Canfor Announces 2023 and Fourth Quarter of 2023 Results

Canfor Corporation (“The Company” or “Canfor”) reported its 2023 and fourth quarter of 2023 results:

Overview

• 2023 operating loss of $532 million; shareholder net loss of $326 million, or $2.71 per share
• Q4 2023 operating loss of $191 million; shareholder net loss of $117 million or $0.98 per share
• Solid earnings for the Company’s European and US South operations in 2023, with persistent challenges in British Columbia
• Successful execution of significant capital growth program in the US South throughout 2023
• Sustained pressure on global lumber market conditions and pricing through most of the fourth quarter, drove quarter-over-quarter decline in results in all lumber operating regions, most notably in Western Canada
• Moderate uplift in global pulp market fundamentals through the fourth quarter driven by a slight increase in demand and purchasing activity in most major regions; 20% improvement in pulp production quarter-over-quarter
• Ongoing challenges with the availability of economically viable fibre impacting lumber and pulp operating rates in British Columbia into 2024

Financial Results

2023 was a challenging year for Canfor, as the weak global lumber market conditions experienced late in 2022 continued throughout the current year. Ongoing inflationary pressures and high interest rates gave rise to persistent affordability concerns for consumers, reducing global lumber demand and increasing lumber inventory levels in most global regions. Despite the economic uncertainty, demand in the repair and remodel segment remained strong through 2023, especially in North America, exceeding levels observed before the pandemic.

In response to these global market conditions as well as a constrained fibre supply environment, the Company reduced production at its Western Canadian operations by a total of 760 million board feet in 2023. In the US South, the Company successfully started-up its greenfield sawmill in DeRidder, Louisiana, early in 2023, and continues work on two major growth projects at Urbana, Arkansas and Axis, Alabama.

In British Columbia (“BC”), the Company continued to face significant challenges accessing economically viable fibre, both logs and residuals, to support its BC operations, which resulted in closure announcements early in 2023. Canfor Pulp Products Inc. (“CPPI”) made the decision to permanently close the pulp line at its Prince George Pulp and Paper Mill (“PG”) in April. In connection with this closure, CPPI’s Intercontinental (“Intercon”) Northern Bleached Softwood Kraft (“NBSK”) pulp mill was successfully converted to provide slush pulp to its specialty paper facility, formerly supplied by PG. 

In addition, the Company made the difficult decision to further restructure its lumber operations in BC, by permanently closing its Chetwynd sawmill and pellet plant and temporarily closing its Houston sawmill. Late in 2023, the Company also announced a fibre-driven indefinite curtailment at its Polar sawmill starting in January 2024.

For 2023, Canfor reported an operating loss of $531.6 million, compared to operating income of $1,074.1 million in 2022. After taking account of adjusting items, including inventory valuation adjustments and an asset write-down and impairment charge in 2022, the Company’s adjusted operating loss was $588.8 million for the current year (adjusted shareholder net loss per share of $2.79), compared to adjusted operating earnings of $1,306.2 million for the prior year (adjusted shareholder net income per share of $7.15).

For the fourth quarter of 2023, the Company reported an operating loss of $191.3 million, compared to an operating loss of $65.1 million for the third quarter of 2023. After taking account of adjusting items, largely comprised of inventory valuation adjustments, the Company’s adjusted operating loss for the fourth quarter of 2023 was $232.4 million compared to an adjusted operating loss of $85.9 million for the previous quarter, as an improvement in pulp and paper segment earnings quarter-over-quarter was more than offset by a decline in lumber segment results.

Commenting on the Company’s 2023 and fourth quarter of 2023 results, Canfor’s President and Chief Executive Officer, Don Kayne, said, “It was an extremely challenging year for the Company as ongoing affordability constraints and high global lumber inventory levels put persistent pressure on lumber market conditions throughout the year, including in the fourth quarter. While our global footprint helped mitigate some of these market-related headwinds, our British Columbia operations continued to face ongoing challenges associated with a lack of economically viable fibre in BC. For our pulp business, despite an improved fourth quarter, this was another tough year as relatively weak global pulp market fundamentals were combined with the ongoing cost and operational impacts driven by sustained fibre shortages in BC. We are continuing to adjust our BC operating rates to manage through this challenging period and while, in the near-term, we anticipate these conditions to persist, we continue to believe that longer term lumber market fundamentals remain positive.”

Fourth Quarter Lumber Segment Highlights

For the lumber segment, the adjusted operating loss was $192.4 million for the fourth quarter compared to the previous quarter’s adjusted operating loss of $20.1 million, principally reflecting a challenging period for the Company’s Western Canadian operations, with more modest quarter-over-quarter declines experienced in the US South and Europe. Following the pricing pressure seen in the previous quarter, the current period results were principally driven by a continued deterioration in global lumber market prices, with the average North American Random Lengths Western Spruce/Pine/Fir (“SPF”) 2×4 #2&Btr price down US$19 per Mfbm, or 5%, the average Southern Yellow Pine (“SYP”) East 2×4 #2 down US$4 per Mfbm, or 1%, and the average SYP East 2×6 #2 down US$71 per Mfbm, or 18%, quarter-over-quarter. This downward pricing was coupled with more pronounced decreases for the wider-width dimensions of both Western SPF and SYP, as well as moderately lower market pricing in Europe. These factors were partially offset by the benefit of higher production and shipments in Europe following the traditional seasonal downtime taken in the previous quarter.     

North American lumber market conditions remained fairly subdued throughout most of the fourth quarter as the market softness experienced at the end of the prior quarter continued well into the current period. This, combined with a traditionally slower consumption period, placed further downward pressure on North American benchmark pricing early in the current quarter. However, an unanticipated uptick in housing starts, coupled with the impact of production curtailments, particularly in BC, and steady activity in the repair and remodel sector, gave rise to a slight improvement in North American benchmark pricing towards the end of the current period.

Offshore lumber markets in Asia remained relatively flat during the current quarter, as ongoing economic uncertainty and a depressed real estate market, especially in China, was met with ample lumber supply in that region, and resulted in slight downward pressure on pricing.

In Europe, lumber demand and pricing experienced moderate decreases during the current quarter driven largely by low residential housing starts and a seasonally slower do-it-yourself sector.

Lumber Segment Outlook

Looking ahead, global lumber market conditions are anticipated to remain under pressure through the first quarter of 2024, as near-term challenges of affordability are projected to persist, despite recent declines in mortgage rates in the US. On the supply side, it is forecast that operational disruptions, driven by geopolitical tensions as well as fibre and market-related curtailments, especially in Western Canada, will help reduce inventories to more normalized levels. In the repair and remodel sector, demand is projected to remain relatively steady through the first quarter of 2024, albeit declining slightly from the levels experienced in 2023. Despite the near-term challenges, underlying global lumber market fundamentals in the longer term remain solid, with demographic trends supporting the need for additional new home construction activity against the backdrop of an aging housing stock and low inventories of new homes available.

Offshore lumber demand in China and Japan is forecast to show signs of modest improvement through the first quarter of 2024, as the benefits of various government stimulus measures implemented in that region in 2023 are realized and inventories return to more normalized levels.

In Europe, lumber markets and pricing are anticipated to experience some upward momentum later in the first quarter of 2024, as lumber supply constraints in that region, tied in part to reduced log availability and increasing log costs, are projected to overshadow the ongoing impact of low levels of European residential construction activity.

From an operational perspective, there remains significant uncertainty with regards to the availability of economically viable fibre in BC. While the Company has taken a number of actions in recent years in response to these fibre constraints, including the aforementioned closures and capacity reductions, the near-term fibre outlook in BC remains challenging. The Company continues to anticipate sustained log cost pressures and persistent constraints accessing economically viable fibre in BC for its sawmills, as well as a challenging fibre supply environment for CPPI’s pulp mills. With these continued fibre-related pressures and the projected weaker North American lumber market demand and pricing in the near-term, the Company will continue to adjust operating rates in BC to align with demand and economically available timber supply.

Fourth Quarter Pulp and Paper Segment Highlights

For the pulp and paper segment, the adjusted operating loss was $26.0 million for the fourth quarter of 2023, compared to an adjusted operating loss of $51.3 million for the third quarter of 2023. These results principally reflected a moderate improvement in global pulp market conditions, combined with a 20% increase in pulp production quarter-over-quarter.

Following a relatively weak second and third quarter of 2023, global softwood pulp markets moderately improved in the current quarter, largely reflecting a slight uptick in demand and purchasing activity in most major regions as global pulp producer inventories returned to a more balanced range, ending December 2023 at 40 days of supply. The positive pricing momentum in US-dollar NBSK list prices to China experienced towards the end of the prior quarter, continued well into the current period, with prices peaking in November 2023. For the current quarter overall, average US-dollar NBSK pulp list prices to China were US$748 per tonne, up US$68 per tonne, or 10%, from the previous quarter.

Upon the successful completion of a scheduled maintenance outage in September, the restart of CPPI’s Northwood NBSK pulp mill (“Northwood”) was delayed into the fourth quarter of 2023, resulting in reduced NBSK pulp production early in the current period. For the quarter overall however, the operating performance at Northwood and Intercon continued to improve as the quarter progressed, resulting in a 20% increase in pulp production in the current period.

Pulp and Paper Segment Outlook

Looking forward, global softwood kraft pulp markets are projected to be fairly subdued through the first quarter of 2024. While global pulp producer inventories are estimated to remain within the balanced range, demand uncertainty is anticipated, driven principally by the deceleration in China NBSK pulp list prices in December and leading up to the seasonally slower spring period in China. 

While no major maintenance outages are planned at CPPI’s operations in the first quarter of 2024, given the ongoing uncertainty with regards to the availability of economically viable fibre in BC, and a projected weak North American lumber market, CPPI anticipates a challenging fibre supply environment for its pulp mills (both for sawmill residual chips and whole-log chips), especially in the near-term. CPPI will continue to monitor operating conditions and will adjust operating rates at its pulp mills to align with economically viable fibre supply. 

Refer to the Company’s annual Management’s Discussion and Analysis for further discussion on the Company’s results for the fourth quarter of 2023 on page 25.

For the full fourth quarter results, click here.

About Canfor

Canfor is a leading integrated forest products company based in Vancouver, BC with interests in BC, Alberta, North and South Carolina, Alabama, Georgia, Mississippi, and Arkansas, as well as in Sweden with its majority acquisition of the Vida Group. Canfor produces primarily softwood lumber and also owns a 54.8% interest in Canfor Pulp Products Inc., which is one of the largest global producers of market Northern Bleached Softwood Kraft Pulp and a leading producer of high performance kraft paper. Canfor shares are traded on the Toronto Stock Exchange under the symbol CFP. For more information visit canfor.com.

Contact:

Rosemary Silva – Manager, Community Relations – communications@canfor.com – (604) 661-5225

Source: Canfor Corporation