Selective Cuttings

2014 Financial results of Canadian forest sector

July 16, 2015

The financial results of the Canadian forest sector firms continued to improve in 2014. The ten largest publicly traded Canada based forest sector companies1 together reported a positive operating income of $1.8 billion, up 8% from 2013 with nine of the ten companies reporting positive operating income. Collectively, this is the highest operating income these companies have seen during the past decade.

Operating income – Largest 10 Canadian publicly traded forest sector firms

This chart shows the quarterly financial results of ten largest Canada-based publicly traded forest products companies, from the period from 2005 to 2014. Together the ten largest publicly traded Canadian forest companies reported an operating income of $ 1.8 billion, the best over the past 10 years.

Most companies with major exposure to solid wood products continued to experience a strong momentum thanks to relatively balanced supply and demand, and generally favorable pricing supported by recovering U.S. and solid offshore demand. Total volume of Canadian softwood lumber (SWL) exports in 2014 was up about 5% from 2013. Volumes exported to the U.S. grew by 11% from 2013 offsetting the 5% decline of shipments to China, the first dip over the past 10 years. The Composite lumber benchmark prices strengthened sufficiently to eliminate any charges and restrictions under the Softwood Lumber Agreement (SLA) over the entire 2014 year. Taking advantage of the improving balance sheets, some Canadian companies have continued making strategic investments. In particular, acquisitions in the U.S. have seen the Canadian-owned share of US sawmilling capacity climb to 14% in 2014.

Financial performance of those companies with more exposure to pulp and paper products also significantly improved, mainly thanks to improved softwood pulp prices – in 2014 the average US dollar price for North American Northern Bleached Softwood Kraft (NBSK) pulp was up 9% compared to 2013. The value of NBSK exports rose 13% in 2014, despite almost unchanged shipped volumes thanks to the higher prices and the weakening Canadian dollar. Some Canadian companies also benefited from increased by-product and energy revenues.

The depreciation of the Canadian dollar continued in 2014, with monthly average exchange rate against the U.S. dollar down 8% from December 2013 to December 2014, which provided Canadian companies a competitiveness advantage in global markets. On the other hand, it increased the financial burden for Canadian companies with U.S. dollar-denominated debt.

1The 10 largest Canadian publicly traded forest products companies are Domtar, Resolute, Cascades, West Fraser Timber, Canfor, Tembec, Norbord, Mercer, Catalyst, and Western Forest Products.