Canfor Pulp had an exceptionally strong year in 2018
Record-high operating income of $246.6 million, net income of $2.83 per share and a return on invested capital of 37%.
For the fourth quarter of 2018, the Company reported operating income of $15.6 million, a decrease of $44.9 million from $60.5 million reported for the third quarter of 2018. Results for the current quarter reflected repairs to one of the Company’s Northwood Pulp Mill (“Northwood”) recovery boilers, and operational disruptions resulting from a third-party natural gas explosion in Prince George early in the quarter, combined with their respective effects on production volumes, shipments and manufacturing costs.
Reflecting weaker demand from China, global softwood pulp market demand was down in the fourth quarter of 2018, with global softwood pulp producer inventory levels remaining above normal through the quarter. US-dollar Northern Bleached Softwood Kraft (“NBSK”) pulp list prices to China averaged US$805 per tonne, down 9% from the prior quarter, with prices ending the year at US$725 per tonne.
The Company’s average NBSK unit sales realizations, however, were broadly in line with the prior quarter as the lower US-dollar pricing to China was largely offset by higher US-dollar pricing to North America, proportionately higher shipments to North America, and a 1 cent, or 1%, weaker Canadian dollar. Bleached Chemi-Thermo Mechanical Pulp (“BCTMP”) US-dollar pricing came under modest downward pressure during the current quarter; however, the Company’s sales realizations remained steady quarterover-quarter reflecting the timing of shipments (versus orders) and a weaker Canadian dollar.
Pulp production was down 61,400 tonnes, or 22%, from the previous quarter. This lower production primarily reflected the continuation of the scheduled maintenance outage at Northwood from the previous quarter, the aforementioned recovery boiler extended downtime at Northwood, as well as unscheduled downtime taken as a result of a third-party natural gas pipeline explosion, which impacted the Company’s three NBSK pulp mills and, to a lesser extent, several other operational challenges during the current quarter. Combined, these scheduled and unscheduled outages impacted NBSK pulp production by approximately 90,000 tonnes.
In addition, in late December, the Company curtailed production at its Taylor BCTMP mill for seven days in the face of reduced residual fibre availability resulting from various sawmill curtailments in the region, which impacted BCTMP production by approximately 5,000 tonnes. In the third quarter of 2018, a scheduled maintenance outage at Northwood and ramp up at Taylor following the commissioning of the energy reduction project, reduced pulp production by approximately 30,000 tonnes.
Pulp shipments were down 31,700 tonnes, or 12%, from the previous quarter reflecting the impact of the aforementioned downtime partly offset by a drawdown of pulp inventories through the period. The anticipated benefit of a slipped vessel shipment from the previous quarter into the fourth quarter was offset by a delayed vessel shipment over the year end.
NBSK pulp unit manufacturing costs were up significantly from the previous quarter, in large measure due to reduced productivity in the current quarter as well as higher related maintenance, energy and chemical costs, associated with the unscheduled outages. Fibre costs were broadly in line with the third quarter of 2018.
Operating income for the paper segment remained broadly in line with the prior quarter reflecting a solid operating performance at the Company’s Prince George paper machine and steady paper unit sales realizations, with the weaker Canadian dollar offsetting a modest decline in US-dollar prices.
At the end of December, the Company experienced kiln-related operational disruptions at two of its NBSK pulp mills. While these challenges have now been resolved, the related production loss was approximately 20,000 tonnes early in the first quarter of 2019.
Notwithstanding high inventory levels, global softwood kraft pulp markets are projected to be steady through the first half of 2019, reflecting an anticipated pick-up in demand from China and reduced supply during the traditional spring maintenance period. The BCTMP market is projected to be steady in the first half of 2019.
CPPI’s Chief Executive Officer, Don Kayne, said, “With several months of significant operational challenges now behind us, we are very focused on getting our production performance back on track in the coming months.” The Company has no maintenance outages planned for the first quarter of 2019. Maintenance outages are currently planned at the Intercontinental NBSK pulp mill in the second quarter of 2019 with a projected 12,000 tonnes of reduced NBSK pulp production.
Additional maintenance outages are scheduled at the Prince George NBSK pulp mill and the Taylor BCTMP mill in the third and fourth quarters of 2019 with a projected 6,000 tonnes of reduced NBSK pulp production and projected 5,000 tonnes of reduced BCTMP production, respectively. No scheduled maintenance outages are planned for the Company’s Northwood NBSK pulp mill in 2019. Bleached kraft paper demand is expected to remain solid through the first quarter of 2019. A maintenance outage is currently planned at the Company’s paper machine during the third quarter of 2019 with a projected 4,000 tonnes of reduced paper production.