Canfor reports 2018 third quarter results
Canfor,2018,third quarter results
The Company reported operating income of CA$201.8 million (US$153.52 million) for the third quarter of 2018, down CA$80.3 million (US$61.1 million) from reported operating income of CA$282.1 million (US$214.6 million) for the second quarter of 2018. Reported results for the third quarter of 2018 included a net duty expense of CA$42.6 million (US$32.41 million), at a current effective countervailing duty (CVD) and anti-dumping duty (ADD) rate of 14.94 per cent, compared to CA$51.7 million (US$39.33 million) reported in the second quarter of 2018. After adjusting for duties, operating income was CA$244.4 million (US$185.92 million) for the third quarter of 2018, down CA$89.4 million (US$68 million) from similarly adjusted operating income in the second quarter of 2018.
Adjusted lumber segment earnings primarily reflected steep declines in Western Spruce/Pine/Fir and Southern Yellow Pine benchmark lumber prices, and to a lesser extent, the disruptive impacts of severe forest fires in Western Canada, and Hurricane Florence in the US South, which contributed to significant cost pressures and temporary operational downtime as a result of limited log deliveries and evacuation alerts.
Notwithstanding the downward pressure on pricing through the third quarter of 2018, lumber demand in the North American market remained relatively stable, with US housing starts averaging 1,218,000 units on a seasonally adjusted basis, down three per cent from the previous quarter and up four per cent from the third quarter of 2017. Offshore lumber consumption remained solid through the third quarter, with demand particularly strong in Japan.
While the average benchmark North American Random Lengths Western SPF 2x4 price at US$482 per Mfbm was down US$116 per Mfbm, or 19 per cent, compared to the second quarter of 2018, Western SPF lumber unit sales realisations benefitted from a strong order file to start the quarter, a higher-value sales mix, and improved offshore pricing.
The average benchmark North American Random Lengths SYP East 2x4 price was US$488 per Mfbm, down US$101 per Mfbm, or 17 per cent, with this decline offset, in part, by a modest increase in 2x10 pricing. The sharp drop in lumber prices from the historical highs seen in the second quarter of 2018, was primarily attributable to higher inventory levels throughout the supply chain, in part from a continued gradual improvement in transportation networks.
Total lumber production, at 1.28 billion board feet, was three per cent lower than the prior quarter as the benefit of improved productivity was more than offset by increased statutory holidays in the current quarter and the aforementioned disruptions. Total lumber shipments, at 1.29 billion board feet, were down four per cent from the previous quarter reflecting reduced production, a drawdown of inventory in the previous quarter following the severe winter weather experienced in the first quarter of 2018, and the impact of flooding and road closures following Hurricane Florence.
Unit manufacturing and product costs in the third quarter of 2018 were moderately higher than the previous quarter reflecting higher market-based stumpage and the significant impacts of Hurricane Florence in the United States (U.S.) South and severe forest fires in Western Canada, which contributed to lower harvested volumes and increased competition for purchased wood. Log costs in the U.S. South remained stable through the quarter.
Don Kayne, said, “Despite the significant operational disruptions presented by forest fires and extreme weather, our lumber business generated solid financial results, aided by the dedication and commitment of our employees and contractors who helped to mitigate the impact of the challenging operating conditions,” Canfor’s president and CEO, Don Kayne, said.
Looking ahead, the U.S. housing market and repair and remodelling sector is forecast to gradually pick up through the balance of 2018. While North American lumber prices have continued to decline in October, lumber markets are anticipated to modestly improve through the quarter, in part reflecting solid offshore lumber demand and more balanced supply. Results in the fourth quarter are anticipated to reflect lower unit sales realisations due to the current lumber market weakness, as well as continued log cost pressure in Western Canada as a result of increasing market-based stumpage and higher purchased wood costs.