Taking more capacity out of BC. While Canfor has been proactive in shutting sawmills to balance its log demand to the declining log supply over the last decade, today the company announced more closures. Canfor will restructure its BC operations by permanently closing its Chetwynd sawmill and pellet plant and temporarily closing its Houston sawmill “for an extended period” while it undertakes a major redevelopment on the site. The company plans an orderly wind-down of operations that will conclude in early Q223. The closures will remove approximately 750 mmfbm of annual production capacity, which we estimate represents ~11% of the company’s total capacity. Management noted that the moves reflect its efforts to match mill capacity with the economically available fibre for harvest. Canfor’s release did not provide an update on its 60% interest in Houston Pellet, which has capacity to produce approximately 225k tonnes of wood pellets.

Chetwynd shut, Fort St. John impacted by Blueberry River agreement. Canfor’s closure in Chetwynd is likely good news to West Fraser (which has a mill in the District), but this may be short-lived, as the BC government is expected to add further restrictions on the harvesting landbase to protect Woodland Caribou. The economic viability of Canfor’s Fort St. John sawmill was impacted last week by the Province government’s agreement with the Blueberry River First Nations. We suspect that by closing its Chetwynd sawmill, the company can transfer a portion of its wood supply to Fort St. John.

Planning a new facility in Houston. Canfor intends to build a “new, modern, globally competitive manufacturing facility” in Houston, BC, that will produce high-value products from the sustainable timber supply in the region. Project planning, scoping, preliminary engineering, and budgeting are under way, and the company noted that it could make a final investment decision by the end of Q223. While Canfor did not provide a timeline for the project’s completion or an estimate of how much capital will be required to build the facility, it did note that its investment would “be amongst the largest capital expenditures in a new wood products manufacturing facility in BC’s interior in two decades.”

We think investors will wait for more details on the Houston project. While we think investors are familiar with the long-term fibre supply challenges in BC, and as such should not be surprised by capacity reductions, we think the stock could nonetheless trade lower tomorrow given the size of the capacity reduction announced. We think additional disclosure about the Houston project could be necessary to generate incremental investor interest following the announcement.

This announcement follows the closure of the pulp line at Prince George Pulp and Paper. On January 11, Canfor Pulp announced plans to permanently close the pulp line at its Prince George Pulp and Paper Mill. Kevin Edgson, President and CEO, noted that several sawmills have been permanently closed in the Prince George region due to reductions in the allowable annual cut and challenges to accessing cost-competitive fibre. As a result, the company carried out an “extensive analysis of its operating footprint and long-term supply of economic residual fibre” and decided to shut down the line in an effort to right-size its operating platform. The company plans to close the line by the end of Q123, resulting in a reduction of 280k tonnes/yr of market kraft pulp. The specialty paper facility at the site will continue to operate.