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A West Fraser lumber mill (JOHN LEHMANN/JOHN LEHMANN/GLOBE AND MAIL)
A West Fraser lumber mill (JOHN LEHMANN/JOHN LEHMANN/GLOBE AND MAIL)

China sales pay off for West Fraser Add to ...

Surging sales of lumber to China have helped underpin a turnaround at the sector's largest producer, West Fraser Timber

The Vancouver company, which had lost money 12 of 14 quarters to the end of 2009, has booked its third consecutive quarterly profit.

Even as sales to the still-depressed housing market in the United States remain weak, years of work to market Canadian lumber in China has started to make a significant impact. Sales to Asia have jumped by about 50 per cent from a year ago and now account for about 15 per cent of West Fraser's output, said chief executive officer Hank Ketcham.

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"The economy is moving ahead and they're getting more comfortable buying from us, using our product," Mr. Ketcham told analysts and investors on a conference call Tuesday.

West Fraser reported a third-quarter profit of $45-million, a reversal from the $199-million lost in the same period a year earlier. In the interim, West Fraser has aggressively cut its net debt - $113-million at Sept. 30 compared with $484-million last year - and the company has embarked on a $125-million capital spending program as it also partly restores its slashed dividend.

On Thursday, Mr. Ketcham joins a 30-person industry delegation to China, a third annual trip led by British Columbia Forests Minister Pat Bell.

The trips - which include visits with local industry as well as government officials - have been an important part of industry gains in China. B.C. has increased its export of lumber to China by 71 per cent in the first eight months of 2010 to $342-million, compared with $200-million in 2009.

The best-ever month came in August, when B.C. government statistics show that sales of $64-million were more than double a year earlier.

Sales to the U.S. continue to shrink, with August being one of the worst-ever months, as sales slid 15 per cent from already-depressed levels to $128-million.

The China factor has quickly shifted sales dynamics at many B.C. forestry companies. International Forest Products Ltd., which reported its results last week, said 32 per cent of its lumber went to China and Japan in the July-September period, compared with 21 per cent in the April-June quarter.

West Fraser's profit far exceeded analysts' expectations and analyst Daryl Swetlishoff of Raymond James increased his six-to-12-month stock price estimate to $50 a share from $44.

Shares of West Fraser rose $1.35 to $43.35 on Tuesday, up 3.2 per cent.

Mr. Swetlishoff, in a report Tuesday, said he sees a "seasonal lumber trade," where he predicts prices will climb as demand in China rises and inventory of lumber at wholesalers and retailers remains low, in sum offsetting the poor housing market in the U.S.

China is lifting the price of lumber at a time of year when the commodity is usually weak, noted analyst Patricia Mohr of Scotia Capital. The price so far this year is up about 30 per cent compared with last year, when lumber was at its long nadir.

One looming issue was scarcely addressed, however. The United States Trade Representative, under the rules of the Softwood Lumber Agreement, has started an official process against Canada about the pricing of wood in B.C. that has been killed by the pine beetle infestation. The Canadian government claims the complaint is without merit. However, analyst Paul Quinn of RBC Capital Markets has calculated a win by the U.S. could cost B.C. foresters as much as $400-million.

West Fraser made only a cursory mention of the fight and was not asked about it by analysts. The company, it said in its earnings release, "is currently unable, based on available information, to reasonably estimate the likelihood or effect of an adverse determination of this dispute."

 
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