With an over-supply of lumber into China, Conifex Timber Inc. is shifting its focus to Japan, the company's president Ken Shields said Wednesday during a quarterly conference call.
Shields said Conifex, which operates a sawmill in Fort St. James and a two-mill complex in Mackenzie, is now "working very hard to divert as much of our lumber production as possible to the higher-priced Japanese market," because the price of low-grade lumber is deteriorating.
The effort is aided by a fibre basket that provides Conifex with a relatively high portion of product suitable for Japan, said Shields, who added that cutting protocols have been recalibrated to produce more premium grade product.
Housing starts in Japan are expected to exceed the combined total for Canada and the United States for the coming year, Shields said.
"And although the units in Japan are typically a bit smaller than they are in North America, the lumber usage is higher and wood-frame construction in Japan now represents 55 per cent of all housing starts, so it's a very good lumber market," Shields said.
The March tsunami destroyed 104,000 homes and 96,000 were seriously damaged.
About three-quarters of Conifex's production is concentrated in three grades, J-grade, select and two-and-better in contrast to about 60 per cent for B.C.'s sawmills as a whole, and Shields said about half that total is concentrated in J-grade and select.
"I will mention that in the beetle kill supply areas, a great deal of the two and better lumber that's produced [in B.C.] is at the very low end of that grade classification, whereas our two and better has a normal quality distribution," Shields said. "So even in the two and better, our objective is to achieve a modest premium over the posted commodity price."
The recently-announced purchase of the commodity lumber operations of Welco Lumber Corp. plays into that strategy, Shields added, saying the idea is to internalize Conifex's sales force.
"We didn't want our lumber sold as a conventional commodity because we think it's better than the normal commodity lumber produced in B.C.," Shields said.
Expected to close by the end of this year, the deal's price tag is just under $1.6 million in addition to some inventory and the payment of some commissions for three years. The purchase also includes the transportation and logistics business of Welco's Navcor subsidiary.
Welco will keep its Marathon Forest Products Ltd. business.
Conifex reported a net loss of $2.2 million, or 14 cents per share in the third quarter, an improvement of $700,000, or a nickel a share over the third quarter of 2010. Its earnings before interest, taxes and depreciation and amortization (EBITDA) were $600,000 compared to an $800,000 loss the year before.
However, Shields warned a positive EBITDA in the fourth quarter is doubtful due to a double whammy of lower prices and somewhat higher costs related, in part, to improving productivity at its Fort St. James operation, acquired in March.
The Vancouver-based company recorded sales of $38.2 million in the third quarter ended Sept. 30, 2011 and shipments of 115 million board feet, an increase of 260 per cent over the same quarter last year. About three-quarters of Conifex's product goes to China and Japan.
