Industry News Markets
West Fraser lumber inventories reduced by 150 mmbf in Q2 2019

West Fraser Timber Co. Ltd. reported its second quarter 2019 results today.

Continuing difficult lumber market conditions and high log costs necessitated additional temporary curtailments in the quarter and the permanent closure of the Chasm, British Columbia lumber facility along with the elimination of the third shift of production at our 100 Mile House lumber mill. Permanent and temporary curtailments resulted in 250 mmfbm of reduced lumber production during the first half of 2019. Permanent curtailments are expected to reduce annual production capacity by 614 mmfbm.

As part of the company’s senior leadership transition plan, on July 1, 2019 Ray Ferris replaced Ted Seraphim as West Fraser’s Chief Executive Officer on Mr. Seraphim’s retirement from that role.

Second quarter highlights:

• Softer commodity pricing in all segments reduces operating earnings relative to comparative periods.
• Cash flow from operations of $187 million for the quarter.
• Permanent closure of Chasm, British Columbia lumber mill announced in June along with shift reduction at 100 Mile House lumber mill.
• Lumber inventories reduced by approximately 150 million board feet.
• Quarter ending net debt to capital ratio of 26 per cent and available liquidity of $365 million.
• On July 18, 2019, available credit under West Fraser’s syndicated committed revolving credit facilities was increased by $350 million to $850 million and maturity date of these facilities and U.S. $200 million syndicated term loan extended to Aug. 28, 2024. Proforma for this increase, available liquidity totalled $715 million.

Operational results

Lumber production was up five per cent over the first quarter even with the curtailments that were undertaken in both quarters as productivity increased from the first quarter. Lumber shipments exceeded production by approximately 150 mmfbm resulting in reduced inventories. Adjusted EBITDA for the lumber segment was $39 million compared to $84 million in the previous quarter as lower lumber prices prevailed in the quarter.

Panel production and shipments were relatively consistent with comparative periods. Lower plywood pricing reduced Adjusted EBITDA in the panels segment to $10 million from $15 million in the prior quarter.

The company completed the second of our two major maintenance shutdowns at its NBSK mills in the quarter and resumed normal production schedules. NBSK production was 12 per cent better than the prior quarter as both of West Fraser’s NBSK mills recovered from their shutdowns. Softer pulp pricing and higher maintenance costs reduced Adjusted EBITDA for the pulp and paper segment to $7 million from $11 million for the quarter.

Outlook

As a result of the temporary and permanent curtailments of production announced to date, West Fraser expects its 2019 lumber production to be at least 600 million board feet lower than 2018. The company has completed two major maintenance shutdowns at its NBSK mills and has resumed normal production schedules. West Fraser expects that industry production reductions will have a more significant impact on lumber supply in the second half of 2019 as permanent closures are implemented and shipments are reduced as mill inventories are eliminated.

Forest fires followed by wet weather has resulted in low log inventories at some of our Alberta mills. The risk exists that West Fraser may need to take more downtime due to a shortage of logs at some of its Alberta mills in addition to the downtime it has already announced at its plywood facility.