Lumber has pulled Canfor back to operating profit, with the group posting a C$116.1 million adjusted turnaround in the first quarter. That is according to President and Chief Executive Officer Susan Yurkovich, who released the group’s second-quarter results yesterday, against a backdrop of four permanent exits confirmed in the past 10 weeks.
“We continue to take disciplined actions to address longer-term structural fibre and market challenges,” Yurkovich said, naming Urshult, Orrefors, Fox Creek, and the PinkWood acquisition in a single account of aligning production capacity with available fibre supply and evolving market conditions.
Canfor recorded $13.7 million in impairments and $8.8 million in restructuring costs in the lumber segment for the two Swedish closures, providing a first hard number on exits that will not take effect until Swedish labour consultations conclude. Reported operating profit reached $4.8 million on sales of $1.53 billion, up 12 per cent quarter on quarter, while the net loss narrowed 74 per cent to $18.5 million, or 16 cents a share.
“The closures are necessary given the imbalance between production capacity and access to fibre,” Karl-Johan Löwenadler, chief executive of the 77 per cent owned Swedish operation, said when the closures were announced in May. Together, the Urshult and Orrefors exits remove 265,000 cubic metres of annual capacity, 75 positions, and two of Vida’s 15 sawmills, with the larger Urshult mill having sold 60 per cent of its 4.9-metre structural spruce into the UK market.
Solid results across every operating region carried the lumber segment to $41.2 million of operating profit compared with a $43.7 million first-quarter loss, an adjusted improvement of $120.4 million that management attributed to higher unit sales realisations, increased production, and lower manufacturing costs.
“Tighter lumber supply and seasonal demand supported a modest improvement in lumber benchmark prices,” the group wrote in its message to shareholders, with lean field inventories, constrained transportation capacity, and species substitution into Southern Yellow Pine driving the quarter’s gains.
Offshore, the recovery has not translated, with Japanese demand deteriorating under weak housing starts, reduced import volumes, and a structural substitution toward domestically sourced species, while Chinese construction activity remained too subdued to absorb the difference.
Pulp moved in the opposite direction, with the segment’s adjusted loss deepening to $19.8 million as production declined 17 per cent on a scheduled maintenance outage at the Intercontinental mill, and US-dollar NBSK list prices to China averaged $658 per tonne, down 4 per cent. Producer inventories ended May at 47 days of supply, the upper limit of the 39-to-47-day corridor the industry considers balanced.
It comes as Yurkovich called the permanent closure of the Northwood pulp mill, announced on 14 July, a difficult but necessary decision, with the Prince George operation to remove 300,000 tonnes of annual NBSK capacity by the end of the year.
Canfor has continued cutting since the balance date, confirming on Tuesday that the single-shift Fox Creek sawmill in Alberta will close, with 120 million board feet of capacity, while the completed $68 million PinkWood transaction adds 46 million linear feet of Calgary I-joist production to the value-added platform. The company’s preliminary estimates put an additional $68 million in closure costs in the third quarter, with $38 million against the Fox Creek exit in the lumber segment and $30 million against Northwood in pulp.
Cumulative softwood duty deposits have reached $1,199.2 million before Section 232 tariffs, with Canfor’s 47.59 per cent combined cash deposit rate set to reset to an estimated 31.37 per cent once the US Commerce Department finalises its seventh review in the fourth quarter, carrying a $47.7 million expense. Cash generation strengthened sharply, with operations delivering $209.9 million and net debt falling $211 million to $658.3 million, or 19.9 per cent of total capitalisation.
Yurkovich anticipates North American lumber markets moderating later in the third quarter and through the balance of the year, leaving Canfor defending a $4.8 million operating profit as 265,000 cubic metres of Swedish capacity winds down.
