Canfor Corporation recorded an operating loss of $560 million in the third quarter of 2024, reflecting intensified challenges across its lumber and pulp segments. The results were affected by a $311 million asset write-down and impairment charges, alongside restructuring costs linked to mill closures in British Columbia. These closures were prompted by sustained constraints, including limited access to economic fiber, rising duties on US exports, and complex regulatory conditions.

Canfor's total sales in Q3 2024 were $1.2 billion, down from $1.38 billion in Q2 2024 and $1.31 billion in Q3 2023. The 13% quarter-over-quarter decline was driven by lower shipments across all operating regions and slightly reduced North American unit sales realizations. Year-over-year, the 8% decrease primarily resulted from a 12% reduction in North American shipment volumes, despite higher European shipment volumes and a 5% weaker Canadian dollar relative to the Swedish Krona.

The lumber segment saw sales of $1,009.7 million in Q3 2024, representing a 13% drop from $1.16 billion in Q2 and a 10% decline from $1.12 billion in Q3 2023. The quarter-over-quarter decrease stemmed from reduced shipment volumes across all regions and weaker North American prices. Compared to Q3 2023, the drop was mainly due to lower Southern Yellow Pine (SYP) unit sales realizations, though higher European shipments and prices provided some offset.

Adjusted operating loss in the lumber segment reached $128.5 million in Q3 2024, widening from $114.9 million in Q2 and $62.3 million in Q3 2023. This quarter-over-quarter decline was driven by continued production curtailments, including the permanent closure of the Polar sawmill in April, as well as a 5% decrease in Western SPF 2x4 prices. Year-over-year, the results reflected weaker North American prices, particularly for SYP lumber, which saw a 16% drop in 2x4 prices and a 33% drop in 2x6 prices compared to Q3 2023.

Western SPF 2x4 #2&Btr prices averaged $366 per thousand board feet, a 5% decrease from $386 in Q2 and a 13% drop from $419 in Q3 2023. SYP 2x4 prices rose 7% from $354 in Q2 to $380 in Q3, though they fell 16% compared to $452 in Q3 2023. Meanwhile, SYP 2x6 prices dropped 12% from $308 in Q2 to $270 in Q3, representing a 33% decrease from $404 in Q3 2023.

In the pulp and paper segment, sales reached $193.2 million in Q3 2024, a 12% decline from $220 million in Q2 but a slight increase from $188.8 million in Q3 2023. The quarter-over-quarter drop was due to reduced pulp production and shipments following the wind-down of one production line at the Northwood mill. Year-over-year, sales increased slightly, driven by stronger North American prices despite weaker NBSK prices in China. Adjusted operating income in the pulp and paper segment improved to $1.7 million in Q3 2024, recovering from a $5.6 million loss in Q2 and a $51.3 million loss in Q3 2023. This improvement was largely due to higher NBSK pulp unit sales realizations in North America. Year-over-year, the segment benefited from stronger NBSK pulp prices in North America, which increased by 36%, offsetting weaker prices in China.

Canfor made significant adjustments to its production capacities during the quarter. Total lumber production fell to 1.12 billion board feet, down 15% from Q2, primarily due to market-related curtailments and the permanent closure of the Polar sawmill. In the pulp segment, the completion of the Northwood mill's production line wind-down reduced annual pulp production capacity by approximately 300,000 tonnes. Canfor Pulp Products Inc. (CPPI) had already reduced production capacity by 580,000 tonnes earlier in 2024, reflecting broader curtailments and closures. Additionally, the acquisition of the El Dorado facility in Arkansas is expected to add 175 million board feet of annual capacity after planned upgrades are completed.

Looking ahead, Canfor anticipates continued pressure on the North American lumber market for the rest of 2024. While lower interest rates may offer some relief, ongoing affordability constraints are likely to limit residential construction and DIY activity. Sawmill curtailments and reduced European imports could provide modest pricing support. In Asia, lumber demand is expected to remain weak, particularly in China's real estate sector, though Japan's multi-family rental market could lead to slight price increases. European markets are projected to experience flat pricing, with higher UK inventories balanced by supply constraints elsewhere. In the pulp sector, a gradual recovery in demand from China and inventory stabilization are anticipated, with NBSK prices expected to level off. Canfor Pulp Products Inc. aims to optimize operations and manage fiber costs, though further adjustments may be needed depending on market dynamics.