VANCOUVER, BRITISH COLUMBIA - Canfor Corporation /quotes/zigman/36532 CA:CFP +0.42% today reported net income attributable to shareholders ("shareholder net income") of $4.5 million, or $0.03 per share, for the second quarter of 2012, compared to a shareholder net loss of $16.2 million, or $0.11 per share, for the first quarter of 2012 and shareholder net income of $2.1 million, or $0.01 per share, for the second quarter of 2011. For the six months ended June 30, 2012, the shareholder net loss was $11.7 million, or $0.08 per share, compared to net income of $9.1 million, or $0.06 per share, for the first half of 2011.

The shareholder net income for the second quarter of 2012 included various items affecting comparability with prior periods, which had an overall net negative impact of $6.6 million, or $0.05 per share. After adjusting for such items, the Company's adjusted shareholder net income for the second quarter of 2012 was $11.1 million, or $0.08 per share, up $33.4 million, or $0.24 per share, from an adjusted shareholder net loss of $22.3 million, or $0.16 per share, for the first quarter of 2012. Adjusted shareholder net income for the second quarter of 2011 was $2.6 million, or $0.02 per share.

The Company reported operating income of $26.0 million for the second quarter of 2012, compared to an operating loss of $21.5 million for the first quarter. The positive variance primarily reflected improved results in the lumber segment, where stronger markets supported higher prices.

Lumber markets showed signs of improvement in the second quarter of 2012, reflecting stronger underlying demand in both North American and offshore markets. U.S. housing activity continued the upward trend seen in the prior quarter, with housing starts for the quarter averaging 739,000 units SAAR (seasonally adjusted annual rate), up over 3% from the previous quarter. Canadian housing starts were also up, increasing 12% from the previous quarter, to almost 230,000 units SAAR. In China, markets improved as inventories returned to more normal levels following the inventory build early in the previous quarter. Japan demand remained solid through the quarter. Pulp markets were relatively balanced heading into the quarter but saw signs of weakness as the quarter progressed.

As a result of the improved markets, lumber prices rallied during the second quarter. The average North American benchmark Western SPF 2x4 #2&Btr price rose 11% to US$295 per Mfbm, with similar increases seen for most other grades, while the spread between Western SPF structural and utility grade pricing also narrowed. Strong prices through May triggered a reduction in the export tax to 10% for the first time this year in June. Southern Yellow Pine ("SYP") prices also saw similar increases over the quarter. As a result, Canfor's lumber sales realizations saw solid gains, with a higher value sales mix also having a positive impact. For Northern Bleached Softwood Kraft ("NBSK") pulp, US dollar sales realizations were up slightly with the average North America list price up US$30 to US$900 per tonne. Canadian dollar sales realizations across all solid wood and pulp products were positively impacted by a 1% weakening of the average Canadian dollar.

Lumber shipments increased significantly from the previous quarter, up 16% to almost 1.2 billion board feet, reflecting the additional contribution of two recently acquired mills in the Kootenay region, as well as continued post-capital project productivity improvements and further operating efficiencies at other mills in the current quarter. Lumber unit manufacturing costs were in line with the previous quarter, with reductions in unit cash conversion costs offset by a small increase in unit log costs. Also, contributing to improved results in the lumber segment was a moderate increase in sawmill residual chip prices.

Pulp shipment and production levels were significantly impacted by scheduled maintenance outages and an unscheduled shutdown at Canfor Pulp, contributing to higher unit manufacturing costs. A maintenance outage was completed at the Intercontinental Pulp Mill, and an extended maintenance outage was commenced at the Prince George Pulp Mill, resulting in approximately 18,000 tonnes of reduced production overall. In addition, an unscheduled shutdown of a recovery boiler at the Northwood Pulp Mill and subsequent repairs resulted in the mill operating at approximately fifty percent of capacity through the period, reducing overall production by approximately 31,000 tonnes.

The Company ended the quarter with an improved liquidity position, reflecting both stronger lumber earnings and favourable working capital movements, resulting principally from a drawdown of log inventory after spring breakup.

Commenting on the second quarter performance, Canfor's President and CEO, Don Kayne, said, "The improvement in lumber prices and earnings reflected a modest increase in construction activity in North America and continued solid offshore demand for Western SPF lumber products." With respect to its recently acquired operations, Kayne added, "The integration of these operations has gone very smoothly, and the start-up of our upgraded Radium mill in the same south-east Kootenay region of B.C. remains on schedule for the fall of this year."

On July 18, 2012, the Softwood Lumber Agreement arbitration panel ruled in favour of Canada in connection with a claim by the U.S. that the province of B.C. had misapplied or altered certain components of the timber pricing system. The arbitration panel dismissed the claims of the U.S. in their entirety.

Looking ahead, the North American lumber market is projected to show a modest and gradual improvement as housing demand edges higher and U.S. inventories remain at low levels, notwithstanding the fragility of the U.S. economy. With respect to shipments to the U.S., export taxes are 5% in July and will be 10% in August. Offshore lumber shipments are anticipated to remain steady for the rest of the year. The global softwood pulp market is projected to weaken further through the remaining summer months, with producer inventories forecast to rise modestly as there is minimal scheduled maintenance downtime during the summer months.

Source: Canfor Corporation