Canfor Pulp Products Inc. Announces 2020 and Fourth Quarter 2020 Results

Financial Results
2020 was a turbulent year for Canfor Pulp and its employees with the coronavirus outbreak ("COVID-19") taking a heavy toll on global pulp markets as well as supply channels. The Company responded decisively to an unprecedented number of challenges, moving quickly to adopt new safety protocols, take significant fibre-related production curtailments and defer scheduled major maintenance outages. The year also saw a major rebuild of the lower furnace of the number five recovery boiler ("RB5") at the Company's Northwood Northern Bleached Softwood Kraft ("NBSK") pulp mill ("Northwood") to ensure the safe and reliable operation of that boiler, which significantly reduced production volumes in the fourth quarter. On a positive note, the Company ended the year with a strong balance sheet and healthy inventory levels and, with the RB5 rebuild now completed, is well placed to capitalize on an increasingly positive market outlook for 2021.

The COVID-19 related disruptions and capital-related downtime weighed on Canfor Pulp's financial results for 2020, with the Company reporting an operating loss of $56.1 million and a net loss of $0.34 per share, compared to an operating loss of $31.0 million and net loss of $0.47 per share for the year ended December 31, 2019.

For the fourth quarter of 2020, the Company reported an operating loss of $28.3 million, compared to an operating loss of $27.6 million reported for the third quarter of 2020. The loss in the current period reflected continued soft market conditions and weak prices on pulp shipments as well as the capital-related downtime at Northwood. Compared to the third quarter of 2020, unit sales realizations were relatively unchanged with a 2% stronger Canadian dollar offsetting a modest uplift in prices towards the end of the period; reduced production from the Northwood RB5 lower furnace rebuild mostly offset the impact of material production curtailments in the previous quarter. The lower furnace replacement was completed mid-January, as planned, with a total capital cost of approximately $27.0 million and total reduction in NBSK pulp production of 70,000 tonnes (60,000 tonnes in the current quarter and a further 10,000 tonnes in January 2021).

Global pulp prices edged upwards through October and November, with more solid increases seen in December, particularly in China, driven largely by global logistic constraints and improving global pulp inventory levels (35 days at December 2020, a decrease of 7 days from September 2020) combined with strong indicators from the Shanghai Futures Exchange on future pulp US-dollar list prices. The effects of these price increases were only partially reflected in the fourth quarter's results, largely reflecting the timing of shipments versus orders.

NBSK pulp list prices to China averaged US$637 per tonne, as published by RISI, up US$65 per tonne from the previous quarter, largely as a result of successive price increases implemented through the fourth quarter of 2020, most notably in December. However, as mentioned, the Company's overall NBSK pulp unit sales realizations were broadly in line with the previous quarter, principally reflecting the timing of shipments (versus orders), as well as the stronger Canadian dollar. Slightly higher Bleached Chemi-Thermo Mechanical Pulp ("BCTMP") unit sales realizations in the fourth quarter of 2020 reflected a gradual and modest improvement in BCTMP demand and prices.

Energy revenues were broadly in line with the prior quarter as decreased energy generation due to the aforementioned Northwood capital-related downtime was offset by seasonally higher energy prices in the current quarter.

Pulp production was 233,000 tonnes for the fourth quarter of 2020, up 6,000 tonnes, or 3%, from the previous quarter, primarily reflecting the quarter-over-quarter impact of downtime. In the current quarter, pulp production was reduced by the completion of Northwood's scheduled maintenance outage in October (approximately 25,000 tonnes), as well as the aforementioned extended outage on one production line at Northwood to enable the replacement of RB5's lower furnace (approximately 60,000 tonnes). In the third quarter of 2020, the combined impact of COVID-19 related curtailments at the Company's Intercontinental and Prince George ("PG") pulp mills, as well as scheduled maintenance outages at Taylor BCTMP mill ("Taylor") and Northwood, reduced pulp production by 68,000 tonnes. To a lesser extent, improved productivity at the Company's PG and Taylor pulp mills in the current quarter more than offset several operational issues at the PG pulp mill in the prior quarter.

The Company's pulp shipments totaled 258,000 tonnes, up 9,000 tonnes, or 4%, from the previous quarter, principally due to a drawdown of inventory in the current quarter during the aforementioned Northwood downtime and, to a lesser extent, the timing of vessels quarter-over-quarter.

Pulp unit manufacturing costs were slightly lower than the prior quarter as the benefit of reduced fibre costs in the current quarter mostly offset seasonally higher energy costs, as well as increased energy usage and operating labour and maintenance spend, following COVID-19 related curtailments in the prior period. The decrease in fibre costs was primarily driven by an increased proportion of lower-cost sawmill residual chips, mostly due to higher operating rates at Canfor's sawmills.

Operating income in the Company's paper segment was $4.8 million, broadly in line with the previous quarter, as significantly higher paper shipments and production accompanied by lower paper unit manufacturing costs offset the impact of moderately lower paper unit sales realizations mostly due to changes in regional sales mix and a stronger Canadian dollar.

In early 2021, global softwood kraft pulp market conditions have strengthened significantly in response to improved market fundamentals, particularly from China, where prices on the Shanghai Futures Exchange have surged in recent weeks. Reflecting this positive pricing momentum, the Company has announced increases to its NBSK pulp list price to China of US$50 per tonne for January 2021 and a further US$120 per tonne for February 2021, to US$840 per tonne. It has also announced two consecutive price increases to North America of US$30 per tonne and US$115 per tonne, for January and February 2021, respectively, to US$1,300 per tonne. Notwithstanding the potential for higher pricing volatility in the coming months, the Company currently projects the pricing environment to remain favourable for pulp producers through the first half of 2021.

The Company's results in the first quarter of 2021 will reflect the impact of the RB5 capital-related outage at Northwood into mid-January (approximately 10,000 tonnes). With the RB5 rebuild now completed and with much healthier fibre inventories, a key focus of the Company's kraft pulp mills in 2021, including Northwood, will be on improving operational reliability and closely managing manufacturing and fibre costs.

No major maintenance outages are planned for the first quarter of 2021; a maintenance outage is currently planned at the Intercontinental NBSK pulp mill in the second quarter of 2021, with a projected 12,000 tonnes of reduced NBSK pulp production. Smaller maintenance outages are scheduled for the third quarter of 2021 at the Prince George NBSK pulp mill and at the Taylor BCTMP mill with a projected 5,000 tonnes of reduced NBSK pulp production and projected 5,000 tonnes of reduced BCTMP production, respectively.

Bleached kraft paper demand is currently anticipated to be relatively stable in the first quarter of 2021 as COVID-19 led demand for bleached kraft paper products is projected to continue in the near-term, particularly for paper products that meet food grade specifications. A maintenance outage is currently planned at the Company's paper machine in the third quarter of 2021 with a projected 5,000 tonnes of reduced paper production.

Commenting on the Company's 2020 and fourth quarter of 2020 results, CPPI's Chief Executive Officer, Don Kayne (photo) said, "We want to thank our employees for their hard work, resilience and commitment to safety in what was an unprecedented and challenging year as we worked together to navigate the volatility and uncertainty associated with COVID-19. While the financial results for 2020 and the quarter reflect the challenging times, we preserved our strong cash position and ended the year with a solid balance sheet. Looking ahead, we are very focused on optimizing our production performance, reducing costs, and maximizing fibre utilization in the coming months, as we work to fully capitalize on the improving market conditions in 2021."