Mercer International reported 29.8% increase of revenues and 33% increase of Operating EBITDA in 2Q2017 y-o-y. According to the announcement, the company’s revenues accounted for USD 283.1 million, generating Operating EBITDA of USD 39.1 million (13.8% margin vs 15.9% in the same period of 2016).
In January-June 2017, the company’s revenues accounted for 526.0 million generating Operating EBITDA of USD 99.3 million (margin 18.9%%).
Mr. David M. Gandossi, Chief Executive Officer, commented:
“In the current quarter, we completed the largest planned maintenance shut in our Celgar mill’s history. The shut was well planned and executed and we were also able to perform additional work that was intended to be completed later in the year. The mill returned to full production immediately after startup and continues to operate well through July.
On average, our pulp mill production was up 7% compared to the same quarter of 2016 and included a quarterly production record at our Rosenthal mill. Pulp markets were generally strong and sales volumes were about 18% higher than the comparative quarter.
During the quarter, we had annual maintenance downtime of 22 days (approximately 32,500 ADMTs), which impacted our operating income by approximately USD 27.5 million, comprised of approximately USD 21.0 million in direct out-of-pocket expenses and the balance in reduced production. Many of our competitors that report their financial results using International Financial Reporting Standards capitalize their direct costs of maintenance downtime.
In the second quarter of 2017, pulp prices in Europe, China and North America increased compared to the prior quarter of 2017 as a result of steady demand, relatively low producer inventories and the impact of spring maintenance downtime taken by producers. This resulted in our average pulp sales realizations being approximately 7% higher in the second quarter of 2017 compared to the prior quarter of 2017. At the end of the current quarter, list prices in Europe, China and North America were approximately USD 890, USD 650 and USD 1,100 per ADMT, respectively. Currently, the NBSK pulp market is balanced with world producer inventories at about 31 days’ supply. A weakening dollar, particularly near the end of the quarter, dampened earnings considerably as we revalued our foreign currency denominated cash and accounts receivable balances to current spot rates.
We are pleased with the ramp up of the Friesau Facility. Due to strong markets, the mill’s ramp up has proceeded faster than we initially budgeted and it generated positive operating income. It produced 67.5 million board feet of lumber in the current quarter and substantially all of lumber sales were to the European market. We commenced lumber sales into the U.S. market in the third quarter of 2017. In the current quarter, lumber sales volumes were 41.5 million board feet as some of the production was staged at the port for delivery to the U.S. market in the third quarter of 2017.
Looking forward, we believe the new pulp production capacity that has or is coming on line in 2017 will not have a material negative impact on the market this year as a result of steady demand growth and diminishing supply and quality of recycled fiber. Further, some of the new capacity will not hit the market in a meaningful amount until 2018. As a result, we currently expect overall steady pulp demand and pricing in the third quarter of 2017 in Europe and China with some potential temporary weakness in spot pricing in China during their
slow summer period.
In the second quarter of 2017, U.S. benchmark lumber prices for Western SPF No. 2 and better averaged USD 386 per Mfbm. There is no similar or common pricing metric quoted in the European market. However, in the second quarter of 2017, our average lumber sales realization in Europe was USD 328 per Mfbm. Currently both the European and U.S. lumber markets are strong and prices are near multi-year highs and are expected to remain steady in the near term.
With our major annual maintenance downtime completed, balanced pulp markets and the successful ramp up of the Friesau Facility, we are well positioned to enhance value for stakeholders over the second half of 2017.”
In 1Q2017 the company increased Operating EBITDA margin to 24.8%.
Earlier Mercer International Mercer International completed acquisition of assets of one of the largest sawmills in Germany.
About Mercer International Inc:
The company is a global pulp manufacturer. It operates three modern NBSK pulp mills in Germany and Canada with a consolidated annual production capacity of approximately 1.5Mt.