Canfor Pulp has solid quarter
July 24, 2014, Vancouver - Canfor Pulp Products reported net income of $18.8 million, or $0.27 per share, for the second quarter of 2014, compared to $25.7 million, or $0.36 per share, for the first quarter of 2014 and $7.6 million, or $0.11 per share, for the second quarter of 2013. For the six months ended June 30, 2014, the company's net income was $44.5 million, or $0.63 per share, compared to $18.5 million, or $0.26 per share, for the six months ended June 30, 2013.
After adjusting for items affecting comparability with the prior periods, the company's adjusted net income for the second quarter of 2014 was $18.4 million, or $0.26 per share, compared to an adjusted net income of $26.7 million, or $0.37 per share, for the first quarter of 2014. CPPI's adjusted net income for the second quarter of 2013 was $15.4 million, or $0.22 per share.
The company reported operating income of $29.6 million for the second quarter of 2014, a decrease of $6.8 million from operating income of $36.4 million for the first quarter of 2014, as the impact of pulp and paper maintenance outages and higher fibre costs more than offset higher pulp and paper shipments. In addition, despite slight increases in the average Northern Bleached Softwood Kraft ("NBSK") pulp prices to North America and Europe, pulp unit sales realizations experienced a small decrease compared to the previous quarter due to a combination of weaker prices to China, a slightly stronger Canadian dollar and a higher proportion of shipments to lower-margin markets, including Asia, mostly tied to constraints in the previous quarter due to the Vancouver Port truckers' strike.
Global softwood pulp markets were steady through the second quarter of 2014. Softwood pulp demand was solid across all regions and global softwood pulp producer inventory levels tightened through the quarter, decreasing 3 days from the end of March 2014 to 25 days' supply in June 2014, partly reflecting supply constraints due to seasonal maintenance downtime (market conditions are generally considered balanced when inventories are in the 27-30 days of supply range). The North American NBSK pulp list price was stable over the quarter averaging US$1,030 per tonne, up US$13 per tonne, or 1%, compared to the first quarter of 2014. Discount levels were consistent with the previous quarter. The NBSK pulp list price to Europe also remained largely unchanged, averaging US$925 per tonne, up US$5 per tonne from the previous quarter, while the average NBSK pulp list price to China was down US$27 per tonne, or 4%, to US$730 per tonne.
Pulp shipments were up 11% from the previous quarter, largely attributable to improved transportation performance following the challenges experienced in the prior quarter. Pulp production levels were down 8% from the previous quarter principally related to the maintenance outages at the Intercontinental and Prince George Pulp Mills, which reduced market pulp production by 18,000 tonnes. Pulp unit manufacturing costs were up moderately compared to the previous quarter, mostly due to the aforementioned maintenance outages and increased fibre costs, partially offset by seasonally lower energy costs. The higher unit fibre costs reflected higher delivered sawmill residual and whole log chip costs and seasonal factors.
The Company's paper segment's operating income was down $0.7 million from the previous quarter, with the impact of a maintenance outage of the Prince George Kraft paper machine partially offset by higher shipment levels reflecting the improved transportation performance.
Commenting on the second quarter's results, CPPI's Chief Executive Officer, Don Kayne, said, "Market conditions were better than anticipated, allowing us to generate solid financial performance this quarter. With our largest maintenance outages behind us, we will be focused on optimizing our production performance and sales mix through the balance of the year."
NBSK pulp markets are steady heading into the seasonally slower third quarter of 2014. For the month of July 2014, the company announced NBSK pulp list prices of US$1,030 per tonne in North America and US$730 per tonne in China, both unchanged from June 2014. A risk of price weakness remains for the second half of 2014 due in part to reduced global consumption during the historically slower summer months and new hardwood pulp capacity projected to flow into markets.
Early in July, the company's operations experienced some disruptions which impacted production by approximately 10,000 tonnes; the mills have now returned to normal operating rates. A maintenance outage originally planned at the Northwood Pulp Mill in the third quarter of 2014 has been deferred to the fourth quarter of 2014 and is projected to reduce production by 10,000 tonnes.