South America: Brazilian pulp exports in 2012 were an estimated 8.5 million MT according to Bracelpa (Brazilian Pulp Producers Association), consistent with 2011 levels. Estimated industry revenue for 2012 was US$6.7 billion which was 7.4% lower than in 2011. Europe was the main destination for exports representing 37%, followed by China at 20% and Latin America at 18%.
The Brazilian chlor-alkali industry capacity utilization rate was 83% for 2012 (1% higher than 2011). Canexus Brazil`s chlor-alkali capacity utilization was 100%, driven by higher hydrochloric acid sales as a result of lower spent acid availability in North East Brazil and market share gains.
Looking forward into 2013, we expect to maintain continued high operating rates at our chlor-alkali facility supported by long-term contract positions with key customers. We expect a modest decrease in our sodium chlorate operating rate due to lower consumption levels at our major customer resulting from process optimization efforts. The resulting available capacity is expected to be realigned with other merchant market customers over the next year.
Oil & Gas: International crude oil prices (Brent) were generally stable in the fourth quarter of 2012, while North American prices (West Texas Intermediate, Western Canadian Select) declined gradually during the fourth quarter of 2012. Brent pricing has been supported by a modestly improved global economic outlook and geopolitical concerns in the Middle East, whereas growing production and ongoing infrastructure bottlenecks are holding back regional prices in North America. Accordingly, price differentials between Western Canadian grades and other key benchmarks widened during the fourth quarter of 2012, supporting strong demand for rail based oil transportation services.
While natural gas prices rose during the fourth quarter of 2012 as demand was driven by cold weather and several nuclear power plants being offline in the U.S.; natural gas inventories remain solid and prices are expected to remain stable in the short term. Gas production is expected to continue to gradually fall in North America in 2013 and prices are expected to begin increasing modestly in the long term. These factors negatively impacted hydraulic fracturing service levels in the quarter which reduced demand for hydrochloric acid in the same period.
Drilling activity picked up in Western Canada in the fourth quarter of 2012 and is predominantly focused on oil production due to lower prices for natural gas.
-- Long-term Debt and Finance Income (Expense): -- We borrow in US dollars, which creates unrealized currency translation gains as the Canadian dollar strengthens. A substantial portion of our revenues are denominated in or referenced to the US dollar. During the fourth quarter of 2012, we recorded an unrealized currency translation loss of $6.6 million as a result of the weakening of the Canadian dollar at the end of the quarter compared to the end of Q3 2012 (Q4/11 - $5.9 million unrealized gain) and a realized currency translation gain of $3.4 million on repayments of US dollar debt in the quarter (Q4/11 - $Nil). These amounts are included in finance income (expense). -- Interest expense in the quarter was $4.2 million (Q4/11 - $5.5 million). Interest capitalized on major projects was $0.9 million in Q4 2012 (Q4/11 - $0.2 million).-- Other Income (Expense): -- In the fourth quarter of 2012, mark-to-market fair value gains of $ nil (Q4/11 - $0.1 million gains) were recorded on foreign exchange option contracts. In January, we purchased foreign exchange options protecting US$5.0 million per month for both Q2 2013 (at US$0.99) and Q3 2013 (at US$0.97). -- In the fourth quarter of 2012, we recorded mark-to-market fair value gains of $0.3 million (Q4/11 - $0.4 million) on interest rate swaps and realized losses of $0.4 million (Q4/11 - $0.4 million). -- Other income also includes $0.1 million of foreign currency translation gains on working capital in Q4 2012 (Q4/11 - $0.3 million losses) and a $3.0 million gain on a non-monetary asset exchange (related to an office move). -- In the fourth quarter of 2012, we recorded mark-to-market fair value losses on a cross currency swap of $0.2 million as a result of the weakening of the Canadian dollar at the end of the quarter compared to the end of Q3 2012. In Q3 2011 we entered into a cross currency swap to effect the payment of interest in US dollars on the Series IV Convertible Debentures issued on June 30, 2011.-- Capital Expenditures: Capital expenditures for the three months ended December 31, 2012 were $67.9 million, of which $5.6 million was spent on maintenance projects, $3.2 million on continuous improvement projects and the balance on expansion projects ($59.1 million). Expansion capital was spent on the continued development of our NATO site and hydrochloric acid expansions at our North Vancouver facility.-- Provision for Income Taxes: Provision for income taxes is higher in the fourth quarter of 2012, as compared to the same period in 2011, due to a tax pool adjustment recorded in the three months ended December 31, 2011. As of December 31, 2012, the Corporation had approximately $515 million of future tax deductions resulting from capital expenditures which can be used to shelter future taxable income in Canada.-- Liquidity: As of December 31, 2012, total borrowings under committed credit facilities were $223 million with remaining available undrawn capacity of approximately $200 million. Cash on hand at December 31, 2012 was $9.4 million.