A drastic drop in the price of low-grade lumber was one of the reasons West Fraser Timber Co. Ltd. suffered a a $10.6-million loss from operations in its latest quarter, CEO Hank Ketcham said Friday in a conference call.
In addition to seeing the benchmark price for spruce-pine-fir (SPF) decline three per cent from the third quarter, the price for lower grade lumber plummeted 32 per cent, Ketcham said.
"This had a particularly significant effect in our mills processing high volumes of mountain pine beetle timber," Ketcham said.
While the benchmark price for southern yellow pine was up eight per cent, West Fraser's U.S. mills performed slightly under the third quarter level due to a substantial discount of narrow to wide-width lumber.
"The very low price we are achieving for wide-width lumber in the South has also had the effect of eliminating the traditional premium that southern yellow pine prices have enjoyed over SPF prices," Ketcham said.
"We expect that the southern yellow pine premium will return as lumber markets improve."
Ketcham cited additional factors:
- The list price for northern bleached softwood kraft (NBSK) dropped seven per cent although a four-per-cent decline in the Canadian dollar provided a partial offset.
- Capital projects at several Alberta and U.S. mills forced lumber production down five per cent while manufacturing costs were up. There was also market-related downtime in the U.S. and NBSK pulp production was down 26 per cent due to a longer-than-anticipated shutdown and startup for the upgrade and expansion of the Hinton pulp machine.
Its operating loss amounted to 25 cents per share for the three months ended Dec. 31, compared with a profit of $27.8 million or 65 cents per share a year earlier.
Log costs were flat quarter over quarter in Canada and the U.S. while shipments to China slowed somewhat due to high inventories, but shipments have picked up substantially in the new year, Ketcham said.
No improvement in home construction is anticipated through to the middle of the year, but Ketcham said the export market should consume at least the same volume as last year.
Including its discontinued operations, boosted by the sale of assets from its linerboard and kraft paper mill in Kitimat, that it closed in January 2010, West Fraser reported a profit of $6.1 million or 14 cents per share for the quarter ended Dec. 31.
That was down 86 per cent from a profit of $43 million or $1 per share a year ago.
The results included a $16.7-million gain in the quarter related to discontinued operations compared with a gain of $15.2 million a year ago.
Capital spending in the fourth quarter added up to $90 million of which $25 million was through the federal government's green transformation program for work on its pulp mills. There is no planned major maintenance downtime for West Fraser's kraft pulp mills this year.
In response to an analyst's question, Ketcham said the cost of 12-megawatt biomass plants planned for sawmills in Chetwynd and Fort Fraser will probably be $80 million to $100 million.
