Canfor warns rising markets don't mean turnaround for forestry industry in near term
Published Friday October 30th, 2009
VANCOUVER, B.C. - The head of Canfor Corp. (TSX:CFP) is skeptical that the economic recovery will spread to the beleaguered forestry sector, saying the only way to cope with the prolonged downturn is to continue cutting costs until demand meets supply.
Jim Shepard, Canfor's president and chief executive, painted another bleak picture of his industry's near-term future on Friday, despite the company reporting a drastic reduction in its third-quarter losses compared to last year.
Shepard said the forestry sector was the first hit by the recession, and while it's natural for some to expect a turnaround by now - in particular with some signs of a general economic recovery - he doesn't see it coming.
"I see nothing wrong with hoping that dust on the horizon is truly the calvary coming to our rescue, and that the economy is truly turning around, but I have to be honest and say I personally doubt it," Shepard said Friday on a conference call.
"We can't count on the markets saving us just yet."
That's why Canfor continues to cut costs, Shepard said. Apart from closing mills and reducing production to around 50 per cent in recent quarters, he said the company has cut other operational expenses.
Shepard cited the sale of the company's corporate jet last year and two years of staff salary reductions.
Canfor also announced it would be moving out of its downtown Vancouver corporate headquarters at the end of this year. Operations will be transferred to a corporate office it has in the south Vancouver neighbourhood of Marpole.
"The recovery in the forest industry is likely to be a slow one," Shepard said.
He cited a recent Harvard study showing one-third of houses in the United States were worth less than their mortgages at the end of June, which has driven up the rate of foreclosures.
"The trend should be a deep concern for all that depend on the U.S. housing sector," Shepard said.
A majority of lumber produced in Canada is destined for the U.S. housing market. As a result, the industry has been hammered by the U.S. housing crisis, closing mills and laying off thousands of workers as it tries to stave off deeper losses.
Other factors impacting the industry include the higher Canadian dollar versus the U.S. dollar, U.S. taxes on imports, and the mountain pine beetle that is chewing its way through forests in Western Canada.
Late Thursday, Canfor said cost cutting, higher pulp prices and foreign exchange gains helped shore up its bottom line in the third quarter.
Vancouver-based Canfor reported a net loss of $5.2 million or four cents a share in the quarter ended Sept. 30, compared with a loss of $94.2 million or 66 cents a share for the same period in 2008.
Quarterly sales fell to $540.9 million from $668 million in the year earlier period.
The ongoing downturn in the U.S. housing market continued to significantly impact Canfor's financial performance, but Canfor said further mill shutdowns and improved efficiency.
Higher pulp prices and foreign exchange translation gain of $19.6 million on U.S. dollar debt helped reduce its red ink.
Cash conservation remained a primary focus for the company.
The company announced Thursday that it would be taking curtailments at most of its sawmills over the Christmas period in a move that will reduce lumber production by approximately 37 million board feet.
Canfor operated at approximately 50 per cent of lumber capacity for the quarter.
In addition to indefinitely idling its Radium, Rustad and Vavenby sawmills in June and July, the company curtailed another 95 million board feet of lumber production, in the form of summer vacation shutdowns.
Canfor vowed to continue to adjust its production levels to match demand in future, saying the strong Canadian dollar is creating additional challenges.
The company would not comment on pending labour negotiations with some of its unionized workers.
Canfor shares closed down six per cent or 39 cents to $6.05 on the Toronto Stock Exchange Friday.
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