Canfor Pulp Products Inc. (CPPI) reported its first quarter of 2022 results:
- 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, Edgson 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.
Operating income in the Company’s paper segment was $6.0 million, up $4.3 million from the previous quarter, as modestly higher paper unit sales realizations, tied to the continued strengthening of global paper demand and tight supply, was combined with an increase in paper production and shipments and slightly lower paper unit manufacturing costs in the current period.
Global softwood kraft pulp markets are projected to remain strong through the second quarter of 2022, driven largely by tight supply arising from the current global supply chain challenges and transportation constraints in BC, as well as the traditional spring maintenance period. High yield markets are forecast to see more modest improvements through the second quarter of 2022, also tied to limited supply availability.
Results in the second quarter of 2022 are anticipated to reflect in part, the near record-high US-dollar pulp list pricing seen in the first quarter of 2022. However, the intermittent and limited rail service experienced in BC in the first quarter of 2022 is projected to continue well into the second quarter, putting sustained pressure on the Company’s operations and shipments through the coming months, including, as previously announced, the extension of a transportation-related curtailment at Taylor by at least a further six-weeks, with a projected 25,000 tonnes of reduced BCTMP production. The Company will continue to closely monitor the ongoing supply chain challenges and will adjust future operating plans accordingly, through the balance of the second quarter and into latter half of 2022.
In addition, the Company’s results in the second quarter of 2022 will reflect the impact of the RB1 capital-related outage at Northwood into mid-April (approximately 10,000 tonnes), as well as a scheduled maintenance outage at Northwood in the latter part of the second quarter, with a projected 25,000 tonnes of reduced NBSK pulp production. With the RB1 rebuild now complete a key focus of the Company’s kraft pulp mills for the balance of 2022 will be on improving operational reliability and closely managing manufacturing and fibre costs.
Bleached kraft paper markets are projected to show continued strength through the second quarter of 2022, as tight supply and low inventories in the North American and Asian paper markets is combined with growing demand for kraft paper products.
ABOUT CANFOR PULP
Canfor Pulp Products Inc. is a leading global supplier of pulp and paper products with operations in the central interior of British Columbia (Canada). 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. To learn more, visit: www.canfor.com.