Tembec produces Q4 profit, reduced annual loss as it adjusts to tough market

MONTREAL – Tembec Inc., a Quebec-based forestry products company that produces lumber, paper and pulp, says it has been impacted by lower demand for a pulp used to make products such as baby wipes and cosmetic face masks.

The Montreal company is preparing to implement a plan for reducing its output of viscose-grade pulp, also hit by China’s new antidumping duties, and will put a greater emphasis on other types of specialty cellulose from wood fibres.

China decided in early November that a 13 per cent duty rate would be applied to Tembec’s viscose pulp shipments — making them more expensive and less competitive in that market.

“While pricing for specialty grades remained stable, demand has been softer than anticipated. We continue to assess the market with our customers and are adjusting our production plans accordingly. We anticipate that it will be one or two quarters before we see an increase in demand for specialty grades,” the company said Thursday in a news release.

“The company currently has a position of 40,000 tonnes of viscose per year in the Chinese market. In anticipation of this announcement, the company had been developing a plan to reduce the impact of the duties.”

Tembec is also dealing with unexpectedly weak prices for lumber used in house building, although the company says it expects prices to improve in the medium to long term.

“Overall, the September 2013 quarterly results were in line with expectations,” the company said.

“While the relatively small decline in random length lumber prices was not unexpected, the 15 per cent decrease in stud lumber prices was unforeseen,” said Tembec (TSX:TMB).

“Pricing over the medium and longer term should increase, in step with the anticipated growth in United States new home construction.”

In its fiscal fourth quarter ended Sept. 28, Tembec had a net income of $6 million or six cents per share — an improvement from a year earlier when it recorded a loss of $47 million or 47 cents per share.

For the full 2013 financial year, Tembec had a loss of $34 million or 34 cents per share — an improvement from the 2012 loss of $82 million or 82 cents per share.

Tembec’s fourth quarter and annual revenue was down from their year-earlier comparables, but operating earnings improved from 2012, when the value of a B.C. pulp mill was written down by $50 million.

The company said it had spent $137 million as of September on a specialty cellulose plant in Temiscaming, Que., that will improve the mill’s cost structure and margins..

Its obligations to a defined benefit pension plan will also be lower, due to a combination of relatively high contributions and good returns, and the company expects to realize up to $75 million by December 2014 through a B.C. land-sale program.