a 2 cent, or 2%, weaker Canadian dollar. The downward trend in demand and US-dollar prices for Bleached Chemi-Thermo Mechanical Pulp ("BCTMP"), particularly from the printing and writing segment, that commenced in the second quarter continued through the current period, giving rise to a significant decline in the Company's BCTMP unit sales realizations quarter-over-quarter.
Pulp production was 247,000 tonnes for the third quarter of 2021, down 43,000 tonnes, or 15%, from the previous quarter, primarily reflecting the quarter-over-quarter impact of scheduled and unscheduled downtime. In the current quarter, decreased operating days largely reflected scheduled maintenance outages at the Company's Prince George NBSK pulp and Taylor BCTMP ("Taylor") mills, as well as incremental downtime at its Northwood NBSK pulp ("Northwood") and Taylor mills reflecting both weather-related rail disruptions and related pulp mill inventory capacity constraints and, in the case of Northwood, digester-related operational upsets in July. Combined, decreased operating days in the current period reduced NBSK pulp production by approximately 30,000 tonnes and BCTMP production by 12,000 tonnes. In addition, current quarter pulp production reflected various smaller operational upsets through the quarter (approximately 15,000 tonnes). In the second quarter of 2021, the Company's pulp production was impacted by the completion of a scheduled maintenance outage at the Company's Intercontinental NBSK pulp mill (approximately 15,000 tonnes).
Pulp shipments were down 44,000 tonnes, or 15%, from the previous quarter, mainly due to the aforementioned decrease in pulp production quarter-over-quarter, combined with a build in pulp inventories, driven by the persistent impacts of a constrained logistics network, due to both wildfire-related rail disruptions in British Columbia in July as well as global container shortages and port congestion.
Pulp unit manufacturing costs were significantly higher than the prior quarter principally reflecting increased fibre costs and reduced production in the current quarter. The higher fibre costs were primarily due to increased market prices for sawmill delivered residual chips (linked to Canadian dollar NBSK pulp sales realizations) combined with a larger proportion of higher-cost whole log chips as a result of sawmill curtailments in the current quarter.
The Company's paper segment reported an operating loss of $2.5 million, down $3.4 million from the operating income of $0.9 million for the previous quarter, as increased slush pulp costs, linked to higher Canadian dollar NBSK pulp market prices, and reduced paper production, as a result of scheduled maintenance downtime, more than offset improved paper unit sales realizations and a weaker Canadian dollar.
Looking forward, global softwood kraft pulp markets are anticipated to be more challenging through the fourth quarter of 2021, as above-average global pulp inventory levels and a heavily congested global supply chain network are projected to combine with softening Chinese demand. The latter, largely tied to the energy constraints on the industrial segment in that region. Weakness experienced in the high yield BCTMP market, especially in Asia, through the third quarter is anticipated to continue through the balance of the year.
Bleached kraft paper demand in North America is currently anticipated to strengthen through the fourth quarter of 2021, driven by both tight supply and increased demand. Offshore bleached kraft paper markets are also anticipated to be strong over the same period.
Source: Canfor Pulp