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Canfor Pulp reports improved pulp production for third quarter of 2022

The company reported improved pulp production following capital-related downtime earlier in the year

Canfor Pulp Products Inc. recently reported operating income of $19.2 million for the third quarter of 2022, up $27.3 million from an operating loss of $8.1 million reported for the second quarter of 2022, in large part reflecting materially higher Northern Bleached Softwood Kraft (“NBSK”) pulp unit sales realizations, and to a lesser extent, a 2 cent, or 2%, weaker Canadian dollar.

“This was a solid quarter for Canfor Pulp, as we focused on enhancing our operational performance and improving reliability while navigating persistent supply chain and fiber-related challenges, in order to realize high NBSK pulp list prices,” said CPPI’s President and Chief Executive Officer, Kevin Edgson. “While we will continue to actively monitor the current external challenges facing our business, including the fiber situation in British Columbia, our immediate focus remains on optimizing productivity while preserving our solid balance sheet.”

Global softwood pulp market conditions remained relatively strong through most of the third quarter of 2022, principally reflecting increased demand, particularly from the North American and European markets, coupled with supply shortages, tied to ongoing global logistical challenges and unforeseen global production disruptions.

Market fundamentals came increasingly under pressure in the latter part of the quarter however, driven largely by a moderation in purchasing activity from China. Despite relatively steady global market fundamentals, global softwood pulp producer inventories at the end of August 2022 were well above the balanced range at 44 days of supply, four days higher than at the end of June 2022, largely tied to the ongoing global supply chain challenges.

The strong NBSK US-dollar pulp list prices to China experienced in the first half of the year, continued into the current quarter, with prices reaching a near-record high of US$1,010 per ton in July, before declining in August and September, to end the quarter at US$948 per ton. Consequently, average US-dollar NBSK pulp list prices to China were US$969 per ton, down US$39 per ton, or 4%, from the previous quarter. Prices to North America continued to strengthen in the current quarter, averaging US$1,800 per ton (before discounts), up US$57 per ton, or 3%, from the previous quarter.

Following the completion of capital-related downtime in the first half of 2022, pulp production was up 4% from the previous quarter, as NBSK pulp productivity steadily improved as the quarter progressed. Consistent with the prior period, however, NBSK pulp production in the current quarter continued to be limited to available transportation.

Concurrently, logistics-related downtime at the Company’s Taylor Bleached Chemi-Thermo Mechanical Pulp (“BCTMP”) mill (“Taylor”), which commenced in the first quarter of 2022 and continued throughout the second and third quarters, reduced production by approximately 60,000 tons in the current period. In addition, NBSK pulp production in the current quarter included the completion in mid-July of the Company’s Northwood NBSK pulp mill’s (“Northwood”) scheduled maintenance outage (approximately 16,000 tons) as well as the commencement in September of the Company’s Intercontinental NBSK pulp mill’s (“Intercon”) planned maintenance downtime (approximately 6,000 tons in the third quarter and a further 6,000 tons in October).

Operating income in the Company’s paper segment was $4.1 million, down $2.1 million from the previous quarter, as moderately higher US-dollar paper pricing and a weaker Canadian dollar were more than offset by significantly higher slush pulp costs (linked to Canadian dollar NBSK market pulp prices).

Looking forward, global softwood pulp markets are projected to soften somewhat through the fourth quarter of 2022, reflecting tempered pulp demand, particularly from China.

Results in the fourth quarter are anticipated to reflect the continued uncertainties associated with lingering supply chain challenges and the related pressures on the Company’s operations and shipments. As previously disclosed, it is projected that a restart of Taylor will not be contemplated until such time as there is a return to more normal transportation service levels to all of the Company’s pulp and paper mills.

The Company’s results in the fourth quarter of 2022 will see the continuation of Intercon’s scheduled maintenance outage into October, with an estimated 6,000 tons of reduced NBSK pulp production. In addition, NBSK pulp production in the fourth quarter will reflect a temporary curtailment at Intercon due to a lack of available economic fiber (approximately 16,000 tons).

The current weakness in lumber markets may result in extended sawmill curtailments in the British Columbia Interior, with the risk that lower volumes of sawmill residual chips available to pulp mills may cause further downtime at the Company’s operations. The Company will continue to closely monitor the supply chain challenges as well as the availability of economically viable fiber, and will adjust future operating plans accordingly, through the balance of 2022.

Canfor Pulp
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