Canfor Pulp Reports Results for First Quarter of 2023
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Canfor Pulp Products Inc. (CPPI) 0n May 3 reported its first quarter of 2023 results:
Overview
• Q1 2023 reported operating loss of $25 million; net loss of $19 million, or $0.29 per share
• Global pulp market fundamentals softened late in the quarter amid uncertainty associated with rising pulp producer inventory levels
• Improved pulp production despite ongoing fibre challenges and wind down of pulp line at Prince George Pulp and Paper mill
• Subsequent to quarter-end, expanded and extended its operating loan facility and term debt
The Company reported an operating loss of $25.2 million for the first quarter of 2023, compared to an operating loss of $91.1 million for the fourth quarter of 2022. After adjusting for certain one-time items, including a $3.6 million inventory write-down in the current period, the Company's operating loss was $21.6 million for the first quarter of 2023, a $20.4 million improvement compared to an adjusted operating loss of $42.0 million for the fourth quarter of 2022. These results, for the most part, reflected a 13% increase in pulp production and an associated decline in pulp unit manufacturing costs quarter-over-quarter.
Commenting on the Company's first quarter of 2023 results, CPPI's President and Chief Executive Officer, Kevin Edgson, said, "This was a difficult quarter for the Company as the decision to shut down the pulp line at the Prince George Pulp and Paper mill weighed heavily on our employees, their families and the local community. Despite this challenging news, the results from our pulp business improved during the quarter as we focused on improving our operational reliability and productivity within the constrained fibre environment we are navigating. With a smooth and efficient wind down of the pulp line at Prince George now complete, our focus remains on continuing to improve our overall performance and preserving our balance sheet."
Following the strong global pulp market conditions experienced in 2022, market fundamentals came under modest pressure late in the first quarter of 2023. Relatively stable demand in the quarter was outweighed by an uptick in global pulp producer inventories, which, at the end of February 2023, were well above the balanced range, at 50 days of supply, an increase of seven days from the 43 days of supply at the end of December 2022 (Market conditions are generally considered balanced when inventories are in the 32-43 days of supply range). Consequently, the Northern Bleached Softwood Kraft ("NBSK") US-dollar list price on orders to China saw a modest decline, falling US$48 per metric ton to US$865 per metric ton in March 2023. For the current quarter overall, US-dollar NBSK pulp list prices to China averaged US$891 per metric ton, down US$29 per metric ton, or 3%, from the previous quarter.
As mentioned, pulp production was up 13% from the previous quarter, principally reflecting the benefit of improved NBSK productivity in the current period following the numerous difficulties in the prior quarter driven by a shortage of economic fibre and winter weather conditions. The Company's Intercontinental NBSK pulp mill ("Intercon") started the current period curtailed as a result of ongoing fibre shortages, which reduced NBSK pulp production by approximately 35,000 metric tons in the first quarter of 2023. While challenges with operational reliability persisted throughout the current quarter, and impacted NBSK pulp production by approximately 30,000 metric tons, the operating performance at Intercon and at the Company's Northwood NBSK pulp mill ("Northwood") improved as the quarter progressed.
Operating income in the Company's paper segment was $3.3 million, up $1.4 million from the previous quarter, as a reduction in slush pulp costs, linked to lower Canadian dollar NBSK pulp market prices, was combined with an increase in paper production and shipments quarter-over-quarter.
Looking forward, global softwood kraft pulp markets are anticipated to continue to weaken through the second quarter of 2023, as relatively stable demand is projected to be overshadowed by above-average global pulp producer inventory levels.
Results in the second quarter of 2023 are also forecast to reflect the impact on pulp production and shipments of the closure of the Company's pulp line at the Prince George Pulp and Paper mill. No major maintenance outages are planned for the second quarter of 2023.
Bleached kraft paper markets are projected to weaken somewhat through the second quarter of 2023 with a modest slowdown in demand anticipated as global kraft paper inventories return to more normalized levels. A maintenance outage is currently planned at the Company's paper machine in the second quarter of 2023 with a projected 5,000 metric tons of reduced paper production.
