Global Trends Review, April 29 – May 05, 2013: Canadian quarterly reports: NBSK up, paper down, and OSB surging

Major Canadian and North-West U.S. companies posted first-quarter results last week. Mercer International Inc., operating in Canada and Germany, reported net loss of €0.4 million compared to net income of €1.2 million in 1Q 2012. Total revenues for the three months ended March 31, 2013 decreased by approximately 9% to €198.3 million on-year, due to lower pulp, energy and chemical revenues.

Jimmy S.H. Lee, President and Chairman said, “Pulp prices marginally increased in the 1Q 2013. However, we believe that overall prices are still low given current projected supply and demand levels. At the end of the 1Q 2013, list prices in Europe were approximately $840 per ADMT and in North America and China were approximately $900 and $700 per ADMT, respectively. We currently expect strong demand from China as purchasers re-stock inventories which, along with annual maintenance shuts by producers, should cause NBSK pulp prices to continue to gradually increase in the medium term”.

Canfor Pulp Products Inc. is reporting a net income of $10.9 million in the first quarter of 2013, compared to $10.0 million in the same quarter last year. NBSK pulp markets are projected to remain fairly challenging through the second quarter of 2013. Chief Executive Don Kayne also announced that the company will focus on energy projects: “We continue to advance our energy business and will be investing in upgrades to support incremental electricity generation that will move our facilities closer to self-sufficiency while diversifying the company’s earnings profile.” Canfor also announced an increase in the North American NBSK pulp list price of $30 per tonne in April 2013.

Last week, Nordic company Södra has also raised the price of softwood pulp to $890 in Europe effective from May 1. The market balance has been improved during the 1Q, which has resulted in lower global market pulp stock levels for softwood pulp, company said.

Meanwhile, construction works at Montes del Plata pulp mill of ARAUCO is moving at a steady pace in Uruguay. This project is part of the joint venture in equal shares between Stora Enso and ARAUCO, to produce and export pulp to the world’s most important markets. The project started commissioning its main equipment. It is estimated that Montes del Planta will enter into operation during this year’s 3Q, and will begin selling pulp in the market during the 4Q.

Another Canadian giant, Tembec, has posted a net loss of $26 million compared to a net loss of $14 million in the same quarter last year. Consolidated sales for the quarter were $407 million (unchanged from the same quarter last year).

International Paper reported 1Q 2013 net earnings totalling $318 million, compared to $188 million a year ago. Quarterly net sales were $7.1 billion, which is on par with year-ago volumes. In North America, higher selling prices for boxes and containerboard were partially offset by seasonally slow demand and higher input costs. Unfavourable foreign exchange swing at Ilim Group (the biggest Russian pulp and paper company with 50% ownership of International Paper) affected company’s results in the first quarter, as CEO John Faraci said. Major expansion projects will also impact IP’s financial results in the second quarter. Recently, Ilim Group has commissioned its new softwood pulp mill in Irkutsk region.

Resolute Forest Products is reporting a net loss of $5 million in its first quarter of 2013. This result can be compared to a net income of $23 million in the same quarter last year. Richard Garneau, president and chief executive officer said, “While we are encouraged with the incremental progress we are seeing on newsprint export markets, we expect domestic pricing to remain under pressure until more tonnes produced in North America are shipped offshore. With markets for specialty papers strongly influenced by advertising spending, demand may remain sluggish as customers are cautious based on recent U.S. economic data. Recent demand and pricing trends in the pulp market are giving us reason for cautious optimism that it is gaining momentum after its prolonged slump”. The company is also reopening its Gatineau, Quebec mill in June as a lower cost operation with just one paper machine and a co-generation power plant. Only 130 workers will be employed. The newsprint will be sold in North America and overseas. Meanwhile, company’s Thunder Bay, Ontario mill is said to be at the greatest risk for more downtime.

American company Boise Inc. is idling two out of four production lines at its pulpmill in International Falls, Minnesota, located at the Canadian border. 265 workers will be permanently laid off by October 1, while 580 employees will remain at the mill. Boise’s President and CEO, Alexander Toeldte, said, “These closures will reduce our annual uncoated freesheet capacity by approximately 115,000 tons, or 9%, and allow us to focus our efforts on key products and machines that drive our profitability”. With these closures, Boise will no longer have to purchase pulp for the mill. The mill’s timber consumption will also be slightly reduced, impacting local loggers. The remaining employees will operate the two paper machines (making uncoated white office paper), and produce pulp for these paper machines.

Sweden’s SCA also reported mixed results in the first quarter this year, restructuring continues. Sales went up 15% (20% excluding exchange rate effects and divestments) to SEK22.39bn (2012: SEK19.49bn). The group’s net profit for the period amounted to SEK1.14bn (SEK1.23bn). Profits for the personal care and tissue business rose 21% and 34% respectively and 27% and 40% excluding exchange rate effects. The quarterly operating profit for the forest products division (publication paper, packaging paper, pulp, solid wood products and renewable energy) fell 22% mainly due to lower sales prices and negative exchange rate effects. In January last year, an agreement was reached on the divestment of SCA’s packaging operations, excluding the two kraftliner mills in Sweden. Operations sold were deconsolidated on 30 June last year. The deal included two mills located in Krasnodar and Leningrad region of Russia.

Paper markets remained challenging in the first quarter this year, while growth businesses operated steadily, UPM reports. Company posted a Q1 net profit of €47m on sales of €2.47bn. UPM said the outlook for its Energy, Pulp and Label businesses is stable compared to H2 in 2012, whereas the Paper division’s market challenges will remain to have an impact on H1 results.

Timber industry: OSB and lumber surging

Norbord Inc. is reporting earnings of $67 million in the first quarter of 2013, compared to break-even results in the same quarter of last year. EBITDA is $111 million in the first quarter – a $90 million improvement over the same quarter of last year. “Our strong first quarter results reflect a broad-based US housing recovery that is accelerating,” said Barrie Shineton, President and CEO. “Average North American OSB prices climbed to their highest level in nine years during what is normally the weakest season of the year. We are working hard to bring our Jefferson, Texas mill back up by mid-year in spite of persistent equipment delays and the challenge of recruiting a new workforce. While we will likely see increasing market volatility, I believe improving OSB demand will continue to outstrip supply for at least the rest of this year”.

“In Europe, our panel business delivered another quarter of strong numbers in spite of uncertainty in the Eurozone economies. OSB demand in particular is strengthening and we continue to run all our panel mills full out,” Shineton said. The continued strength of the euro versus the pound meant UK customers were substituting more expensive imported panels with UK manufactured product. “Sterling remained in a range versus the Euro that continues to support Norbord’s primarily UK-based manufacturing,” Shineton said. Average panel prices increased 2% year-on-year in the first quarter and 5% compared to the previous quarter. The average European OSB price was €265/m3 (gross delivered price to the largest Continental market). OSB and chipboard markets were strong and MDF markets remain stable. “Barring any significant currency swings, I expect continued steady performance from our European business,” Shineton concluded.

Canfor reported operating income of $100.0 million for the first quarter of 2013, which is twice as high as in Q4 2012. Looking ahead, North American lumber consumption is forecast to improve slightly through the balance of 2013 as U.S. housing activity continues to gradually gain momentum. Canadian markets are anticipated to remain relatively slow due to tempered housing activity, while offshore markets are projected to see modest growth in demand and stable prices.

Resolute Forest Products expects lumber pricing to remain strong, as shipments from Canadian producers continue to be limited by strained supply chains from the increase in demand.

West Fraser’s lumber division posted EBITDA of $146m, compared to losses of $7m a year ago. Substantial price increases were recorded. The panels division’s EBITDA were $15m, up from $5m a year ago. Price growth was recorded for its plywood, MDF and LVL products.

Q1 sales of Boise Cascade were up 27% on a year ago to $744.9m, with net profits reaching $80.1m. The wood products division – comprising engineered wood, lumber and plywood – recorded a 28% sales increase to $269.2m. EBITDA were up 62% to $27.1m. The division’s sales grew primarily due to 24% higher plywood sales volumes, a 28% growth for LVL and a 37% boost to I-joist volumes. Higher lumber sales volumes and prices also contributed.

Weyerhaeuser’s wood products business reported its strongest quarterly earnings since 2005, with earnings of $178m. OSB prices rose 24% from the previous quarter and lumber prices were up 20%.

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In the last few weeks, beech sawmills in Germany have been registering a slight upswing in demand in some places, EUWID Wood reported. The slight boost applies in particular to exports of beech lumber to Asia as well as deliveries to packaging and pallet manufacturers.

Relatively high inventories of Brazilian elliotis pine plywood at North Sea ports and sluggish outflow of plywood meant that cheap batches were repeatedly being placed on the market of German-speaking Europe, EUWID Wood says. These prices are sometimes significantly below the current average price of €6.10-6.25/m2 free delivered to western Germany or €6.20-6.40/m2 free delivered to southern Germany for full loads of 20 mm C+C.

Meanwhile, imports of tropical lumber to the EU fell by 13% last year to 996,000 m3 and thereby dropped below the one million m3 mark for the first time. The sharpest declines in 2012 were registered in imports of tropical lumber from Malaysia at -27% to 176,000 m3 and from Brazil at -22% to 128,000 m3.

Indonesia may cancel the log export ban imposed in 2001, as it resulted in a marked decline in log prices, according to the Association of Indonesian Forest Concessionaires. Plantation logs are currently fetching $30-40/m3, which is lower than the regional average because plantation owners can only sell into the competitive domestic market. The Indonesian Ministry of Forestry wants to boost international trade in its plantation timber so it can meet its plantation creation targets. The ban was originally intended to crack down on illegal logging, but Indonesia has made progress since then, including the implementation of a timber legality verification system (SVLK).

To accommodate the installation of a new sawing line and a new sorting line, the Vilppula spruce sawmill owned by the Metsä Group will completely shut down production in July and August. The plant is to be run up to full capacity by stages in the third quarter of 2013, in order then to reach a largely normal level of operation in the first quarter of 2014.

Total production in the first quarter of 2013 at the 21 parquet and wooden-flooring manufacturers with membership in Germany Parquet Industry Association (VDP) was down year on year by 6.7% to 2.234 million m2. This means that the downward trend first seen at the end of 2012 has accelerated. The VDP attributed the unexpectedly sharp decline in the first quarter primarily to the long winter and the associated delays in the completion of public and private building projects.

Prepared using corporate press releases, Timber Trades Journal, ITTO, ForestTalk, EUWID Wood and EUWID Paper.