Selective Cuttings

The forest sector Q3 financial results rebounded

February 8, 2016

The financial performance of Canadian forest sector firms rebounded during the third quarter of 2015. The ten largest publicly traded Canadian forest companies1 reported a combined operating income of $476 million, up 109% compared to the second quarter of 2015, though this still represented a 9% drop relative to the third quarter of 2014. On an individual basis, all those companies also reported positive operating income. This is an improvement compared to the previous quarter, when only seven firms reported positive operating income.

Total sales of those ten companies reached $8 billion, a 6% increase compared to the previous quarter. It is the highest quarterly sales level since 2009.

Financial results of the largest Canadian publicly traded forest companies

This chart shows the quarterly financial results of ten largest Canada-based publicly traded forest products companies, from Q3 2014 to Q3 2015. Together, the ten largest publicly traded Canadian forest companies reported an operating income of $ 476 million.

The improved financial results of the third quarter of 2015 were in part the result of weaker Canadian currency, as the exchange rate declined by 6%. It more than offset the challenging market conditions in forest products markets:

  • On the lumber side, Q3 2015 Random Lengths framing lumber composite price was 2% lower than previous quarter, falling to levels not seen since early 2012. This was due to the combination of the weak Chinese demand (volume of softwood lumber exports to China dropped by a significant 27%) and of the oversupply in North America. On the other hand, total volume of Canadian softwood lumber exports to the US was up 4% compared to previous quarter.
  • Meanwhile, global pulp and paper markets were relatively weak. The average North America Northern Bleached Softwood Kraft (NBSK) pulp price was down about 2%, compared to the average in the previous quarter. In China, Canada’s largest pulp export market, the average NBSK pulp price was down 5%.

Going forward, North American lumber market should slightly improve in the fourth quarter of 2015 due to relatively stable North American demand. Offshore markets are also expected to improve; lumber market in Japan is expected to remain stable while market conditions in China are projected to show a slight improvement. Global pulp markets are expected to continue to be under downward pressure in the fourth quarter of 2015. However, the weakening of the Canadian dollar should continue to cushion the negative impacts of weak markets for Canadian forest companies.

1Including Domtar, Resolute, Cascades, West Fraser Timber, Canfor, Tembec, Norbord, Mercer, Catalyst, and Western Forest Products