MONTREAL — Canadian lumber workers could face even more downtime in the coming weeks as producers grapple with declining prices and the strong dollar, Tembec’s chief executive warned Wednesday.
“If you don’t see a big change in the marketplace sometime in the next four to six weeks, you may see some additional downtime from Tembec and likely others too,” James Lopez said during a conference call.
China’s demand has helped to minimize lumber price reductions in recent months. But selling prices have decreased as North American orders have been hurt by poor weather and the ongoing weakness of the U.S. housing market.
Tembec’s lumber operations remained in the red, but losses decreased slightly from last quarter to $9 million while sales grew to $124 million.
About 59 per cent of its mills were active in the quarter, an increase from the prior period.
“At best we can say that the housing starts are going sideways,” Lopez told analysts.
While no one expected a large recovery, Lopez said there was hope that a modest recovery would germinate in 2011 and carry through 2012 and 2013.
But the seasonal pickup in demand failed to materialize, in part due to poor spring weather in Canada and the United States.
“What we’ve seen is a very, very tepid start to the construction season.”
The Quebec-based company earned $7 million in the second quarter after a breakeven period a year earlier.
Tembec (TSX:TMB) earned seven cents per share for the period, compared to nil in the same period of 2010. Sales declined to $452 million from $476 million.
Analysts had expected 22 cents of earnings for the quarter, with $454 million of sales, according to those polled by Thomson Reuters.
Operating earnings, stripping out one-time items, came in at $33 million, up slightly from $32 million a year earlier but up sharply from $11 million in the prior quarter.
“Our results in the quarter were pretty much as we expected with the currency clawing away some of the EBITDA but still a strong recovery from the previous quarter,” Lopez added.
A large chunk of the earnings came from strong results of its dissolving chemical pulp business, which continues to enjoy strong prices and demand.
The sector’s earnings increased by $25 million from the previous quarter to $44 million. Segment profits also increased from $37 million last year because of higher contract pricing and lower costs and maintenance.
“We anticipate that our dissolving pulp business will continue to be robust,” Lopez said.
Lower energy costs at its Kapuskasing newsprint mill and increased energy sales caused its paper segment profit to double to $9 million from last quarter and up from a $5 million loss a year ago.
And with its major annual maintenance completed and stronger markets and prices expected, Tembec anticipates several strong quarters ahead overall.
Paul Quinn of RBC Capital Markets said Tembec delivered “solid” results that were essentially in line with his expectations.
Tembec is an integrated forest products company, with operations in North America and France. It has some 6,000 employees, and operates more than 30 market pulp, paper and wood product manufacturing units, and produces silvichemicals from by-products of its pulping process and specialty chemicals.
Tembec markets its products worldwide and has sales offices in Canada, the United States, China, Korea and Japan.
It was created in 1973 after a closed paper mill in Temiscaming, Que., was purchased from a large multinational company.
On the Toronto Stock Exchange, its shares gained 35 cents, or 6.57 per cent, to close at $5.68 on Wednesday.