Tembec is suspending operations at its three sawmills in Quebec due to the high cost of wood supply in the Abitibi-Témiscamingue region. The company says the wood costs make its sawmills uncompetitive given the persistent weak market prices for lumber in North America. The move affects 360 direct jobs at Tembec. “Tembec has already expressed its concerns, on many occasions, to the Québec government regarding wood costs at its sawmills in Abitibi-Témiscamingue," said James Lopez, president and CEO. “Unfortunately, these costs have increased more than 20%. We hope that the Premier of Québec, Mr. Philippe Couillard, will have the determination to act quickly, as he promised during his swearing-in speech of his Cabinet on April 23, 2014."
“Operating performance in the quarter was in line with expectations and the equivalent quarter last year. The group generated an EBITDA excluding special items of US$145 million, operating profit excluding special items of US$74 million and profit for the period of US$24 million.
“The Specialised Cellulose business continued to generate good returns during the quarter, with EBITDA excluding special items of US$70 million. US Dollar prices for dissolving wood pulp remain under pressure in all market segments due to excess market supply as well as the weak margins in the viscose staple fibre sector. The decline in cotton and polyester prices and large cotton reserves are compounding the pricing pressures. The weaker Rand/Dollar exchange rate has enabled the South African mills to maintain Rand pricing, while good variable and fixed cost control across the business is helping to maintain margins.
“In this seasonally slower quarter, the performance of the European business improved compared to that of the equivalent quarter last year. This was despite the €12 million cost and lost margin impact of the paper machine upgrade at the Gratkorn Mill. The European business benefited from lower fixed costs after the disposal of the Nijmegen Mill, higher average sales prices for coated woodfree paper as well as an improved performance from the specialities business at Alfeld. Profitability for the North American business was similar to that of the equivalent quarter last year despite a planned extended annual maintenance shut at the Somerset Mill and a number of completed capital projects. These negatively impacted the quarter by approximately US$10 million in additional expenses and lost margin compared to the equivalent quarter last year. The Southern African business had an improved performance this past quarter, with exchange rate gains on export sales and variable cost savings contributing positively.
In Europe the weaker Euro negatively affected US Dollar denominated variable costs, particularly for paper pulp, compared to the prior quarter. Conversely, paper exports benefited from the weaker Euro and largely offset the effect of the increased pulp costs. The quarter saw a further improvement in the operating and sales performance of the Alfeld speciality mill with a better product mix and average pricing level.
A planned extended annual maintenance shut and the completion of a number of capital projects in the North American business had a significant impact on costs resulting in an operating loss for the quarter. However, the underlying performance, particularly in the coated paper business, improved as a result of higher selling prices. In the current pricing environment, the decision to produce paper pulp for own consumption as well as dissolving wood pulp at the Cloquet pulp mill also enhanced profitability. The release business continues to be adversely affected by weak demand in China.
Pricing in European markets was also negatively impacted by the weaker Euro. Variable costs were generally flat with the prior quarter and lower than last year. Lower cost fibre, from use of own-make Cloquet pulp production, as well as lower starch and latex costs have offset higher wood costs resulting from low inventory levels in the supply chain.