Pulp prices set to rise, as are profits for pulp companies.

While not much has happened on the local front at the Skeena Cel site of late, the rest of the provinces pulp producers are looking for better days ahead as pulp prices rise and BC companies prepare to take advantage of the fibre situation in BC.

It will be interesting to see if this newfound bit of optimism in the pulp and paper sector speeds up plans by the folks at Sun Wave (nee the China Paper Group) to bring the Skeena mill back on line.

Two reports below outline the sudden cause for optimism in the pulp sector for this year and next.

Pulp prices, profits expected to rise
Gordon Hamilton, Vancouver Sun
Published: Thursday, August 03, 2006

B.C.'s pulp producers have a chance to increase their profits this year on a combination of high international pulp prices and low chip costs caused by the mountain pine beetle epidemic.
North American pulp prices are at $747 US a tonne and a further increase of $20 to $30 per tonne has been announced for Sept. 1.

Fibre prices in the Interior are half the level Eastern Canadian producers are paying, setting the stage for continued earnings improvements.

However, maintenance issues have prevented two of the province's main pulp companies from taking full advantage of the opportunity. Both Canfor and West Fraser Timber reported extended downtime at their pulp mills during the second quarter, affecting production.
But with further price increases on the horizon, pulp is looking good for the remainder of 2006, the CEOs of both companies have told investors.

"Strong worldwide demand and a reduction in capacity in the first half of the year has resulted in a substantial decline in worldwide inventories," West Fraser president Hank Ketcham said in his company's quarterly conference call with analysts. "This has led to a rapid improvement in U.S. dollar pulp prices.

"Our outlook for the remainder of the year is quite positive, although we have some concerns as we look to 2007 given the increase in southern hemisphere capacity."

Canfor president Jim Shepherd said in his conference call that he is "very excited" about the future of pulp. Canfor launched a pulp income trust July 1. Shepherd called it good timing.
"With strong pulp markets, the maintenance behind the mills and a strong operating performance going forward, we believe this fund will be very beneficial to shareholders of Canfor and unitholders of the trust."

The trust is owned 80 per cent by Canfor with the remaining 20 per cent being held by trust unitholders.

Catalyst Paper president Russell Horner said in his conference call Wednesday that higher pulp prices helped boost Catalyst's results. Catalyst is mainly a papermaker, although it sells some pulp.

Horner said Catalyst is not able to benefit significantly from lower chip prices in the Interior because transportation costs to the company's coastal mills eat up much of the saving.
Industry analyst Paul Quinn said in a research paper that pulp supply is tight at a time when demand is growing.

"Currently, global pulp markets are experiencing very strong pricing momentum due to growing pulp demand and a number of capacity curtailments," he said.

He said the tight supply is reflected in extremely low inventories. Inventories are currently at 24 days, he said, a level last seen in 2000.

He said demand is particularly high for northern bleached softwood kraft, the type of pulp made in the B.C. Interior.

ghamilton@png.canwest.com
© The Vancouver Sun 2006



Higher product prices lift Catalyst's second-quarter net profits
1, 2006 - 3:09 pm

VANCOUVER (CP) - Higher prices for pulp and paper products, improved efficiency and big currency and income tax gains helped Catalyst Paper Corp. earn solid profits in the second quarter, reversing a loss last year.

The Vancouver paper producer (TSX:CTL) said late Tuesday it earned $42.4 million or 20 cents a share for the quarter ended June 30, reversing a loss of $23.6 million or 11 cents a share for the same 2005 period.

Sales rose to $469.6 million from $439 million in the first quarter last year.

The strong Canadian dollar squeezed the company's earnings as the currency reached a 28-year high against the U.S. dollar. While this cut operating profits, it also led to a $26.2 million after-tax foreign exchange gain on the translation of U.S.-dollar-denominated debt, a gain that helped boost the bottom line.

Net profits were also bolstered by a $22.9 million drop in future income taxes that followed the federal government's decision to cut corporate income tax rates.

"There were a lot of positives for us in the second quarter," president and CEO Russell Horner said after stock markets closed Tuesday. "Operations ran well in all our mills and this was supported by strong cost control and solid sales. Pulp prices approached a six-year high, but once again the Canadian dollar worked against us to erase the gains made.

"That disappointment aside, we're well-positioned to take advantage of a strong economy as we continue to capture new operational efficiencies and market opportunities."

In another development Tuesday, Catalyst said it has formed special committee to review an unsolicited bid by New York investment company Third Avenue Management to buy more than 18 per cent of the company, or about 39 million shares.

If successful, the bid would increase Third Avenue Management would own nearly 38 per cent of Catalyst.

In its financial report, Catalyst said the company's efficiency drive delivered $19 million toward this year's $70 million goal in the second quarter, Catalyst said, primarily through product optimization, productivity improvements and cost savings for fibre, energy, chemicals and freight.

In breaking down operations, Catalyst said markets for the company's pulp products were strong in the second quarter, with European benchmark pulp prices approaching a six-year high.

Specialty paper markets were mixed, with coated paper prices weakening. Meanwhile, newsprint consumption continued to decline, though industry conditions supported higher prices in the quarter.

Catalyst is a leading producer of mechanical printing papers and market pulp, with five mills and a workforce of 3,800 people on the south coast of British Columbia.

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