Falling Canadian dollar helps soften impact of declining pulp prices

Oct 29, 2008. /Lesprom.com/. The falling Canadian dollar is helping ease the impact of declining prices on pulp producers Canfor Pulp and Mercer International, the two companies said in their third-quarter financial results. Pulp prices were off marginally at the end of the quarter but have since slipped further as demand slows and inventories build, Vancouver Sun reported. The dollar traded at an average rate of $0.96 during the 3Q and now sits at $0.77. For Mercer, a Vancouver based company with two mills in Germany and one at Castlegar, more favourable currency rates and its position as a low-cost producer will help it through the looming economic slowdown, President Jimmy Lee said. "A stronger U.S. dollar is beneficial to us because, although pulp is primarily quoted in U.S. dollars, our production costs are principally incurred in euros and Canadian dollars." The euro has declined 11% against the U.S. dollar. Mercer, which reports its results in euros, lost 17 million euros, or .47 euros a share, during the quarter. One-time items and the relatively weaker U.S. dollar during the quarter accounted for much of the loss. At Canfor Pulp Income Fund, which owns 49.8% of Canfor Pulp Limited Partnership, lower oil and natural gas costs, coupled with the weaker Canadian dollar, are mitigating the effect of lower pulp prices. Canfor Corp. owns the other 50.2% of the partnership. The partnership reported income of $11.1 million, or $0.15 a unit. The fund reported earnings of $5.2 million or $0.15 per fund unit. Canfor Pulp reported it will be combating the weaker prices in this quarter by taking down time at its Prince George mills. "With rising pulp inventories, the partnership has decided to take market-related production curtailments of approximately 30,000 tonnes of pulp and 10,000 tonnes of kraft paper," the fund reported in its quarterly statement. Canfor Pulp said market conditions changed near the end of the third quarter in response to the global financial crisis and a worsening economy in the U.S. Pulp prices are falling in all of the partnership's markets. At the end of the third quarter, prices were down from $885 US to $870 US a tonne in North America. "As we enter the fourth quarter, list prices have fallen a further $20 US a tonne," the company stated. Industry analysts say contract buyers are often getting discounts off list prices and that spot prices for pulp are in the $600 US range now.