Compared to the fourth quarter of 2011, the improved results were primarily the result of lower prices for slush pulp, reflecting lower market pulp prices, which more than offset lower paper unit sales realizations.
Markets
Global kraft paper demand was steady through the fourth quarter. However, demand slowed in December as a number of sack kraft paper producers in North America and Europe scheduled downtime over the holiday period as customers balanced inventories at the end of the year.
Sales
The Company's paper shipments in the fourth quarter of 2012 were 32,000 tonnes, an increase of almost 1,500 tonnes from the previous quarter and 2,000 tonnes higher than the fourth quarter of 2011, principally reflecting the higher production levels. Prime bleached shipments, which attract higher prices, averaged 75% of total prime shipments during the quarter compared to 85% in the previous quarter, but were relatively unchanged from the fourth quarter of 2011.
Unit sales realizations for paper products were down 2% from the third quarter of 2012 and down 5% from the same period in the prior year. The more significant decrease compared to the fourth quarter of 2011 related primarily to lower bleached paper prices into export markets, principally Europe and China, and the 3% strengthening of the Canadian dollar.
Operations
Paper production in the fourth quarter of 2012 was 35,400 tonnes, up 3,500 tonnes from the previous quarter and up almost 2,000 tonnes compared to the same period in 2011. The increased production primarily reflected higher operating rates in the current period.
Paper unit manufacturing costs were 7% lower than the prior quarter as a result of lower costs for slush pulp and the impact of higher production volumes.
Compared to the fourth quarter of 2011, unit manufacturing costs were significantly lower, principally reflecting lower costs for slush pulp.
Unallocated Items
Q4 Q3 YTD Q4 YTD(millions of dollars) 2012 2012 2012 2011 2011----------------------------------------------------------------------------Corporate costs $ (2.8) $ (4.8) $ (14.0) $ (3.6) $ (13.6)Finance expense, net $ (3.4) $ (2.8) $ (11.8) $ (2.8) $ (10.9)Foreign exchange gain (loss) on long-term debt $ (1.3) $ 3.9 $ 2.4 $ 2.4 $ (2.5)Gain (loss) on derivative financial instruments $ (0.1) $ 1.9 $ 1.7 $ 1.5 $ (1.6)Foreign exchange gain (loss) on working capital $ 0.3 $ (1.5) $ (1.2) $ (1.3) $ 1.0--------------------------------------------------------------------------------------------------------------------------------------------------------
Corporate costs were $2.8 million for the fourth quarter of 2012, down $2.0 million from the previous quarter and down $0.8 million from the fourth quarter of 2011. The reduction in the current quarter primarily reflected the costs in the previous quarter related to changes in senior management as a result of the integration of CPPI and Canfor Corporation. A portion of the decrease from both comparative periods also reflected part of the aforementioned gain due to amendments to the Company's salaried post retirement benefit plans.
Net finance expense for the fourth quarter of 2012 was $3.4 million, a $0.6 million increase compared to both the previous quarter and the fourth quarter of 2011, primarily reflecting costs associated with a new operating loan facility entered into in the fourth quarter of 2012. The finance expense for each period principally represents interest expense on long-term debt and stand-by fees for the Company's operating loans, as well as the finance expense relating to the Company's defined benefit post-retirement benefit plans.
