HispanicBusiness

Overview

Operating income for the pulp segment was $15.4 million for the first quarter of 2013, an improvement of $7.6 million from the previous quarter and up $3.2 million from the first quarter of 2012. Improved pulp segment results compared to the previous quarter reflected a modest increase in pulp sales realizations coupled with a slight increase in pulp shipments, with increased volumes into China. Further contributing to the positive results was a 3% reduction in unit manufacturing costs largely reflecting reduced maintenance spending and to a lesser extent an increase in production volumes, offset in part by slightly higher fibre costs. Included in both quarters' results were certain one-time items: the current quarter results included a $1.5 million non-cash benefit from scientific research and development tax credits, while the fourth quarter of 2012 included a $4.4 million gain related to post retirement plan adjustments.

Higher operating earnings compared to the first quarter of 2012 reflected lower unit manufacturing costs as well as increased energy sales under the Energy Purchase Agreement ("EPA") at the Company's Prince George Pulp Mill.

Pulp sales realizations were broadly in line with the first quarter of 2012 as a 3% increase in the average North American NBSK pulp list price was offset by an increased volume of shipments to lower-margin regions, principally China. A reduction in fibre costs more than offset increased energy and maintenance spending (timing-related) compared to the first quarter of 2012. Other contributing factors included the aforementioned benefit from the scientific research and development tax credits.

Markets

Global softwood pulp markets showed a small improvement through the first quarter of 2013. Global softwood pulp shipments and printing and writing demand were relatively flat(6) with global softwood pulp producer inventory levels in March 2013 at 29 days supply, in line with the end of December 2012, and up 1 day compared to March 2012 inventories(7).

Sales

The Company's pulp shipments in the first quarter of 2013 were 258,000 tonnes, an increase of 11,000 tonnes, or 5%, from the previous quarter, principally reflecting higher shipment volumes to China. Compared to the first quarter of 2012, shipments were down 13,000 tonnes, or 5%, with the increased volumes to China more than offset by lower volumes to all other regions together with a 9,000 tonne drawdown of inventories in the first quarter of 2012.

Global softwood pulp markets saw modest price increases through the current quarter with average NBSK pulp list prices to all regions moving up US$15 to US$30 per tonne. The NBSK pulp list price to North America averaged US$897 per tonne for the quarter, up US$34, or 4%, from the previous quarter. Sales to China and Europe were also up through the quarter, with pricing to China up US$16 per tonne and pricing to Europe up US$29 per tonne. Current quarter sales realizations did not match the full list price increases due to increased volumes into lower-margin regions, principally China. Canadian dollar sales realizations further benefitted from a weakening of the Canadian dollar against the US dollar, which was down 2% compared to the previous quarter.

Compared to the first quarter of 2012, pulp sales realizations were largely unchanged, with a 3% gain in the average NBSK pulp list price to North America offset by increased volume to lower-margin regions. The North America average NBSK pulp list price increased US$27 per tonne from the previous quarter, while NBSK pulp list prices to China and Europe were in line with the same period in 2012. Higher energy sales under the EPA at the Company's Prince George Pulp Mill largely reflected improved operational performance in the current quarter. Sales realizations were also favourably impacted by the 1% weaker average Canadian dollar compared to the first quarter of 2012.