An anonymous director reports

CANFOR PULP REPORTS RESULTS FOR SECOND QUARTER OF 2023

Canfor Pulp Products Inc. has released its second quarter of 2023 results.

Overview

• Q2 2023 reported operating loss of $38-million; net loss of $28-million, or 44 cents per share;
• Significant deterioration in global pulp market fundamentals throughout the quarter driven by record high pulp producer inventory levels and weak global pulp demand;
• Completed closure of pulp line at Prince George pulp and paper mill;
• Subsequent to quarter-end, a labour dispute at British Columbian ports resulted in transportation bottlenecks and a short curtailment at the company's Northwood NBSK pulp mill.

Financial results

The attached table summarizes selected financial information for CPPI for the comparative periods.

The company reported an operating loss of $37.9-million for the second quarter of 2023, compared with an operating loss of $25.2-million for the first quarter of 2023. After taking into consideration a net $6.9-million inventory writedown in the current period, the company's adjusted operating loss was $31.0-million for the second quarter of 2023, compared with an adjusted operating loss of $21.6-million for the first quarter of 2023. These results, for the most part, reflect the impact of substantial global pulp pricing declines in the current quarter driven by elevated global market pulp producer inventory levels and weak global softwood pulp demand.

In January, 2023, the company announced the decision to restructure its operating footprint to align its manufacturing capacity with the long-term supply of economic residual fibre and, as a result, in April, 2023, the company wound down and permanently closed the pulp line at its Prince George (PG) northern bleached softwood kraft (NBSK) pulp and paper mill. In connection with this closure, the company's Intercontinental NBSK pulp mill (Intercon) was successfully converted to provide slush pulp to its specialty paper facility. The combined impact of these operating structure changes is a reduction of approximately 280,000 tonnes of market kraft pulp production annually.

Commenting on the company's second quarter of 2023 results, CPPI's president and chief executive officer, Kevin Edgson, said: "Following our difficult decision to permanently close the pulp line at the Prince George pulp and paper mill, we had a smooth and efficient wind down of the pulp line and an effective transition of slush pulp supply to our paper machine. We want to thank our employees for their unwavering commitment to safety along with their determination, dedication and resilience to continue to strive for improved operating performance and reliability. Financially, this was a challenging quarter for the pulp business as declining global pulp market conditions weighed heavily on results. While we continue to navigate the current external challenges facing our pulp business, including the ongoing weak global pulp market fundamentals, we greatly appreciate our employees' continued efforts in navigating through these difficult conditions."

Global softwood pulp market fundamentals and pricing experienced considerable pressure during the second quarter of 2023 as tepid global demand was combined with rising global softwood pulp producer inventory levels. As a result, NBSK United States-dollar list prices to China dropped sharply throughout the quarter to end June at a low of $648 (U.S.) per tonne. For the current quarter overall, U.S.-dollar NBSK pulp list prices to China averaged $668 (U.S.) per tonne, down $223 (U.S.) per tonne, or 25 per cent, from the previous quarter. Prices to other global regions experienced less pronounced declines in the current period, with the average U.S.-dollar NBSK pulp list price to North America at $1,510 (U.S.) per tonne (before discounts), down $165 (U.S.) per tonne, or 10 per cent, from the prior quarter. Global softwood pulp producer inventories climbed substantially throughout the current quarter and, at the end of May, 2023, were significantly above the balanced range at 54 days of supply, an increase of five days from March, 2023. (Market conditions are generally considered balanced when inventories are within a normal range of 32 to 43 days of supply).

Pulp production was down 17 per cent from the previous quarter, mainly due to the aforementioned operating platform changes, and, to a lesser extent, operational challenges at the company's Northwood NBSK pulp mill in the current period.

Operating income in the company's paper segment was $700,000, down $2.6-million from the previous quarter, as a reduction in slush pulp costs, linked to lower Canadian dollar NBSK pulp market prices, was more than outweighed by a decrease in paper production and shipments as a result of a scheduled maintenance outage completed in the current period, as well as higher energy costs quarter over quarter.

Looking forward, global softwood kraft pulp markets are anticipated to remain challenging through the third quarter of 2023, as record high global pulp producer inventory levels are projected to continue to be met with weak global pulp demand, particularly for paper and writing grades. In addition, the traditionally slower summer months are anticipated to further soften global pulp demand, particularly in the short term. The company will continue to monitor the challenging market conditions and will adjust operating rates, if appropriate, through the balance of 2023.

The labour dispute at the ports of Vancouver and Prince Rupert that commenced on July 1, 2023, put pressure on a constrained logistics network in British Columbia. As a direct result, with pulp mill inventories at capacity, the company curtailed its Northwood pulp mill in July for approximately one week, with an estimated 10,000 tonnes of reduced NBSK pulp production.

Results in the third quarter of 2023 are also forecast to reflect a scheduled maintenance outage at Northwood in September, with a projected 25,000 tonnes of reduced NBSK pulp production, as well as higher associated maintenance costs and lower projected shipment volume. As part of this outage, the company will complete an inspection of its assets at this facility, including the two recovery boilers, with the intention of formulating a re-investment plan for Northwood's recovery boiler No. 1 (RB1), as well as the facility as a whole, that is focused on optimizing this mill for the long term.

Bleached kraft paper markets are anticipated to weaken through the third quarter of 2023, particularly in the North American markets, as tepid demand is combined with above average paper inventory levels.

Additional information and conference call

A conference call to discuss the second quarter's financial and operating results will be held on Friday, July 28, 2023, at 8 a.m. Pacific Time. To participate in the call, please dial toll-free 1-888-390-0546. For instant replay access until Aug. 11, 2023, please dial toll-free 1-888-390-0541 and enter participant pass code 989608 followed by the pound key. The conference call will be webcast live and will be available at the company website. This news release, the attached financial statements and a presentation used during the conference call can be accessed via the company's website.

About Canfor Pulp Products Inc.

Canfor Pulp Products is a leading global supplier of pulp and paper products with operations in the central interior of British Columbia (B.C.). Canfor Pulp owns and operates two mills in Prince George, B.C., with a total capacity of 780,000 tonnes of premium reinforcing northern bleached softwood kraft (NBSK) pulp and 140,000 tonnes of kraft paper. CPPI shares are traded on the Toronto Stock Exchange under the symbol CFX.

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