VANCOUVER - Canfor Corporation (TSX: CFP) says it paid $51.7 million in countervailing duties in the second quarter, the result of U.S. tariffs that went into force in 2017.
Canfor, which sells more than half of its lumber to the U.S., reported operating income of $282.1 million for the second quarter of 2018, up $78.3 million from the first quarter, with the increase reflecting significantly higher lumber segment operating earnings as well as growing pulp sales.
Canfor, which also makes Glulam engineered wood beams and columns, says it paid a net duty expense of $51.7 million, at a current effective countervailing duty and anti-dumping duty rate of 14.94%, compared to $34.9 million in the first quarter of 2018 and $35.6 million in the second quarter of 2017. After adjusting for duties, operating income was $333.8 million for the second quarter of 2018, up $95.1 million from similarly adjusted operating income in the first quarter of 2018.
Canfor' timeline of wood construction technology
Adjusted lumber segment earnings largely reflected record Western Spruce/Pine/Fir and Southern Yellow Pine benchmark lumber prices, a 2 cent, or 2% weaker Canadian dollar and increased shipment and production volumes following the significant weather-related transportation and operational challenges experienced in the first quarter of 2018.
Canfor plans to build a $120 million, state-of-the-art softwood lumber sawmill in Washington, Georgia, with a production capacity of 275 million board feet and produce high-value dimension and specialty lumber products. Startup is scheduled for third quarter of 2019.
North American lumber demand was solid across all segments of the market in the second quarter of 2018. US housing starts averaged 1,262,000 units on a seasonally adjusted basis, down 4% from the previous quarter and up 8% from the second quarter of 2017. Single-family starts, which consume a higher proportion of lumber, were up 1% from the previous quarter, while multi-family starts were down 16% compared to the first quarter of 2018. Canadian housing construction activity remained solid in the current quarter, at an average of 219,000 units on a seasonally adjusted basis. Offshore lumber demand from China, Japan and other regions was stable through the second quarter, particularly for the Company's increasing percentage of higher-value lumber products.
The average benchmark North American Random Lengths Western SPF 2x4 #2&Btr price was US$598 per Mfbm, up US$85 per Mfbm, or 17%, compared to the first quarter of 2018, with more modest price increases seen across wider-width dimensions. The average benchmark North American Random Lengths SYP East 2x4 #2 price was US$589 per Mfbm, up US$23 per Mfbm, or 4%, compared to the first quarter of 2018, with more pronounced price increases in 2x6 and 2x10 #2 dimensions, in part reflecting seasonally higher demand. Solid demand coupled with supply constraints contributed to a sharp increase in benchmark lumber prices in April and May, before prices came off their record-high levels through June as transportation availability slowly improved. Offshore lumber realizations saw more modest increases when compared to North America, due in part to the nature of pricing, much of which is negotiated monthly or quarterly in advance.
Canfor says the U.S. housing market will continue its ongoing gradual recovery through the balance of 2018. North American lumber prices are projected to remain solid, and high by historical standards, in the third quarter of 2018 reflecting solid seasonal demand, while transportation networks are anticipated to continue their slow return toward normal service levels through the quarter. For the Company's key offshore lumber markets, demand is anticipated to remain solid through the third quarter of 2018, particularly in Japan.
Notwithstanding some seasonal weakness in China during the traditionally slower summer months, global softwood kraft pulp markets are projected to be balanced through the third quarter of 2018. For the months of July and August 2018, CPPI announced NBSK pulp list price increases in North America of US$40 per tonne and US$30 per tonne, respectively. Results in the third quarter of 2018 will include a scheduled maintenance outage at Northwood, CPPI's largest NBSK pulp mill, with a projected 28,000 tonnes of reduced NBSK pulp production, combined with higher associated maintenance costs and lower projected shipment volume. Bleached kraft paper demand is anticipated to remain stable through the third quarter of 2018.
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