Markets
March 23, 2017 - The latest WOOD MARKETS annual survey of the "Top 40" Canadian and U.S. softwood lumber producers featured steady production growth in 2016 due to the cooperation of a strong U.S. market, plus growth in China. Amid an absence of any major mill acquisitions, almost all of the production gains came from existing mills. Of the top forty companies, only three in Canada and four in the U.S. recorded any production declines – a sign of a good year.

These and other industry highlights were recently released in the March 2017 issue of WOOD Markets Monthly International Report. The consultants at International WOOD MARKETS Group, Vancouver B.C. have conducted this survey annually since 1997.

The Canadian top 20 lumber companies saw their output rise from 19.6 billion bf in 2015 to 20.45 billion bf last year, while their share of national production slipped to 72% (from 74%). However, Canadian mill investments in the U.S. South are proving very strategic due to the ample timber supply in the region and high sawmilling margins (the result of low timber prices). As well, with U.S. duties being implemented on Canadian lumber shipments commencing in May, Canadian mill ownership in the U.S. is looking to be a very astute move. While there was no U.S. sawmill acquisition activity in 2016 by Canadian companies, the current collective U.S. mill count of West Fraser, Canfor and Interfor — 39 mills in all — allows their sawmill operations to enjoy excellent diversification.

Turning to the ranking of the top 20 Canadian firms, 12 were based in Western Canada and collectively produced 14.7 billion bf (52.0% of Canada’s shipments); this was higher by 390 million bf (+2.7%) than in 2015. Production for the top eight eastern Canadian producers was 5.7 billion bf (20.1% of Canada’s shipments), up 445 million bf (+8.4%) from the prior year.

The top five Canadian producers were as follows: West Fraser, Canfor, Tolko, Resolute and Western Forest Products. Of note, West Fraser surpassed Canfor as Canada’s top lumber producer — a position the former last held in 2011. Collectively, the top five raised their production to 12.3 billion bf (43.0% of Canadian lumber output), versus 12.0 billion bf (45.1%) in 2015. West Fraser inched up to lead spot, raising its output by 197 million bf (to 3.80 billion bf; +5.5%) at its 13 mills. Canfor dropped to second position with 3.79 billion bf and recorded a decline in output of 42 million bf (-1.1%). Tolko placed third, with its output falling by 63 million bf to 1.90 billion bf (-3.2%) as it cut production by half at its Quesnel, B.C. mill beginning in October 2016 (it also closed its Merritt, B.C. mill in Q1/17). Fourth-place Resolute gained 166 million bf (+9.9%) to reach a healthy 1.84 billion bf. Western Forest Products saw its output expand by 52 million bf (to 943 million bf).

In the U.S., total lumber shipments of the top 20 companies rose from 19.7 billion bf to 20.9 billion bf (+6.3%). The top 20 U.S. companies increased their output at a pace that was almost twice that of the entire U.S. industry and 50% more than that of the top 20 Canadian companies.

The top 20 firms produced 63.9% of all U.S. softwood lumber shipments in 2016 (versus 62.1% in 2015). Despite the lack of export duties on Canadian lumber in 2016, the larger U.S. sawmills enjoyed excellent results. This growth indicates the rising confidence of the largest U.S. producers (including Canadian owners) in the housing market recovery and corresponding lumber consumption growth. The other apparent driver behind these growth strategies (on both sides of the border) was the need to improve cost-competitiveness by driving down costs and increasing efficiencies.

As In 2015, Weyerhaeuser retained its first-place U.S. position through a moderate increase of 230 million bf to 3.64 billion (+6.7%). Weyerhaeuser’s acquisition of Plum Creek Timber was the blockbuster deal of the year: it included two sawmills (with timberlands that are now the core assets of the combined companies with a total of 13 million acres of forests). Georgia-Pacific remained in second position with an estimated 2.5 billion bf (+6.9%). In third place was West Fraser, growing its production by 131 million bf to 2.14 billion bf (+6.5%) as a result of the rebuilt Quincy mill being in operation for the full year. Sierra Pacific was in fourth spot with production down 22 million bf to 2.01 billion bf (-11%). Interfor retained its fifth-place spot with production of 1.61 billion bf, a decrease of 101 million bf (-5.9%)

The top five U.S. firms produced 11.9 billion bf, representing 36.3% of all U.S. lumber shipments, a slight (3.5%) increase from 2015.

Four of the largest North American softwood lumber producers have operations in both the U.S. and Canada. These publicly traded companies were positioned in both the top six in Canada and U.S. for last year (the percentage of their 2016 U.S. lumber production is shown in brackets): Weyerhaeuser (81%), West Fraser (36%), Canfor (26%) and Interfor (65%). “When comparing the earnings (EBITDA) amongst the four companies,” noted Russ Taylor, WOOD MARKETS’ President, “Weyerhaeuser’s above-average earnings since 2014 is noticeable (and has the highest percentage of U.S. mill assets) and this does lead to a timely question: why is the U.S. claiming that Canadian mills are subsidized when Weyerhaeuser is achieving such exceptional financial results with only 19% of its mill production in Canada?” The other three Canadian-based companies achieved lower earnings than Weyerhaeuser over the same three-year period and have more Canadian-based mills than Weyerhaeuser (details are provided in the full article). More food for debate!

The wild card for 2017 is the imposition of U.S. duties on Canadian lumber starting in early May. This is expected to negatively impact Canadian production (and U.S. exports) and benefit U.S. sawmills (and timberland companies). This will be discussed at length at WOOD MARKETS’ Global Softwood Log & Lumber Conference, to be held in Vancouver on May 11, 2017.

The complete Top 40 List and further analysis are available to subscribers of WOOD Markets Monthly International Report.
March 21, 2017 - Over the past ten years, there has been a clear shift in fibre-sourcing for pellet manufacturers in the U.S. South from logs to residues. In 2008, when the first large pellet plant was built, practically all fibre consumed by this plant was low-quality small-diameter logs from adjacent forests. This fibre source is a high-cost fibre furnish since it needs to be chipped, hammered and dried before it can be processed to pellets, which adds substantial cost to the manufacturing of pellets.

Increasingly, pellet plants throughout the southern states have turned to sawmill by-products and forest residues that in the past have been left at the harvesting sites. The North American Wood Fiber Review (NAWFR) has for the past five years tracked the fibre sources for the pellet industry each quarter in the two major producing regions of North America - British Columbia and the U.S. South. There have been two clear trends:

  • In British Columbia, pellet companies have moved from entirely relying on inexpensive sawdust from the local sawmills for its fibre furnish to increasingly supplementing its dominant fibre source with forest residues in the form of tree tops and branches left after harvest operations.
  • In the U.S. South, there has been an increase in the usage of residuals at the expense of roundwood.
In the 1Q/17, pellet plants in B.C. consumed just over 82 per cent sawmill residues, while forest residues accounted for about 17 per cent. With the expected reduction in lumber production in the province in the coming years, pellet plants will increasingly have to rely on forest residues and low-cost logs for their furnish since the available supply of sawmill by-products will diminish.

In the U.S. South, the fibre sourcing trend is the opposite of British Columbia with expected increases in the usage of sawmill residues as the lumber production is likely to expand in the future. From the 1Q/13 to the 1Q/17, the usage of industry and forest residues increased from 33 per cent to 47 per cent of the total fibre furnish for the pellet industry, according to the NAWFR. This upward trend is expected to continue, especially in regards to the usage of sawdust and microchips (chips manufactured from tree tops, tree branches and small-diameter trees from forest thinnings). 



The North American Wood Fiber Review (NAWFR) has tracked wood fibre markets in the U.S. and Canada for over 30 years and it is the only publication that includes prices for sawlogs, pulpwood, wood chips and biomass in North America. The 36-page quarterly report includes wood market updates for 15 regions on the continent in addition to the latest export statistics for sawlogs, lumber, wood pellets and wood chips.
March 17, 2017 - Stella-Jones Inc. has announced financial results for its fourth quarter and fiscal year ended December 31, 2016.

"2016 marked the sixteenth consecutive year of sales and net income growth for Stella-Jones. These results reflect the efficiency of our operations and the benefits of our expansion strategy. Most significantly, they point to the Company's deeply rooted role as a principal North American provider of treated wood products in our main product categories," said Brian McManus, president and chief executive officer. 

2016 RESULTS


Sales reached $1.84 billion, up 17.9% from last year's sales of $1.56 billion. Acquisitions contributed additional sales of $156.8 million, while the conversion effect from fluctuations in the value of the Canadian dollar, Stella-Jones' reporting currency, versus the U.S. dollar, had a positive impact of about $53.1 million on the value of U.S. dollar denominated sales. Excluding these factors, sales increased approximately $69.1 million, or 4.4%.

Railway tie sales for 2016 amounted to $716.2 million, up from sales of $709.7 million in 2015. Excluding the conversion effect, railway tie sales decreased approximately $22.9 million, or 3.2%, as lower industry demand in the second half of the year offset strong first-half demand.

Utility pole sales reached $579.2 million in 2016, representing an increase of $51.5 million, or 9.8%, from sales of $527.7 million in 2015. Excluding the currency conversion effect and the contribution from acquisitions, sales declined approximately $24.8 million, or 4.7%. This variation reflects a decline in sales of distribution poles due to reduced maintenance demand in certain regions, while sales of transmission poles held relatively steady.

Sales in the residential lumber category totalled $345.7 million in 2016, up from $182.6 million in 2015. This $163.2 million, or 89.4% increase mostly reflects additional sales of $91.5 million from the Ram acquisition in the first nine months of 2016. Excluding this factor and the currency conversion effect, sales increased $68.5 million, or 37.6%, reflecting the transition from treating services only for wholesalers to a value-added full service direct offering to retailers.

Industrial product sales were $96.3 million in 2016, compared with $97.3 million in 2015. This decrease is mainly attributable to the timing of orders for rail-related products in the United States, partially offset by the currency conversion effect. Logs and lumber sales amounted to $100.8 million in 2016, up from $42.0 million in 2015. This increase is explained by the addition of the purchase and resale of lumber resulting from procurement efforts to support residential lumber requirements and by the timing of timber harvesting.

Operating income stood at $233.2 million, or 12.7% of sales, compared with $220.1 million, or 14.1% of sales, in 2015. The increase in absolute dollars essentially reflects higher business activity for the year and the contribution from acquisitions. As a percentage of sales, the decrease is mainly attributable to a higher proportion of low-margin logs and lumber sales, a less favourable product mix this year compared to 2015 and softness in selling prices for certain regions. These factors were partially offset by economies of scale generated by higher volumes in the residential lumber category.

Net income for 2016 increased 8.9% to $153.9 million, or $2.22 per diluted share, up from $141.4 million, or $2.04 per diluted share, in 2015.

FOURTH QUARTER RESULTS

Sales amounted to $341.7 million, versus $357.5 million a year ago. Acquisitions accounted for sales of approximately $19.5 million, while the conversion effect from fluctuations in the value of the Canadian dollar, versus the U.S. dollar, had a positive impact of $1.1 million on the value of U.S. dollar denominated sales when compared with last year's fourth quarter. Excluding these factors, sales decreased approximately $36.4 million, or 10.2%.

Railway tie sales totalled $113.1 million, down from $147.5 million last year, primarily as a result of lower industry demand at the end of the year. Sales of utility poles reached $144.6 million, compared with $129.5 million last year. Excluding acquisitions, sales declined approximately $3.6 million as a result of slight decreases in sales of both distribution and transmission poles. Sales of residential lumber amounted to $44.6 million, up from $40.1 million last year, reflecting solid market demand and higher direct sales to retailers. Industrial product sales were $15.3 million, down from $23.6 million a year ago, as a result of lower sales of rail related products. Logs and lumber sales stood at $24.1 million, versus $16.7 million last year, due to the timing of lumber purchase and resale activities as well as the timing of timber harvesting.

Operating income amounted to $28.2 million, or 8.2% of sales, in the fourth quarter of 2016, versus $48.3 million, or 13.5% of sales, last year. The decrease in absolute dollars and as a percentage of sales mainly reflects lower business activity in railway ties sales and a less favourable product mix. Net income for the fourth quarter of 2016 was $18.5 million, or $0.27 per diluted share, compared with $33.0 million, or $0.48 per diluted share, in the fourth quarter of 2015.

ACQUISITION OF KMS AND NPTW

On December 21, 2016, the Company completed the acquisition of substantially all the operating assets employed in the businesses of Bois KMS (GMI) Ltée ("KMS") and Northern Pressure Treated Wood (N.P.T.W.) Ltd ("NPTW"). KMS and NPTW manufacture treated wood utility poles at their facilities located in Rivière-Rouge, Québec and Kirkland Lake, Ontario, respectively.

Total cash outlay associated with the acquisition was approximately $19.2 million, excluding acquisition costs of approximately $1.0 million, recognized in the consolidated statement of income under selling and administrative expenses. The Company financed the acquisition through its committed revolving credit facility.

SOLID CASH FLOW AND FINANCIAL POSITION

In 2016, Stella-Jones generated a cash flow from operating activities before changes in non-cash working capital components and interest and income taxes paid of $268.9 million, up 5.7% from $254.3 million in 2015. This increase mostly reflects a higher net income for the year. 

As at December 31, 2016, the Company's long-term debt, including the current portion, stood at $694.4 million compared with $669.9 million at the end of 2015. The variation reflects higher borrowings to finance the acquisitions completed in 2016, partially offset by the effect of local currency translation on U.S. dollar denominated long-term debt. As at December 31, 2016, Stella-Jones' total debt to total capitalization ratio was 0.40:1, compared with 0.42:1 twelve months earlier.

QUARTERLY DIVIDEND OF $0.11 PER SHARE

On March 16, 2017, the Board of Directors declared a quarterly dividend of $0.11 per common share, payable on April 28, 2017 to shareholders of record at the close of business on April 3, 2017.

OUTLOOK

Based on current market conditions in our main product categories, we expect sales to be weaker in the first half of 2017 when compared to 2016 with an expected year-over-year increase in the second half of the year. Operating margins will be negatively impacted by product mix and softer pricing in certain regions. In the railway tie category, given strong demand in the first half of 2016, we anticipate lower year-over-year demand for 2017, while softer pricing will also reduce revenues. In the utility pole category, demand for regular maintenance projects should gradually return to normal patterns in the second half of 2017, but operating margins are also expected to decrease as a result of the geographical sales mix. As for the residential lumber category, we remain confident to further benefit from solid demand for new construction and outdoor renovation projects in the residential and commercial markets. Our immediate focus will be on the integration of our recent acquisitions as well as taking the necessary steps to adjust production levels, maximize operating efficiencies and minimize costs throughout the organization.
March 16, 2017 - Nationwide housing starts rose 3 per cent in February from an upwardly revised January reading to a seasonally adjusted annual rate of 1.288 million units, according to newly released data from the U.S. Department of Housing and Urban Development and the Commerce Department. Single-family production increased 6.5 per cent to 872,000 units -- its highest reading in nearly a decade – while multifamily starts fell 3.7 per cent to 416,000 units.

"This month's gain in single-family starts is consistent with rising builder confidence in the housing market," said Granger MacDonald, chairman of the National Association of Home Builders (NAHB) and a homebuilder and developer from Kerrville, Texas. "We should see single-family production continue to grow throughout the year, tempered somewhat by supply-side constraints such as access to lots and labor."

"The growth in the single-family arena is very encouraging, but may be partly attributable to unusually warm weather conditions throughout most of the country," said NAHB chief economist Robert Dietz. "The modest drop in multifamily starts is in line with our forecast, which calls for this sector to continue to stabilize in 2017."

Regionally in February, combined single- and multifamily housing production rose 35.7 per cent in the West. Starts fell by 3.8 per cent in the South, 4.6 in the Midwest and 9.8 per cent in the Northeast.

A drop in multifamily permits pulled overall permit issuance down 6.2 per cent in February. Multifamily permits fell 21.6 per cent to 381,000 units, while single-family permits rose 3.1 per cent to 832,000 units -- its highest level since September 2007.

Regionally, overall permits rose 25.4 per cent in the Midwest. Permits fell 10 per cent in the West, 10.4 per cent in the South and 22.3 per cent in the Northeast. 
March 7, 2017 - Global trade of softwood lumber has gone up 66 per cent in seven years, while lumber prices have fallen substantially over the same time-period, according to the Wood Resource Quarterly.

This is an excerpt from the newly released market report Wood Resource Quarterly. For subscription to the full 52-page report, please visit www.woodprices.com

Global Lumber Trade
Global softwood lumber trade increased 12  per cent year-over-year to reach a new record high of 121 million m3 in 2016, per estimates by WRI. Since the global financial recession in 2009, there has been a steady climb in international trade of lumber, with shipments the past seven years having increased as much as 66  per cent. While it is no surprise that China is a major driver for the dramatic rise in lumber shipments worldwide the past seven years, it is interesting to note that the US has actually increased softwood lumber imports more than China.

Lumber markets – North America
Lumber exports from British Columbia reached their highest levels since 2006 in 2016. Lumber shipments from the province to the US were up 25 per cent year-over-year, while export volumes to Asia have fallen about eight  per cent. Shipments to China were up in the 4Q/16 after having reached a six-year low in the 3Q/16. Export volumes to the US in December 2016 accounted for 63 per cent of BC exports, up from 55 per cent two years ago.

Lumber markets – Northern Europe
Lumber prices in the Nordic countries have been at historically low levels during most of 2015 and 2016. Although prices increased in both Finland and Sweden during the spring and summer of 2016, this upward trend was short-lived and prices fell during the fall, and in the 4Q/16, were back down to about the same level as in the 4Q/15. During the first tenmonths of 2016, Finland increased lumber exports by ten  per cent as compared to the same period in 2015 and the country is on pace to reach a record high in 2016. It is interesting to note that the three biggest export markets for Finnish sawmills are all outside Europe; Egypt, Japan and China.

Lumber markets – China
China imported record high volumes of softwood lumber in 2016. Despite relatively pessimistic forecasts for wood demand early in 2016, China’s need for imported wood picked up during the summer and fall with import volumes in the 4Q/16 being up about 20 per cent as compared to the 4Q/15, according to the Wood Resource Quarterly (WRQ). Import values for lumber to China rose during most of 2016 with average prices in December 2016 being about six  per cent higher than in December 2015. The increases during 2016 came after two years of sharply declining prices.

Lumber market – Japan
Japanese softwood lumber imports in 2016 were the highest they have been in three years as total wood demand in the country picked up 3.6 per cent from 2015. There has been a slow but steady shift in the sourcing of lumber away from North America to Europe and Eastern Russia the past few years. From 2015 to 2016, the North American market share fell from 39 per cent to 35 per cent, while the market share of lumber from Russia and the Nordic countries increased from 39 per cent to 42 per cent year-over-year. Both domestic and import prices (in US dollar terms) have fallen in Japan during the second half of 2016, mostly because of a weaker Yen.

Lumber market – Russia
The weak Ruble continued to be a boon for Russian lumber exporters during 2016, with shipments jumping over ten  per cent from 2015. During the past three years, export volumes have increased 26 per cent with China being the destination for more than half of the shipments from Russia. China and Japan were the shining lights for Russian lumber exporters in 2016 as they were the only two markets of the top ten markets that imported more lumber in 2016 than in 2015.



Global lumber, sawlog and pulpwood market reporting is included in the 52-page quarterly publication Wood Resource Quarterly (WRQ). The report, which was established in 1988 and has subscribers in over 30 countries, tracks sawlog, pulpwood, wood chip, lumber and pellet prices, trade and market developments in most key regions around the world. To subscribe to the WRQ, please go to www.woodprices.com
Feb. 27, 2017 - Sales of newly built, single-family homes rose 3.7 per cent in January to a seasonally adjusted annual rate of 555,000 units, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

"This increase in new home sales is in line with our forecast for a steady, gradual recovery of the housing market," said Granger MacDonald, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Kerrville, Texas. "However, the pace of growth may be hampered by supply-side headwinds, such as shortages of lots and labor." 

"We can expect further growth in new home sales throughout the year, spurred on by employment gains and a rise in household formations," said NAHB chief economist Robert Dietz. "As the supply of existing homes remains tight, more consumers will turn to new construction."

The inventory of new home sales for sale was 265,000 in January, which is a 5.7-month supply at the current sales pace. The median sales price of new houses sold was $312,900.

Regionally, new home sales increased 15.8 percent in the Northeast, 14.8 per cent in the Midwest and 4.3 per cent in the South. Sales fell 4.4 per cent in the West.
Feb. 27, 2017- Resolute Forest Products Inc. reported a net loss for the quarter ended December 31, 2016, of $45 million, or $0.50 per share, compared to a GAAP net loss of $214 million, or $2.39 per share, in the same period in 2015. Sales were $889 million in the quarter, essentially unchanged from the fourth quarter of 2015. Excluding special items, the company reported a net loss of $3 million, or $0.03 per share, compared to a net loss of $26 million, or $0.29 per share, in the fourth quarter of 2015.

For the year, the company reported a GAAP net loss of $81 million, or $0.90 per share, compared to a net loss of $257 million, or $2.78 per share, in 2015. Annual sales were $3.5 billion, down $100 million, or 3%, from the previous year.  Excluding special items, the company reported net income of $4 million, or $0.04 per share, compared to a net loss of $24 million, or $0.26 per share, in 2015.     

"We maintained our focus on costs and reliability, delivering improved operating performance compared to the third quarter," said Richard Garneau, president and chief executive officer. "Contribution from our paper segments ended the year on a solid note, as cost reductions offset price declines. Our pulp segment showed great resilience despite market pricing pressures, as our continuous digester at Calhounhad higher production and chemical costs were brought under control. In tissue, our efforts at Atlas started to yield results and our Calhounconverting operations are now fully commissioned. We expect the startup of our new tissue machine to begin over the coming weeks. In wood products, we maintained our volume gains from prior quarters and recorded one of our strongest annual performances in recent years."   

Non-GAAP financial measures, such as adjustments for special items and adjusted EBITDA, are explained and reconciled below. 

Operating Income Variance Against Prior Period

Consolidated

Following a review of our recycled newsprint assets during the fourth quarter of 2016, we recorded impairment and other associated charges of $27 million. Excluding these items, we generated operating income of $9 million, substantially unchanged from the third quarter. Items negatively impacting our results, such as pricing ($15 million), higher costs for fiber ($10 million) and purchased energy ($5 million), were largely offset by higher overall volume ($9 million), lower chemical costs ($7 million), favorable foreign exchange ($4 million) and reduced selling, general and administrative expenses ($3 million).

The company reported an operating loss of $26 million for the full-year period, compared to a loss of $219 million for 2015. This is mainly the result of an asset impairment recorded at our Catawba (South Carolina) facility in the fourth quarter of 2015. Also positively impacting the results were foreign exchange ($74 million), reductions in pension and other postretirement benefit ("OPEB") costs ($45 million), lower purchased energy expenses ($31 million), depreciation ($31 million), and fiber costs ($21 million). Conversely, declines in overall pricing ($104 million) and volumes ($7 million), as well as increases in maintenance costs ($20 million) affected our 2016 performance.

Market Pulp

Operating income in the market pulp segment was $6 million in the fourth quarter, an increase of $1 million relative to the third quarter. This improvement resulted from a stronger operating performance and a 45,000 metric tons increase in shipments during the quarter. The operating cost per unit (the "delivered cost") fell by $17 per metric ton, to $575 per metric ton, explained mostly by the higher volumes and lower chemical costs, offset by higher pricing for recycled fiber. On the other hand, the overall average transaction price fell by $18 per metric ton, as gains in fluff and recycled bleached kraft were insufficient to offset declines in hardwood and softwood grades. EBITDA was$15 million for the quarter, unchanged from the third quarter. Finished goods inventory was 91,000 metric tons at the end of the quarter, down 9,000 metric tons when compared to the previous quarter.

For 2016, the segment generated operating income of $43 million, a reduction of $33 million when compared to the previous year. This mostly reflects a significant reduction in pricing, which fell by $44 per metric ton, or 7%. This impact was partially offset by a lower delivered cost, which was mostly explained by a reduction in depreciation and amortization following a review of the estimated economic useful life of our fixed assets conducted at the beginning of 2016.  

Tissue

The tissue segment generated operating income of $1 million during the quarter, $6 million more than the previous quarter. This result was largely due to a substantial reduction in the delivered cost, which fell by 27% over the quarter, reflecting an adjustment in amortization expense of $2 million and progress in reducing costs. Offsetting those gains were reductions in shipments and a marginal decline in pricing. EBITDA was slightly positive for the quarter, an improvement of $3 million when compared to the third quarter.

For the year, the segment reported an operating loss of $10 million, and negative EBITDA of $5 million.

Wood Products

The wood products segment generated operating income of $17 million in the quarter, compared to $36 million against the previous quarter. While prices slipped by $4 per thousand board feet to $327, the delivered cost increased by $29 per thousand board feet, prompted by seasonally higher fiber usage and higher operating expenses. Shipments were 503 million board feet during the quarter, very close to the third quarter. EBITDA for the segment was $25 million, compared to $43 million in the third quarter. Finished goods inventory increased slightly, by 3 million board feet, or 2%, to 124 million board feet.

For 2016, the wood products segment reported operating income of $69 million, up significantly from the $2 million reported for the previous year. This performance is explained mainly by the weaker Canadian dollar, which resulted in $32 per thousand board feet drop in our delivered cost. Our profitability was also supported by incremental volumes from Ontario's Atikokan and Ignace sawmills and higher efficiency across our other facilities. Shipments for the year were 1.8 billion board feet, 10% higher than the previous year. Consequently, the segment generated $100 million of EBITDA, a significant increase from $39 million in 2015.    

Newsprint

The newsprint segment generated operating income of $1 million in the quarter, compared to an operating loss of $8 million in the third quarter. Our overall transaction price slipped by $3 per metric ton to $512 per metric ton during the period, as structural demand declines continued and weakening global currencies made North American producers less competitive. However, shipments rose, mainly in North America, by 23,000 metric tons. Supported by the higher volumes, the delivered cost fell by $19 per metric ton compared to the previous quarter. EBITDA more than doubled when compared to the third quarter, reaching $19 million. Finished goods inventory was unchanged from the prior period at 105,000 metric tons.  

On an annual basis, the newsprint segment reported an operating loss of $15 million, an improvement of $8 million from the previous year. The year-over-year transaction price was lower by $8 per metric ton, as challenging overseas market conditions, weaker global currencies, and lower demand negated pricing gains in domestic markets. Delivered costs, on the other hand, fell by 2%, or $11 per metric ton over the same period, mainly resulting from lower power and steam costs and a favorable foreign exchange impact. Shipments declined by 7%, resulting primarily from the shutdown of a paper machine at our Augusta (Georgia) facility in 2016 and targeted downtime at certain facilities to balance production with customer orders, mostly for export markets. EBITDA reached $59 million for the year.  

Specialty Papers

The specialty papers segment recorded operating income of $4 million in the fourth quarter, an improvement of $6 million when compared to the previous quarter. As expected, demand continues to decline for most product grades. This, combined with seasonal effects, resulted in a reduction in shipments, which declined by 29,000 short tons, and pricing, which slipped by $7 per short ton. However, the delivered cost went down by $23 per short ton, mainly resulting from lower chemical expenses. Consequently, EBITDA rose by $6 million against the previous quarter, reaching $15 million. Finished goods inventory ended the quarter at 92,000 short tons, an increase of 17,000 short tons.   

On a year-over-year basis, the segment recorded a decline of $4 million in operating income, falling to $25 million for 2016. The change is mostly the result of lower demand, which negatively impacted overall pricing by $28 per short ton, and a 4% reduction in shipments, which ended the year at 1.5 million short tons. The delivered cost improved when compared to 2015, explained mostly by the favorable impact of a weaker Canadian dollar and lower depreciation and amortization resulting from the asset impairment recorded at our Catawba facility in the last quarter of 2015. Annual EBITDA for the segment was $70 million.

Consolidated Quarterly Operating Income Variance Against Year-Ago Period

The company recorded an operating loss of $18 million for the fourth quarter, compared to an operating loss of $226 million in the year-ago period. This improvement was largely the result of the impairment of assets at the Catawba facility in the fourth quarter of 2015. In addition, reductions in pension and OPEB costs ($22 million), depreciation and amortization ($12 million), as well as selling, general and administrative expenses ($11 million) were also lower when compared to the same period in 2015.   

The average transaction price for market pulp and specialty papers fell by 5% and 4% respectively, while wood products rose by 10% and newsprint increased by 6%, resulting in an overall favorable variance of $10 million on pricing when compared to last year.

Shipments rose by 10% in market pulp, mostly through incremental production from the continuous digester at Calhoun (Tennessee). Similarly, wood products shipments rose by 13% to reach 503 million board feet, the result of production improvements in Atikokan, Ignaceand a number of our other wood product facilities.

Conversely, shipments of newsprint and specialty papers both declined by 11%, largely the result of the closure of a newsprint machine at Augusta in May of 2016 and incremental downtime at our Thorold (Ontario) newsprint facility, as well as reduced specialty papers volumes owing to structural declines in demand.  

Inventories have increased in both newsprint and specialty papers, by 15% and 5%, respectively, while falling by 5% in wood products and remaining substantially unchanged in market pulp.

Corporate and Finance

During the quarter, the company borrowed an additional $35 million from its available revolving credit facilities to finance the investment in the Calhoun tissue facility. As a result, long-term debt rose to $762 million, representing a net increase of $171 million for 2016. Cash and cash equivalents fell to $35 million, while liquidity remained solid at $468 million.

The net pension and OPEB liability on our balance sheet rose by $184 million in the quarter, which was mostly explained by a reduction in the applicable discount rate, partially offset by regular contributions.  

Outlook

Mr. Garneau added: "2016 was a critical year in our business transformation. We deployed significant capital and increased our leverage to accelerate our transformation towards more sustainable and profitable business segments. We are nearing the completion of these capital projects, and we remain confident in our ability to compete in these segments despite unfavorable short-term market dynamics. In market pulp, market conditions appear more favorable over the next two quarters given recent price increase announcements, but we anticipate the latter part of 2017 to be more challenging. In wood products, we anticipate that the North American market will continue its gradual recovery. In the paper segments, we expect that previously announced capacity reductions in the first quarter will support stable market dynamics, particularly in newsprint. From a financial perspective, the changes in of our pension funding obligations announced in December are expected to unlock significant liquidity in the next four years, which should provide additional financial flexibility.

For 2017, our priorities will be the ramp-up of the tissue operations at Calhoun, the continued deployment of our improvement plan at Atlas, and a sustained focus on operating performance to maximize profitability in demand-challenged paper markets. Finally, as we move through the Canada-U.S. trade dispute for supercalendered paper and lumber, our capital expenditures will be lowered and opportunities to reduce net debt will be identified with the goal of decreasing our leverage."
Feb. 22, 2017 - Conifex Timber Inc. has reported that adjusted EBITDA in the fourth quarter of 2016 increased to a record $9.3 million from $8.5 million in the previous quarter and $7.3 million in the same quarter of 2015. In 2016, adjusted EBITDA was a record $33.6 million, compared to $7.7 million in 2015. In the fourth quarter of 2016, we had net income of $5.1 million, or $0.24 per diluted share, compared to net income of $1.4 million or $0.07 per diluted share in the previous quarter, and a net loss of $0.3 million or $0.01 per share in the fourth quarter of 2015. Current quarter operating and net income included proceeds from the settlement of our business interruption insurance claim of $2.5 million. In 2016, our net income was a record $70.2 million, or $3.32 per diluted share, compared to a net loss of $17.3 million, or $0.82 per share, in 2015. Net income in 2016 included unusual or non-recurring items totaling $63.8 million. 

Fourth Quarter 2016

Overview

Revenues were $102.0 million in the fourth quarter of 2016, $104.1 million in the previous quarter and $100.5 million in the fourth quarter of 2015. Compared to the previous quarter, a decline in lumber segment revenues of 5 per cent was partially offset by increased revenues from electricity sales, which accounted for 7 per cent of total revenues for the quarter.

We recorded operating earnings of $6.7 million in the fourth quarter of 2016 compared to $3.3 million in the previous quarter and $1.6 million in the same quarter last year. Compared to the previous quarter, lumber segment operating results were adversely impacted by lower shipment and production volumes and higher unit log costs and cash conversion costs. Bioenergy segment operating earnings increased by $5.7 million and included income from the settlement of our business interruption insurance claim of $2.5 million.

Net income for the current quarter was $5.1 million or $0.24 per diluted share. We recorded net income of $1.4 million or $0.07 per diluted share in the previous quarter and a net loss of $0.3 million or $0.01 per share in the fourth quarter of 2015. 

Adjusted EBITDA was $9.3 million for the fourth quarter of 2016, $8.5 million in the previous quarter and $7.3 million for the fourth quarter of 2015.

Lumber Segment

Compared to the previous quarter, a modest decline in U.S. dollar-denominated WSPF #2 and Btr prices was more than offset by a weaker Canadian currency and resulted in a 1 per cent or $3 per thousand board feet increase in average Canadian dollar-denominated benchmark lumber prices.

Quarter-over-quarter revenues from Conifex produced lumber were 3 per cent lower and largely reflected a reduction in shipment volumes of 6 per cent offset by a 3 per cent increase in unit sales realizations. Although wholesale lumber shipments increased by 4 per cent, wholesale lumber revenues declined by 6 per cent due to shipments of a lower value product mix.

Production volumes of approximately 119 million board feet during the fourth quarter of 2016 were 13 per cent lower than the previous quarter. The lower operating rates were mainly attributable to a reduction in operating hours during the holiday season and additional planned downtime taken at the Mackenzie sawmill for capital upgrades. 

An increase in unit log costs of 7 per cent during the current quarter was primarily attributable to higher market based stumpage and purchased log costs.

An increase in unit cash conversion costs of 12 per cent in the current quarter largely reflected lower operating rates. 

Compared to the fourth quarter of 2015, U.S. dollar-denominated WSPF #2 and Btr prices increased by 20 per cent, while the Canadian currency was relatively flat. Average Canadian dollar-denominated benchmark lumber prices increased by 19 per cent, or $68 per thousand board feet.

Quarter-over-quarter revenues from Conifex produced lumber were 5 per cent higher, and mostly reflected a 17 per cent increase in unit sales realizations, partially offset by an 11 per cent reduction in shipment volumes. An increase in wholesale lumber revenues of 3 per cent was generally attributable to higher shipment volumes.

Due to our fiscal accounting periods, there were five less operating days in the fourth quarter of 2016 than in the fourth quarter of 2015. Operating rates in the current quarter were lower by 9 per cent as production was further hampered by downtime taken at the Mackenzie sawmill for capital upgrades and, to a lesser extent, weather related production inefficiencies. 

Unit log costs increased by 11 per cent and cash conversion costs increased by 9 per cent quarter over quarter.

Lumber segment operating income was $2.9 million in the fourth quarter of 2016 compared to $5.6 million in the previous quarter and $0.5 million in the same quarter last year. 

Bioenergy Segment

Our power generation plant at Mackenzie, B.C. (the "Mackenzie Plant") commenced commercial operations in May 2015 and its results are reported in our bioenergy segment.

The Mackenzie Plant sold 53.0 GWh of electricity under the EPA in the fourth quarter of 2016, which represented an increase of 41 per cent over the previous quarter and a modest decline from the fourth quarter of 2015. The plant achieved 97 per cent of targeted operating rates in the current quarter compared to 70 per cent and 98 per cent, respectively, in the previous quarter and the fourth quarter of 2015. Production in the third quarter of 2016 was hampered by maintenance downtime taken to effect certain operating improvements. The fourth quarter of 2016 had five fewer operating days than the same quarter last year. 

The effective power rate is the highest during the first and fourth quarters of each year. Revenues from electricity sales were $7.6 million in the fourth quarter of 2016, $4.9 million in the previous quarter and $7.8 million in the fourth quarter of 2015. Operating costs in the fourth quarter of 2016 were $4.9 million, including depreciation expense of $1.6 million. Unit cash operating costs improved by approximately 8 per cent compared to the same quarter last year.

Normalized bioenergy segment operating income was $2.7 million in the fourth quarter of 2016 and $2.4 million in the fourth quarter of 2015. Interest on the power project term loan was $1.2 million. Adjusted EBITDA was $4.4 million and the adjusted EBITDA margin was 57 per cent, compared to $4.1 million and 52 per cent, respectively, in the fourth quarter of 2015. 

Year Ended December 31, 2016

Revenues were $409.3 million in 2016 compared to $353.5 million in 2015. The 14 per cent growth in lumber segment revenues reflected increased shipment volumes of Conifex produced and wholesale lumber, stronger benchmark lumber prices and a weaker Canadian currency. Bioenergy segment revenues, which commenced in May 2015, increased by 55 per cent and accounted for 6 per cent of our total revenues for the year.

We recorded operating income of $18.2 million in 2016 compared to an operating loss of $11.6 million in 2015. An improvement in year-over-year lumber segment operating results of $23.8 million was primarily due to higher sales realizations, operating rates and shipment volumes, and to a lesser extent, reductions in unit log costs and cash conversion costs. Bioenergy segment operating earnings were $9.0 million in 2016 and included income from settlement of our business interruption insurance claim of $2.5 million. The bioenergy segment contributed operating earnings of $2.1 million last year.

Net income for the year ended December 31, 2016 was a record $70.2 million or $3.32 per diluted share compared to a net loss of $17.3 million or $0.82 per share for the prior year. Unusual or non-recurring items recorded in the current year totaled $63.8 million and were comprised of a gain on sale of assets of $48.0 million, a net gain on revaluation of certain assets of $13.3 million, and income from settlement of our business interruption insurance claim of $2.5 million. Net income was adversely impacted by a negative variance in foreign exchange translation loss of $3.8 million. 

There was no income tax expense recorded in 2016 due to the utilization of operating loss carry forwards from prior years.

Adjusted EBITDA, which excludes the unusual or non-recurring items, was $33.6 million for 2016 and $7.7 million in 2015.

Liquidity and Capital Resources

In addition to our continued focus on operational improvements and targeted capital expenditures, we completed a number of initiatives in 2016 to strengthen our balance sheet, lower borrowing costs and improve liquidity. 

Our net debt to capitalization ratio was 38 per cent at December 31, 2016 compared to 60 per cent at the end of 2015. Net debt at December 31, 2016 was $49.4 million lower than at December 31, 2015 due primarily to improved cash flow generated from operations and proceeds received from asset disposals and the settlement of our insurance claim. 

Our net debt to capitalization ratio, excluding borrowings for our power subsidiary that are non-recourse to our other operations, was 16 per cent at December 31, 2016 compared to 26 per cent at December 31, 2015.

Total liquidity comprised unrestricted cash and available credit under our revolving credit facilities. At December 31, 2016, we had total liquidity of $22.3 million, compared to $22.6 million at the end of 2015. 

Subsequent to the year end, in January 2017, we completed our previously announced $130 million secured revolving credit facility (the "Facility") with a syndicate of institutional lenders. The Facility is available for a term of 5 years and is secured by substantially all of Conifex's assets (excluding the bioenergy segment assets). After giving effect to the financing, our total liquidity was approximately $84.5 million. 

Market Outlook 

Looking ahead in 2017, we expect the U.S. market to continue its gradual recovery in both the housing and repair and remodelling sectors. We agree with forecasts calling for an approximate 7 per cent increase in North American lumber consumption, and expect benchmark prices to increase to reflect strengthening softwood lumber demand and to somewhat correlate with the imposition of any countervailing and / or anti-dumping duties or other trade sanctions. The extent to which the anticipated increase in U.S. housing demand translates into higher selling prices will also be influenced by supply side responses from Canadian and other suppliers into the U.S. market. The uncertainty related to the timing and magnitude of anticipated trade sanctions may increase market volatility. 

We expect our sales volume to China and Japan will remain steady and intend to continue to develop sales into other export markets.

In the lumber segment, we continue to remain focused on a number of initiatives to enhance operations and cash flow, including cost management and productivity improvements from affordable, high-return capital projects. We expect operating rates to remain somewhat muted in the first quarter of 2017 due to the expected ramp up period associated with the installation of a significant capital upgrade at Mackenzie in December 2016. Accordingly, we also expect shipment volumes to be somewhat hampered by lower production volumes and potential constraints on the external supply chain. Overall in 2017, we expect higher log costs and modest improvements in unit cash conversion costs and grade outturns. 

We will continue to work towards optimizing performance of the Mackenzie Plant and expect improved operating results from higher electricity deliveries and further unit cost reductions.
Feb. 22, 2017 - Acadian Timber Corp. has reported financial and operating results for the year ended Dec. 31, 2016.

Acadian maintained its momentum and posted another year of strong results, generating Free Cash Flow of $19.4 million resulting in a payout ratio of 86 per cent, comfortably below our target level of 95 per cent. 

"Acadian posted another year of strong performance and we believe we are well positioned to maintain this momentum in 2017. Our operations continue to perform very well in the current market environment and we maintain a strong balance sheet," commented Mark Bishop, chief executive officer of Acadian. "We have a positive outlook for the coming year, and we are pleased to announce that our Board of Directors has approved a 10 per cent increase in Acadian's annual dividend."

Adjusted EBITDA for the year was $22.5 million. Although Adjusted EBITDA was down year-over-year, our operations continued to benefit from steady demand and strong pricing in New Brunswick. The decline was primarily due to relatively weak softwood pulpwood markets in Maine and a reduction in New Brunswick hardwood harvest levels consistent with our long term forest management plan.

For 2016, we paid a dividend to shareholders of $1.00 per share or 8 per cent of Free Cash Flow, which is below our long-term target of 95 per cent. Based on our expectation of continued strong performance and supported by our strong liquidity, Acadian's Board of Directors approved a 10 per cent increase in Acadian's annual dividend to $1.10 per share effective in the first quarter of 2017.

Acadian generated net sales of $77 million in the year ended Dec. 31, 2016, a decrease of $7 million compared to the prior year. We saw continued strength in pricing for most of our non-biomass product with the exception of softwood pulp, driving a 1 per cent increase in the weighted average log selling price year-over-year, led by an ~5 per cent increase in our average realized price for hardwood products. However, strength in log selling prices in the New Brunswick market was more than offset by a 9 per cent decrease in log sales volumes due primarily to our planned reduction in hardwood harvest levels under Acadian's forest management plan. In addition, the harvest of certain softwood species was impacted by less favourable year-over-year operability.

Adjusted EBITDA for the year was $22.5 million, compared to $26.4 million in 2015, driven primarily by the above noted decrease in net sales. Adjusted EBITDA margin of 29 per cent for 2016 was slightly below 2015 levels, as longer average haul distances combined with a lower margin sales mix offset the above noted increase in average realized log selling price.

Net income for the year totaled $16.1 million, or $0.96 per share, compared to $13.6 million, or $0.82 per share in 2015. The increase is primarily a result of a significant unrealized foreign exchange loss on long term debt which impacted the year ended December 31, 2015.

New Brunswick Timberlands

Net sales for the year totaled $56.5 million compared to $60.7 million in 2015. This decrease reflects a 2 per cent increase in the weighted average log selling price, offset by a 9 per cent decrease in log sales volumes. Log sales volumes declined in 2016 to 721 thousand m3 from 791 thousand m3 in 2015, due primarily to a planned reduction in hardwood harvest volumes under Acadian's new forest management plan. In addition, volumes were impacted by less favourable harvest conditions for pine and cedar stands. The weighted average log selling price was $67.03 per m3 in 2016, up from $65.49 per m3 in 2015, due primarily to more favourable pricing for hardwood products.

Adjusted EBITDA for the year was $19.3 million, compared to $20.3 million in 2015, due primarily to the aforementioned decrease in log sales volumes. Costs were $37.2 million, compared to $40.4 million in 2015, due to lower log sales volumes and flat variable costs per m3. Adjusted EBITDA margin increased to 34 per cent in 2016 from 33 per cent in 2015, driven by an increase in the weighted average log selling price while variable costs remained flat.

Maine Timberlands

Net sales for the year totaled $20.6 million compared to $23.8 million in 2015, with the decline resulting from an 11 per cent decrease in log sales volumes. This decrease is due primarily to a 12 per cent decline in softwood sales volume as local markets have been challenged by weak demand for softwood residuals. The weighted average log selling price in Canadian dollar terms was $78.61 per m3 in 2016, a decrease from $80.70 per m3 in 2015. In U.S. dollar terms, the weighted average log selling price was $58.84 per m3, a decrease of 7 per cent year-over-year, due primarily to continued weakness in softwood pulp pricing.

Adjusted EBITDA for the year was $4.3 million, compared to $7.6 million in 2015, due primarily to the aforementioned decrease in sales volumes. Costs for the year were $16.3 million, compared to $16.2 million in 2015, due primarily to higher variable cost per m3, resulting from greater hauling distances for hardwood products and an unfavourable sales mix. Variable costs per m3 increased 11 per cent in Canadian dollar terms and 6 per cent in U.S. dollar terms, respectively, year-over-year. Adjusted EBITDA margin decreased to 21 per cent this year, from 32 per cent in 2015, due to the above noted decrease in log pricing and increase in variable costs per m3.

Market Outlook

The U.S. economy appears to have started the new year with strong momentum on the basis of robust job growth and rising wages. Housing starts would appear positioned for continued growth owing to a combination of improving employment opportunities, and the release of pent-up demand. However, shortages of skilled labour and finished lot availability remain as potential constraints. Further, potential successive rate increases and a more protectionist U.S. trade stance both remain as downside risks to housing affordability. Nevertheless, current consensus expectations still call for healthy year-over-year improvements in total housing starts for each of 2017 and 2018 of about 6-7 per cent. Industry forecasters predict that North American sawtimber demand will grow at over 3 per cent per year over the next few years to support expanding domestic construction needs.

Despite the expectation for steadily improving U.S. lumber consumption, the lumber pricing environment for 2017 remains uncertain following the recent U.S. ITC injury determination which is widely expected to result in preliminary application of countervailing duties in late spring and anti-dumping duties by early summer. As in past disputes, we would anticipate relatively high initial duties, which will be reduced over time during the litigation period. However, we anticipate a highly politicized process may obscure visibility on progress towards a negotiated settlement for at least most of 2017. During the prior U.S./Canada softwood lumber dispute, Canada's Atlantic lumber producers and Québec border mills experienced lower relative duties than the rest of Canada and we continue to believe treatment of these producers during the current dispute should be materially the same as in the past. This differential treatment is due to the significantly greater proportion of private timberlands in the Atlantic region relative to the rest of Canada as well as a long history of active cross-border log exports within the Northeast region.

Acadian's key markets include softwood sawtimber, hardwood sawtimber and hardwood pulpwood. While we anticipate softwood sawtimber markets will remain well balanced through the year, greater volatility in this market should be expected as the softwood dispute plays out. While continued oversupply of softwood sawmill residuals and softwood pulpwood markets remains a concern, we anticipate regional timberland owners will aggressively manage pulpwood harvest levels through 2017. Hardwood sawtimber markets, typically oriented to millwork and higher value specialty markets are expected to remain at healthy current levels through the upcoming year. Hardwood pulpwood, increasingly consumed by tissue and other non-publishing paper end uses, also remains in good balance, but historically very strong prices may be somewhat vulnerable in a strengthening U.S. dollar environment. Biomass is also an important market for Acadian. We anticipate domestic biomass markets to remain stable in New Brunswick and anticipate improved potential for a gradual recovery of export volumes through the year. Maine's biomass market appears positioned for at least a modest recovery following a challenging 2016, as state subsidies have now permitted three previously idled biomass generation facilities to restart. Additionally, potential for sustained higher natural gas prices may be a catalyst for a shift back to biomass consumption for regional cogeneration capacity.

Quarterly Dividend

Acadian is pleased to announce a dividend of $0.275 per share, payable on April 14, 2017 to shareholders of record on March 31, 2017.



Acadian Timber Corp. is a leading supplier of primary forest products in Eastern Canada and the Northeastern U.S. With a total of 2.4 million acres of land under management, Acadian is the third largest timberland operator in New Brunswick and Maine.
Feb. 22, 2017 - The U.S. lumber markets are already seeing some major price volatility, where W-SPF lumber prices soared by a whopping 25 per cent (US$78/Mbf) in the three-week period between Jan. 27 and Feb. 17, 2017 and up US$83/Mbf over the previous five-week period.

This three-week price increase in U.S. lumber prices is one of the largest short-term gains over the past 20 years. This is mirroring a similar scenario back in early 2001 when countervailing duties (CVD) on Canadian lumber shipments into the U.S. moved into their 90-day retroactive period in mid-May 2001 and the anti-dumping duties (ADD) followed later. The initial combined duties of 32.3 per cent were both in effect in November 2001.

The largest U.S. lumber price spike ever, based on price changes in consecutive weeks, was in 2001 – before the implementation of the last U.S. duties – when lumber prices spiked higher by US$165/Mbf over a 7-week period. This was followed by two major price collapses over the next six months: one over five weeks for a drop of US$111/Mbf; and a second over 9 weeks for US$122/Mbf (details are provided in this month’s WOOD Markets Monthly Report). Understanding the possible scenarios and implications of U.S. export duties on Canadian lumber shipments to the U.S., before and after duties are implemented, are critical factors to consider and understand for all players throughout the lumber supply chain.
Feb. 17, 2017 - West Fraser reported earnings of $79 million or $1.01 basic earnings per share on sales of $1,107 million in the fourth quarter of 2016 and earnings of $326 million or $4.06 basic earnings per share on sales of $4,450 million for 2016. These results compare with previous periods.

Adjusted EBITDA, Adjusted earnings and Adjusted basic EPS as described in this News Release reflect the adjustments described in the tables referred to in the section titled "Non‑IFRS Measures" of our 2016 Management's Discussion & Analysis.

Operational Results

In the quarter our lumber operations generated operating earnings of $107 million (Q3-16 –$114 million) and Adjusted EBITDA of $144 million (Q3-16 - $151 million).  Production and shipments declined quarter over quarter due to cold weather in several of our operating areas and fewer operating days. The segment's results benefited from a weaker Canadian dollar while Canadian log costs continued to rise.

Our panels segment, which includes plywood, LVL and MDF, generated operating earnings in the quarter of $17 million (Q3-16 - $30 million) and Adjusted EBITDA of $20 million (Q3-16 - $33 million). The major contributor to the decline was plywood pricing as winter weather slowed Canadian construction.

Our pulp & paper segment generated operating earnings of $20 million (Q3-16 – $22 million) and Adjusted EBITDA of $30 million (Q3-16 - $31 million). NBSK operations were able to offset additional costs associated with cold weather with higher shipments while BCTMP price improvements offset reduced shipments caused by port congestion.

Outlook

Our president and CEO Ted Seraphim said: "During 2016 we faced a number of challenges and, although we still have important work to do, I have been greatly encouraged by the progress that we have made across the Company in achieving operational excellence. This will continue to be our focus in the coming years as it is the critical component of our business over which we have control. I'm grateful to our many employees whose commitment to this standard of excellence is evident in their daily activities."

Mr. Seraphim also commented on the current softwood lumber dispute: "In light of the operational progress that we are making as a company, it is particularly disappointing that we find ourselves once again caught up in another dispute with our American neighbours over softwood lumber exports from Canada to the U.S. West Fraser has worked hard to contribute to a resolution of this long‑standing dispute, as have various levels of government in Canada and other Canadian industry participants. West Fraser was recently selected by the U.S. Department of Commerce as a mandatory respondent in separate subsidy and dumping investigations which has imposed substantial time commitments and costs on us. Despite this we continue to support a negotiated settlement that will manage trade in a fair and reasonable manner but, as always, we would prefer no agreement to a bad agreement."
Feb. 16, 2017 - Housing starts returned to trend, dropping 2.6 per cent to a seasonally adjusted annual rate of 1.246 million units, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Multifamily production fell 10.2 per cent to 423,000 units after an unusually high December 2016 reading, whereas single-family starts ticked up 1.9 per cent to 823,000 units.

"A settling of housing production is in line with what we are hearing from builders -- that they are largely optimistic about current market conditions but still face supply-side headwinds and regulatory hurdles," said Granger MacDonald, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Kerrville, Texas.

"Some pull back in housing production is unsurprising after an overly strong multifamily reading last month," said NAHB Chief Economist Robert Dietz. "As we move forward in 2017, we can expect the multifamily sector to continue to stabilize and single-family production to move forward at a gradual but consistent pace."

Regionally in January, combined single- and multifamily housing production rose 55.4 per cent in the Northeast and 20 per cent in the South. Starts fell by 17.9 per cent in the Midwest and 41.3 per cent in the West.

Overall permit issuance rose 4.6 per cent in January to 1.285 million units. Single-family permits fell 2.7 per cent to 808,000 units. Meanwhile, multifamily permits increased 19.8 per cent to 477,000 units.

Regionally, permits rose 29.6 per cent in the Northeast, 9.9 per cent in the South and 5.3 per cent in the Midwest. The West registered a decline of 13.2 per cent.
Feb. 15, 2017 - Brazil’s pulp sector has for over two decades had some of the lowest wood fibre costs in the world, making the industry highly competitive, reports the Wood Resource Quarterly. The low production costs have resulted in major investments in pulp production capacity with a majority of the pulp being exported overseas, predominantly to China.

The export market for pulp produced in Brazil has become increasingly important for the pulp sector with the export share of domestic production having gone up from 55 per cent in 2007 to almost 70 per cent in 2016. Pulp export volumes have expanded in an impressive fashion over the past two decades, with increased year-over-year shipments for 19 of the past 20 years. This trend continued in 2016, with export volumes likely to reach almost 13 million tons, an increase of about 11 per cent from 2015, reports the Wood Resource Quarterly.

Not surprisingly, China’s steady increase in demand for pulp the past decade has been the key driver to Brazil’s pulp export success story. Over one-third of Brazil’s exports were destined for China this year, up from 23 per cent five years ago.

Brazil has become the second largest producer of wood-based pulp in the world behind the US, having surpassed Canada in 2016. The driving factors have been a combination of low wood fibre costs, a dramatically weakening Brazilian Real, and a steady increase in demand in particular for hardwood market pulp in China.

Over the past three years, wood fibre costs in Brazil have been approximately 60per cent of the manufacturing costs, according to Fisher International. The high cost share for wood fibre, together with being one the lowest-cost pulpwood regions of the world, has made Brazil’s pulp industry a very competitive pulp producer for many of the past 25 years.

In US dollar terms, Eucalyptus pulplog prices have fallen from a record-high in the 3Q/11 to a 12-year low in the 4Q/15. Since the end of 2015, wood fibre prices have gone up but are still substantially below their ten-year average, as reported by the WRQ (www.woodprices.com).

The past two decades have not only been mostly good news for the pulp industry in Brazil, but also for timberland owners measuring their financial results in the Brazilian Real (BRL). In 2016, eucalyptus pulplog prices reached their highest level on record since WRQ started tracking pulplog prices in Brazil over 20 years ago. Current prices are about five per cent higher than one year ago in the local currency, and 23per cent above the average price two years ago.



Global lumber, sawlog, and pulpwood market reporting is included in the 52-page quarterly publication Wood Resource Quarterly (WRQ). The report, which was established in 1988 and has subscribers in over 30 countries, tracks sawlog, pulpwood, wood chip, lumber and pellet prices, trade, and market developments in most key regions around the world. To subscribe to the WRQ, please go to www.woodprices.com
Feb. 15, 2017 - Canfor Pulp Products Inc. (CPPI) has reported a net income of $10.1 million, or $0.15 per share, for the fourth quarter of 2016, compared to $22.4 million, or $0.34 per share, for the third quarter of 2016 and $29.7 million, or $0.43 per share, for the fourth quarter of 2015. For the year ended December 31, 2016, the Company's net income was $57.8 million, or $0.86 per share, compared to $106.6 million, or $1.52 per share, for 2015.

The company had no items affecting comparability in the fourth quarter of 2016 or for the year ended Dec. 31, 2016. Adjusted net income was $29.0 million, or $0.42 per share, for the fourth quarter of 2015, and $111.8 million, or $1.59 per share, for 2015. 
The company reported operating income of $22.9 million for the fourth quarter of 2016, a decrease of $8.1 million from $31.0 million reported for the third quarter of 2016. The decrease in operating income was largely attributable to adverse weather conditions, which impacted both shipment logistics and operations through the period. Sales realizations for Northern Bleached Softwood Kraft (NBSK) pulp were largely unchanged quarter-over-quarter, while Bleached Chemi-Thermo Mechanical Pulp (BCTMP) sales realizations saw a marked improvement. The company's net income for the fourth quarter of 2016 included the pre-tax write-down of $7.0 million of advances made in connection with the biofuels technology initiative with Licella Fibre Fuels Pty. Ltd. (Licella), a subsidiary of Ignite Energy Resources Ltd. Notwithstanding the future benefits that may result from this innovative effort, the write-down reflected the research and development nature of the advances.

Global softwood pulp markets were relatively stable through most of the fourth quarter of 2016 as evidenced by the average China US-dollar NBSK pulp list price, as published by RISI, remaining at US$595 per tonne. NBSK pulp unit sales realizations were broadly in line with the third quarter of 2016, as a slightly weaker Canadian dollar was offset by increased pricing pressure in North America. BCTMP unit sales realizations increased significantly, reflecting the continued improvement in BCTMP markets. Energy revenues moderately increased during the current quarter, for the most part, reflecting increased power generation and seasonally higher energy prices.

Pulp shipments were down 14 per cent from the previous quarter principally reflecting weather-related impacts on shipments, including a delayed vessel shipment over the year end. Pulp production was 3 per cent lower than the previous quarter, primarily due to the severe weather conditions, which more than offset the impacts of scheduled maintenance outages in the previous quarter. Pulp unit manufacturing costs were up slightly from the previous quarter, reflecting higher energy usage combined with seasonally higher energy costs, as well as the unfavourable per unit impact of lower production volumes.

Operating income in the company's paper segment at $8.1 million for the fourth quarter of 2016 was up $0.9 million from the third quarter of 2016, largely reflecting slightly higher paper unit sales realizations in the current quarter, principally due to a 2 per cent weaker Canadian dollar and lower manufacturing unit costs resulting from higher production volumes during the current quarter.

Commenting on the 2016 year, CPPI's chief executive officer, Don Kayne, said, "The company delivered another solid year in 2016, maintaining steady operational performance and a strong balance sheet, despite market pressures and weather challenges in the fourth quarter".

For the month of January 2017, the company announced an increase of US$20 per tonne for NBSK pulp list price to China, equating to US$630 per tonne, and an increase of US$10 per tonne for BCTMP. For the month of February 2017, the company announced a further US$20 per tonne increase to both its NBSK pulp and BCTMP list prices to China. Global softwood markets are currently seeing positive pricing momentum, for both NBSK pulp and BCTMP, and this is anticipated to continue into the second quarter of 2017.

On Feb. 8, 2017, the Board of Directors declared a quarterly dividend of $0.0625 per share, payable on Feb. 28, 2017 to the shareholders of record on Feb. 21, 2017.
Feb. 13, 2017 - Declining demand and prices for softwood lumber, together with reduced log trade have resulted in lower sawlog prices in Europe over the past two years with the ESPI sawlog prices index reaching its lowest point since 2010, according to the Wood Resource Quarterly.

Over the past two years, sawlog prices have fallen more in Europe than in any other region of the world. In the 3Q/16, the European Sawlog Price Index (ESPI-) was down a modest 0.5 per cent from the previous quarter to 83.40/m3. The Index has trended downward for the past few years and in 2016 has been at its lowest level since 2010. Much of the recent decline has been the result of reduced demand for lumber in some markets and generally lower lumber prices in both domestic and export markets.

Although the ESPI-Index has been in a declining mode since early 2014, the current price index is still 10 per cent higher than the average for the period 1999-2016.

During the past two years, sawlog prices (in Euro terms), have fallen the most in Finland, Norway, Poland, Austria and Estonia, all countries that are major exporters of softwood logs or lumber.

The slowing demand for lumber in Europe has also resulted in a decline in log trade on the continent. WRI estimates that total trade of softwood logs will be down about 12 per cent in 2016 as compared to the previous year and that shipments will be at their lowest level since the global financial crisis in 2008 and 2009. Some of the biggest declines in trade this year has been in exports from Norway, France, Ukraine and Latvia.

Note: The ESPI price index is a volume-weighted index comprising of sawlog prices for log grades commonly used for manufacturing lumber into construction and better grades lumber in the largest log-consuming countries in Europe. The Index tracks prices from the 1Q/95 to the current quarter and is published each quarter in the WRQ.



Global lumber, sawlog and pulpwood market reporting is included in the 52-page quarterly publication Wood Resource Quarterly (WRQ). The report, which was established in 1988 and has subscribers in over 30 countries, tracks sawlog, pulpwood, lumber and pellet prices, trade and market developments in most key regions around the world. To subscribe to the WRQ, please go to www.woodprices.com
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