West Fraser Timber (TSX:WFT) chief executive Hank Ketcham says China remains a solid market for the lumber producer amid concerns that Asian economic growth might be slowing.
“We think it is a very solid market over there,” Ketcham told a conference call with financial analysts Tuesday to discuss its latest results.
Ketcham said lumber inventories in China may have been increasing in recent months, but he was unconcerned by the buildup.
“At the current time we think it is simply a question of rebalancing inventories,” Ketcham said.
“To the extent that there is an oversupply of lumber on the docks over there, it is starting to work itself off now, we hope.”
China has been a key market for Canadian lumber producers on the West Coast since the U.S. housing market came to a crashing halt during the recession.
However signs that the Chinese economy is slowing have rattled international financial markets, as the Asia country has been one of the few bright spots during the economic turmoil.
Beijing is trying to steer growth that hit 9.5 per cent in the quarter ending in June to a more sustainable level. However efforts to curb inflation by tightening bank lending have raised worries it might slow the economy too much, as both Europe and the U.S. continue to struggle.
Canadian firms, with the help of the B.C. and federal government, have worked hard in recent years to promote the use of wood in construction in China which traditionally has not used wood frame building techniques.
Ketcham estimated the company shipped roughly 30 per cent of its lumber production to Asia in its latest quarter, mostly Japan and China.
Scotia Capital analyst Benoit Laprade lowered his price target on West Fraser on Tuesday to $53 from $56 based on higher costs at the company.
However, Laprade maintained a “sector outperform” rating on the stock.
“West Fraser is well positioned to take advantage of growing Asian demand from its Canadian operations and of a recovering U.S. housing market from its U.S. South platform,” he wrote in a note to clients.
“We expect marginally higher lumber prices in 2012 on the back of marginally stronger housing starts and continued — albeit slowing — growth in shipments to Asia.”
West Fraser reported Monday a loss of $27.3 million in its latest quarter compared with a profit of $42.1 million a year ago as the forestry company took a charge related to its pension plan.
Sales totalled $705.4 million for the three months ended Sept. 30 compared with $706.8 million in the comparable period of 2010.
The pension charge in the quarter totalled $108.1 million for an actuarial loss on future benefits for employees.
Excluding the pension charge and a currency exchange gain on its foreign operations, West Fraser earned $37.4 million, boosted by the sale of its Eurocan deep-sea wharf. That compared with a profit of $47.8 million a year ago.
In its outlook, West Fraser said lumber prices are expected to remain at or fall below current levels as low U.S. housing starts will continue to limit demand.
West Fraser, which has operations in Western Canada — including Sundre Forest Products and West Fraser LVL near Rocky Mountain House — and the southern United States, produces lumber, wood chips, plywood, pulp and newsprint.
Shares in the company were down 83 cents at $41.71 on the Toronto Stock Exchange on Tuesday afternoon.