Canfor Pulp Reports 2023 and Fourth Quarter of 2023 Results

Canfor Pulp Products Inc. (“The Company” or “CPPI” or “Canfor Pulp”) reported its 2023 and fourth quarter of 2023 results:

Overview

• 2023 operating loss of $128 million; net loss of $96 million, or $1.47 per share
• Q4 2023 operating loss of $15 million; net loss of $13 million, or $0.20 per share
• 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% increase in pulp production in the fourth quarter reflecting improved operating performance at both the Northwood and Intercontinental NBSK pulp mills
• Persistent challenges associated with the availability of economic fibre in British Columbia

Financial Results

2023 was a difficult year for Canfor Pulp, as a deterioration in global pulp market fundamentals was combined with ongoing cost and operational challenges driven by sustained fibre shortages in British Columbia (“BC”).

With continuing fibre cost pressures and a declining outlook for economic residual fibre in BC, in January 2023, Canfor Pulp made the decision to restructure its operations. As a result, in April 2023, the Company wound down and permanently closed the pulp line at its Prince George Northern Bleached Softwood Kraft (“NBSK”) pulp and paper mill (“PG”). In connection with this closure, the Company’s Intercontinental NBSK pulp mill (“Intercon”) was successfully converted to provide slush pulp to its specialty paper facility, formerly supplied by PG. The combined impact of these operating structure changes is a reduction of approximately 280,000 tonnes of market kraft pulp production annually.

Canfor Pulp reported an operating loss for 2023 of $127.5 million, compared to an operating loss of $106.0 million in 2022. After taking account of adjusting items, including an asset write-down and impairment charge in 2022, the Company’s adjusted operating loss was $129.9 million for the current year compared to an adjusted operating loss of $58.6 million for the prior year.

For the fourth quarter of 2023, the Company reported an operating loss of $15.1 million, compared to an operating loss of $49.3 million for the third quarter of 2023. After taking account of a net $10.9 million reversal of a previously recognized inventory write-down, the Company’s adjusted operating loss was $26.0 million for the fourth quarter of 2023, a $25.3 million improvement compared to an adjusted operating loss of $51.3 million for the previous quarter. These results largely reflected a moderate improvement in global pulp market conditions, combined with a 20% increase in pulp production quarter-over-quarter.

Commenting on the Company’s 2023 and fourth quarter of 2023 results, CPPI’s President and Chief Executive Officer, Kevin Edgson, said, “Despite a challenging year, our employees remained focused as we navigated through the wind down of the Prince George pulp mill and successful transition of slush pulp supply from the Intercontinental pulp mill to our paper machine. We are pleased to see productivity improve this quarter following the maintenance downtime at the Northwood pulp mill. While market conditions showed some signs of recovery in the fourth quarter, demand uncertainty is anticipated, and we remain cautious in our market outlook. In addition, as the availability of economically viable fibre remains constrained, Management continues to focus on improving overall performance and preserving our balance sheet.”

Fourth Quarter Highlights

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 the Company’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.

Operating income in the Company’s paper segment was $3.5 million, down $0.9 million from the operating income of $4.4 million in the previous quarter, largely reflecting slightly lower paper unit sales realizations, driven by a decline in global US-dollar paper pricing, as well as higher slush pulp costs and increased maintenance spend quarter-over-quarter.

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.

The Company has no major maintenance outages planned for the first quarter of 2024. In the second quarter of 2024, a maintenance outage is scheduled at Intercon, with a projected 5,000 tonnes of reduced NBSK market pulp production.

Given the ongoing uncertainty with regards to the availability of economically viable fibre in BC and a projected weak North American lumber market, the Company anticipates a challenging fibre supply environment for its pulp mills (both for sawmill residual chips and whole-log chips), especially in the near-term. The Company will continue to monitor operating conditions and will adjust operating rates at its pulp mills to align with economically viable fibre supply.

Bleached kraft paper markets are projected to remain solid through the first quarter of 2024 as the uptick in global paper demand towards the end of 2023 is anticipated to continue. A maintenance outage is currently planned at the Company’s paper machine in the second quarter of 2024 with a projected 5,000 tonnes of reduced paper production.

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 16.

For the full fourth quarter results, click here.

About Canfor Pulp Products Inc.

Canfor Pulp Products Inc. (“Canfor Pulp” or “CPPI”) is a leading global supplier of pulp and paper products with operations in the northern interior of British Columbia (“BC”). Canfor Pulp owns and operates three mills in Prince George, BC with a total capacity of 780,000 tonnes of Premium Reinforcing Northern Bleached Softwood Kraft (“NBSK”) pulp and 140,000 tonnes of kraft paper. CPPI shares are traded on the Toronto Stock Exchange under the symbol CFX. For more information visit www.canfor.com.

Source: Canfor Pulp Products Inc.