Q1 2025 Canfor Corp Canfor Pulp Products Inc Earnings Call

Speaker Change: [music].

Joanna: Good morning, my name is Joanna, and I will be your conference operator today.

Good morning, My name is Joanna and I will be a conference operator today welcome.

Joanna: Welcome to Canfor and CanforPulp's first quarter analyst call. All lines have been placed on mute to prevent any background noise.

Speaker Change: Welcome to account for it and Canfor pulp first quarter analyst call. All lines have been placed on mute to prevent any background noise.

Joanna: During this call, Canfor and Canfor Pulp's Chief Financial Officer will be referring to a slide presentation that is available in the Investor Relations section of the company's Also, the companies would like to point out that this call will include forward-looking statements, so please refer to the press releases for the associated risks of such statements.

Speaker Change: During this call Canfor and Canfor pulp Chief financial officer will be referring to a slide presentation that is available in the Investor Relations section of the company's website.

Speaker Change: Also the companies would like to point out that this call will include forward looking statements Shapiro. Please refer to the press releases for the associated risks of such statements.

Susan Yurkovich: I would now like to turn the meeting over to Susan Yurkovich, Chief Executive Officer and President of Canfor Corporation. Please go ahead. Thank you, Joanna. Good morning, everyone. Thanks for joining the Canfor and Canfor PULP Q1 results conference call.

Speaker Change: I would now like to turn the meeting over to Susan Yurkovich, Chief Executive Officer, and President of Canfor Corporation. Please go ahead.

Speaker Change: Thank you Joanna and good morning, everyone. Thanks for joining the Canfor and Canfor pulp Q1 results conference call I'm going to start by making a few remarks before I turn things over to Stephen Mackie can't force cheap offer.

Susan Yurkovich: I'm going to start by making a few remarks before I turn things over to Stephen MacKie, Canfor's Chief Operating Officer and CEO of Canfor PULP, and Pat Elliott, Chief Financial Officer of Canfor and Canfor PULP. In addition, in the room today, we're joined by Kevin Pankratz, our Senior Vice President of Sales and Marketing for Canfor, and Brian Ewen, our Vice President of Sales and Marketing for Canfor PULP.

Stephen Mackie: Operating officer, NCO, Canfor pulp and part Elliott Chief Financial Officer of Canfor and Canfor pulp. In addition in the room today, we're joined by Kevin Pankratz, Our senior Vice President of sales and marketing for Cat, four and Brian Yuen, Our vice president of sales and marketing for Canfor pulp.

Susan Yurkovich: Following the completion of several strategic initiatives in recent years, Canfor is entering 2025 with a lower cost, globally diversified lumber platform and a strong balance While there remains significant uncertainty with respect to the broader economic landscape with the ongoing trade disputes, we are positioned to navigate the current environment supported by the transformation of our lumber business in recent years. With this uncertainty, we expect demand to remain tepid in the short term but continue to believe that global market fundamentals remain strong for our lumber business and we're well positioned to capitalize on improved demand over the medium to long term.

Stephen Mackie: Following the completion of several strategic initiatives the initiatives in recent years can towards entering 2025 with a lower cost globally diversified lumber platform and a strong balance sheet.

Stephen Mackie: There remains significant uncertainty with respect to the broader economic landscape with the ongoing trade disputes we are positioned to navigate the current environment supported by the transformation of our lumber business in recent years.

Stephen Mackie: With this uncertainty we expect demand to remain tepid in the short term, but continue to believe that the global market fundamentals remained strong for our lumber business and we're well positioned to capitalize on improved demand over the medium to long term.

Susan Yurkovich: Although lumber pricing is anticipated to remain volatile through 2025, significant supply rationalization contributed to higher pricing to start the year, supporting improved results in the first quarter. In addition, we've started to see the benefits of our significant capital investments in our U.S. Southern operations and the improvements in our underlying cost structure, 40% of our volume now produced in the U.S. South this quarter.

Stephen Mackie: Although lumber pricing pricing is anticipated to remain volatile through 2025 significant supply rationalization contributed to higher pricing to start the year supporting improved results in the first quarter and.

Stephen Mackie: In addition, we've started to see the benefits of our significant capital investments in our U S. Southern operations and the improvements in our underlying cost structure, 40% of our volume now produced in the U S. South this quarter.

Susan Yurkovich: While it will take some time to fully ramp these investments, the transformation of our business in recent years has set us up to be more resilient, better able to mitigate market related pressures and deliver more stable returns over the cycle. And while we expect to enter into an elevated duty environment later this year, and there remains significant uncertainty around tariffs and the ongoing Section 232 investigation, less than 20% of our total sales revenue is exposed to duties or trade disputes.

Stephen Mackie: Well it will take some time to fully ramp these investments the transformation of our business. In recent years has set us up to be more resilient and better able to mitigate market related pressures and deliver more stable returns over the cycle.

And while we expect to enter into an elevated duty environment. Later this year and there remains a C.

Stephen Mackie: Significant uncertainty around tariffs and the ongoing section 232 investigation less than 20% of our total sales revenue is exposed to duties or trade disputes.

Susan Yurkovich: In these challenging times, Canfor continues to maintain a strong balance sheet with significant financial flexibility to manage the current headwinds facing our industry. And this balance sheet strength also allows us to continue to pursue strategic growth initiatives should the right opportunity arise, although we will continue to main a disciplined approach given the current economic conditions.

Stephen Mackie: In these challenging times CAD four continues to maintain a strong balance sheet with significant financial flexibility to manage the current headwinds facing our industry and this balance sheet strength also allows us to continue to pursue strategic growth initiatives should the right opportunity arise. Although we will continue to remain a disciplined approach.

Stephen Mackie: Given the current economic conditions.

Susan Yurkovich: Finally, with a more modest capital plan in 2025 and significantly improved asset base, we expect Canfor to opportunistically repurchase shares through the year under our normal course issuer bid.

Stephen Mackie: Finally, with a more modest capital plan in 2025 and significantly improved asset base, we expect <unk> to opportunistically repurchase shares through the year under our normal course issuer bid and now I'd like to turn it over Steve Mackey to provide an overview of canfor pulp.

Stephen Mackie: And now I'd like to turn it over to Stephen MacKie to provide an overview of Canfor Pulp. Thanks, Susan, and good morning, everyone. Canfor Pulp generated solid financial results in the first quarter, supported by improved productivity, modestly higher pulp sales realizations, and another strong quarter for our paper. Our sales realizations benefited from a weak Canadian dollar and a strong pulp pricing in China to start the year, although momentum weakened towards the end of the first quarter, given rising global economic and trade uncertainty.

Stephen Mackie: Susan and good morning, everyone and for pulp generated solid financial results in the first quarter supported by improved productivity modestly higher pulp sales realizations and another strong quarter for our paper business. Our sales realizations benefited from a weak Canadian dollar and a strong pulp pricing in China to start the year, although momentum weakened towards.

Stephen Mackie: The end of the first quarter, given rising global economic and trade uncertainty.

Stephen Mackie: We anticipate lower pricing in the second quarter as trade disruptions weigh on market conditions. Notwithstanding current macroeconomic conditions, Canfor Pulp is well-positioned to manage volatile markets given our unique high-strength fiber characteristics, market diversification efforts, and specialty product focus. In terms of our operating performance, we've seen improved operating results in the last couple quarters, with higher productivity contributing to a 6% increase in bulk production and a lower unit cost structure in the first quarter.

Stephen Mackie: We anticipate lower pricing in the second quarter as trade disruptions way up market conditions, notwithstanding current macroeconomic conditions and for Culp is well positioned to manage volatile markets given our unique high strength fiber characteristics market diversification efforts and specialty product focus.

Stephen Mackie: In terms of our operating performance, we've seen improved operating results in the last couple of quarters with higher productivity contributing to a 6% increase in pulp production at a lower unit cost structure in the first quarter.

Stephen Mackie: While we have made progress in stabilizing our operations and currently have adequate chip inventories, there remains uncertainty with respect to fiber supply later this year due to elevated softwood lumber duties and the current trade environment. As an organization, we continue to focus on operational performance while closely managing our cost structure and optimizing the economically available fiber supply.

Stephen Mackie: While we have made progress in stabilizing our operations and currently have adequate chip inventories there remains uncertainty with respect to fiber supply later this year due to elevated softwood lumber duties and the current trade environment as an organization. We continue to focus on operational performance, while closely managing our cost structure and optimizing the economically available fiber.

Patrick Elliott: We'll now turn it over to Pat to provide an overview of our financial results. Thanks, Stephen. And good morning, everyone. In my comments this morning, I'll speak to our first quarter financial highlights, a summary of which is included in our overview slide presentation located in the investor relations section of Canfor's website. Our lumber business generated adjusted even $61 million. up $44 million from the previous quarter, reflecting the benefit of increased lumber prices in North America, continued steady earnings in Europe, and an improvement in our underlying geographic mix and cost structure. Our results benefited from an 18% increase in southern yellow pine production driven by the ongoing ramp-up of our recently completed greenfield sawmill in Alabama and brownfield investment in Arkansas.

Stephen Mackie: I will now turn it over to Pat to provide an overview of our financial results.

Pat: Thanks, Steven and good morning, everyone. In my comments. This morning, I'll speak to our first quarter financial highlights a summary of which is included in our overview slide presentation located in the Investor Relations section of <unk> website.

Pat: Our lumber business generated adjusted EBITDA of $61 million of the first quarter up $44 million from the previous quarter, reflecting the benefit of increased lumber prices in North America continued steady steady earnings in Europe, and an improvement in our underlying geographic mix and cost structure. Our results benefited from an 18% increase in southern yellow pine production.

Pat: <unk> driven by the ongoing ramp up of our recently completed Greenfield sawmill in Alabama, and brownfield investment in Arkansas.

Patrick Elliott: In western Canada, production decreased by 18% following the closure of several high-cost operations in British Columbia in late 2024. Overall, approximately 70% of our production in the first quarter originated outside of Canada, with 40% of that in the U.S. South. This reflects a significant transformation of our lumber platform following the completion of several strategic initiatives in recent years. with an improved geographic mix and cost structure supporting profitability despite the current challenging macro environment. Turning to our pulp business, Canfor Pulp generated adjusted EBITDA of $21 million in the first quarter, up $9 million from the prior quarter, reflecting the benefit of higher sales realizations and a 15% increase in shipments, attributable to improved productivity and favorable timing of shipments overall.

Pat: Western Canada production decreased by 18% following the closure of several high cost operations in British Columbia in late 2024 overall.

Pat: Overall, approximately 70% of our production in the first quarter originated outside of Canada with 40% of that in the U S. So.

Pat: This reflects a significant transformation of our lumber platform. Following the completion of several strategic initiatives in recent years with an improved geographic mix and cost structure supporting profitability. Despite the current challenging macro environment.

Pat: Turning to our pulp business Canfor pulp generated adjusted EBITDA of $21 million in the first quarter up $9 million from the prior quarter, reflecting the benefit of higher sales realizations and a 15% increase in shipments attributable to improved productivity and favorable timing of shipments for quarter end.

Patrick Elliott: At the end of the first quarter, Canfor Pulp had net debt of $72 million and $82 million of available liquidity, while Canfor, excluding Canfor Pulp and the duty loan, ended the first quarter with debt of approximately $94 million and available liquidity of $1.3 billion. On a consolidated basis, capital expenditures were approximately $122 million in the first quarter, including approximately $9 million for Canfor Pulp.

Pat: At the end of the first quarter Canfor pulp had net debt of $72 million and $82 million of available liquidity well can four excluding canfor pulp and the duty loan ended the first quarter with debt of approximately $94 million and available liquidity of $1 3 billion.

Pat: On a consolidated basis capital expenditures were approximately $122 million in the first quarter, including approximately $9 million for Canfor pulp.

Patrick Elliott: Following completion of several major capital investments in recent years, we are anticipating significantly lower capital spend in 2025 with approximately $250 million of capital spend projected for our lumber business, including final payments associated with our Alabama greenfield, the planned investment at our recently acquired Sawmill in Eldorado, Arkansas, and an ongoing brownfield planer investment in Sweden. For Canfor Pult, we are currently capital spend of $45 million in 2025, including capitalized maintenance. We also anticipate Canfor will allocate a modest amount of capital to opportunistically repurchase shares throughout the year under our normal course issuer bid, which we renewed in March.

Pat: Following completion of several major capital investments in recent years, we are anticipating significantly lower capital spend in 2025 with approximately $250 million of capital spend projected for our lumber business, including final payments associated with our Alabama Greenfield the planned investment at our recently acquired sawmill in El Dorado, Arkansas.

Pat: On an ongoing brownfield planar investment in Sweden for Canfor pulp. We are currently forecasting capital spend of $45 million in 2025, including capitalized maintenance. We also anticipate canfor will allocate a modest amount of capital to opportunistically repurchase shares throughout the year under our normal course, issuer bid, which we renewed it.

Joanna: And with that, I'll turn it back to you, Joanna, for questions from the analyst. Thank you. We will now take questions from financial analysts. If you have a question, please press star 1 on your telephone keypad. If you are using a speakerphone, please lift your receiver and then press star 1. If at any time you wish to cancel your question, please press star 2. Please press star 1 now if you have a question. There will be a brief pause while participants register for questions. Thank you for your patience.

Joanna: March and with that I'll turn it back to you Joanna for questions from the analysts.

Pat: Okay.

Pat: Thank you we will now take questions from financial analysts. If you have a question. Please press star one on your telephone keypad.

Pat: If you are using a speaker phone. Please lift your receiver and then press star one if at any time you wish to cancel your question. Please press star two.

Pat: Please press Star one now if you have a question.

Pat: Will be a brief pause while participants register for questions. Thank you for your patience.

Sean Steuart: First question comes from Sean Steuart at TD Kellyn, please go ahead. Thanks.

Speaker Change: First question comes from Sean Stewart at TD Cowen. Please go ahead.

Thanks, Good morning, everyone.

Susan Yurkovich: Good morning, everyone. Susan, be interested in your initial couple of months in the seat. Thoughts on opportunities optimized the portfolio and was interested in your comments with respect to having some dry powder for Potential growth initiatives outside the discretionary CapEx opportunity, any context on specific areas or product lines for M&A that might be of more interest than others? Thanks. You know, obviously, we've made some very significant changes to our platform in recent years, particularly our platform here in British Columbia, and we continue to look at that across our system. We want to make sure that we're continuing to optimize our portfolio in terms of what we're looking at going forward.

Pat: Susan.

Pat: Interested in your initial couple of months in the seat.

Speaker Change: Thats on opportunities.

Speaker Change: Optimize the portfolio and was interested in your comments with respect to having some dry powder for.

Speaker Change: Potential growth initiatives outside the discretionary capex opportunity any context on specific areas or product lines for M&A that might be of more interest than others.

Speaker Change: Thanks.

Speaker Change: Obviously, we made some very significant changes to our platform in recent years, particularly our platform here in British Columbia, and we continue to look at that across our system, we want to make sure that we have.

We're continuing to optimize our portfolio in terms of what we're looking at going forward.

Susan Yurkovich: Obviously, we're grateful that we have the balance sheet that we have to continue to evaluate opportunities. We're looking at, you know, expanding our product mix where we can, and we want to continue to be able to invest in our business across, you know, in the US, we're looking at Europe, and we're keeping our eyes open for those opportunities as they come. But obviously, we're going to be super disciplined, given the environment that we're operating in. And with the volatile capital markets and economic outlook in general, is there a sense that vendor asks for valuations to come in a little bit for potential acquisition opportunity.

Speaker Change: Obviously, we're grateful that we have the balance sheet that we have to continue to evaluate opportunities we're looking at.

Speaker Change: Expanding our product mix, where we can and we want to continue to be able to invest in our business across.

In the U S. We're looking at Europe, and we're keeping our eyes open for those opportunities as they come but obviously, we're going to be super disciplined given the environment that we're operating in.

Speaker Change: And with the volatile.

Speaker Change: Capital markets and the economic outlook in general is there a sense that.

Speaker Change: Vendor.

Speaker Change: Asks for valuations have come in a little bit for potential acquisition opportunities.

Kevin Pankratz: Yeah, ma'am, maybe. I mean, I think, you know, we're, we're, yeah, I would just say maybe they are. One other question, we've seen a convergence of SPF and Southern Pine. Crisis since mid-March. Thoughts on sustainability of that trend as deposit rates increase later this year and potentially get coupled with tariffs under Section 232? I guess the question is, do you think this recent convergence is sustainable?

Speaker Change: Yeah, maybe.

Speaker Change: I mean I think.

Speaker Change: Yeah, I would just say maybe they are.

Speaker Change: Okay.

Speaker Change: One other question, we've seen a convergence of of SPF in southern Pine <unk>.

Speaker Change: Since mid March.

Speaker Change: Thoughts on the sustainability of that trend is as deposit rates increase later, this year and potentially get coupled with.

Speaker Change: With tariffs under section 232.

Speaker Change: I guess the question is do you think this recent convergence is sustainable.

Kevin Pankratz: And what do you think about spreads going forward over the I'm going to get Kevin to ask that. Sure, Sean. Good morning. I think directionally, I still believe that SPF pricing is going to be at a premium in the long term. I think in moments of volatility, Sean, you're going to see moments where it's going to be offset that, especially in the 2x4. But if you look outside 2x4, you're already seeing pretty well-established spread premiums on like the 6-inch, 8-inch and 10-inch versus Southern Yellow Pine. But I think as demand normalizes and we get outside of this duty environment, I think you will see a bit more of a premium on the SPF pricing.

Speaker Change: And what do you think about spreads going forward over the midterm.

Speaker Change: Yes, I'm going to get Kevin asset sure Shawn Good morning, Yes, I think.

Speaker Change: I think directionally I still believe that SPF pricing is going to be at a premium in the long term I think in moments of volatility Shawn youre going to see moments, where it's going to be offset that especially in the two by four but if you look outside to buy four youre already seeing pretty well established spread premiums are unlike the six inch eight intended to persist.

Speaker Change: Southern yellow pine, but I think directionally and as demand normalizes and we get outside of this due to the environment. I think you will see a bit more of a premium on the SPF pricing.

Sean Steuart: So I think we'll monitor that. And in a duty environment, as we've seen in March and April, there was a corresponding market response as far as the price appreciation. So I think there's a lot of moving pieces on that piece, but directionally, I think we're on that path. Got it. Okay. Thanks, Kevin. That's all I have for now, everyone. Thanks, Sean. Thank you.

Speaker Change: So I think we'll monitor that and then a duty environment as we've seen in March and April there was a corresponding market response as far as the price appreciation. So I think theres a lot of moving pieces of that piece, but directionally I think I think we're on that path.

Stephen Mackie: Got it okay. Thanks, Kevin that's all I have for now everyone.

Speaker Change: Thanks, Sean.

Speaker Change: Thank you. The next question comes from kitchen, Montara at BMO capital markets. Please go ahead.

Ketan Mamtora: The next question comes from Ketan Mamtora at BMO Capital Markets. Please go ahead. Thanks for taking my question. I'm just curious, just following up on Sean's question.

Speaker Change: Thanks for taking my question.

Speaker Change: I'm just curious just following up on Sean's question.

Kevin Pankratz: Can you talk about sort of what's driving this pretty meaningful drop in SPF prices that we've seen over the last, you know, a couple of months. We had capacity curtailment, you know, late last year as well. So if you want to just I mean, I'm curious, you know, one of what demand trends you're seeing and kind of what's driving this drop in SPF price. Sure.

Speaker Change: Can you talk about sort of what's driving what's pretty meaningful drop in SPF prices.

Speaker Change: The last.

Speaker Change: A couple of months.

Speaker Change: The high capacity curtailment late last year as well.

Speaker Change: So if you wanted to just I mean, I'm curious one what demand trends we are seeing.

Speaker Change: And kind of what's driving this drop in SPF prices.

Speaker Change: Sure sure Shawn it's Kevin here again.

Kevin Pankratz: So, Sean, it's Kevin here again. Oh, sorry, Ketan. So, on the demand side, obviously, I think in this April-May season, we haven't seen the traditional big spring demand that we would normally see. So, there's something on the demand side that's correlating with weaker consumer confidence numbers and builder confidence numbers. And so, I think that's part of it. Also, a lot of volatility with the tariff environment that we saw. Every time, like in March 2nd, April 3rd, there's always that element there. And I think the market's rationalizing with that piece there that's contributing to it. And so, I think there's a couple of different variables there.

Speaker Change: Alright.

Speaker Change: So on the demand side, obviously, we I think in this April may season, we haven't seen the traditional big spring demand that we would normally see so theres something on the demand side, that's correlating with the weaker consumer confidence numbers and builder confidence numbers and so I think thats part of it.

Speaker Change: Also a lot of volatility with the with the tariff environment that we saw I think every time. They can start in March 2nd April 3rd there is always that element there and I think the market's rationalizing with without piece there that's contributing to it.

Speaker Change: So.

Speaker Change: I think theres a couple of different variables there.

Kevin Pankratz: And demand side, we're just going to have to see how that plays out here in Q2. And then that will help, of course, if there's a bit of a pickup there, that'll help support that trend. But SPF pricing moved dramatically in December until April. So, that's quite a lift. And so, you're coming off some pretty rapid responses. So, it's not unexpected to see some kind of moderation in the 2x4 SPF.

Speaker Change: Demand side I was just going to have to see how that plays out here in Q2, and then that will help of course, if there is a bit of a pickup there that will help to support that trend, but SPF pricing move dramatically in the December until April so that's quite a lift and so youre coming off some pretty rapid responses. So it is not.

Speaker Change: Unexpected to see some kind of a moderation in the to buy for SPF price.

Speaker Change: Okay.

Speaker Change: Got it and then.

Kevin Pankratz: I'm just curious, with these deposit rates likely going up in the back half of this year, you obviously made a number of changes to your operating posture up in D.C., but with this big jump coming. Can you talk about sort of what's your approach in managing the different regions? Because clearly you've got Europe, you've got meaningful production in the U.S. South as well. So can you talk to kind of how you think about, you know, your approach to production when duty rates go up? Yeah, so obviously we've made a lot of changes to be, we've been knowing that we're going to be facing a higher duty rate environment for some time and that's why we've made these very difficult decisions.

Speaker Change: I'm just curious you know that.

Speaker Change: These deposits drip.

Speaker Change: Likely going up in the back half of this year.

Speaker Change: You, obviously made a number of changes that we are.

Speaker Change: Operating posture up in up in BC.

Speaker Change: Big jump coming.

Speaker Change: Can you talk about what's your approach.

Speaker Change: In managing the different regions that were clearly you've got Europe, you've got meaningful production in the U S south as well.

Speaker Change: So can you talk to kind of how you think about.

Speaker Change: Your approach to production.

Speaker Change: Duty rates go up.

Speaker Change: Yeah. So obviously, we've made a lot of changes to be we've been knowing that we're going to be facing a higher duty rate environment for some time and that's why we've made these very difficult decisions.

Susan Yurkovich: We have less of our business operating in Canada for sure and about, as we mentioned, about 20% exposed to the duty environment. I mean it's the benefit of having a diversified operating platform. We operate in Canada, in the U.S. and also in Europe. If you look at our European operations, just for a minute, you know, we have so many options around there to sell. We have a lot of, we have great quality fiber, lots of options around product mix and also lots of markets, different markets to sell it to. So if one market is not performing, we can switch to another and so I think that's, you know, that's what we've been doing to be able to withstand what we knew was coming in.

Speaker Change: We have a less of our business operating in Canada for sure and about as we mentioned are about 20% exposed to these duty.

Speaker Change: The environment I mean, it's the benefit of having a diversified operating platform, we operate in Canada and the U S and also in Europe. If you look at our European operations.

Speaker Change: Just for a minute.

Speaker Change: So many options around there to sell we have a lot of great quality fiber lots of options around product mix and also lots of markets different markets to sell it to so if one market is not performing we can switch to another and so I think that that's what we've been doing to be able to withstand what we knew was coming and we of course, we expect.

Susan Yurkovich: You know, of course we expected the softwood lumber duties. We had not perhaps anticipated the IEPA potential duties or the 232 tariff, that's new. But as Kevin said, you know, each time the duties have been talked about, you know, the market has responded, futures went up, some of that gets priced in and it certainly makes it more expensive for customers who want to buy our product, which of course will have an impact, it could have an impact on demand. So we're watching that. But I think what we have done is set ourselves up to the best extent possible to be able to withstand this volatility and this market uncertainty associated with these ongoing trade disputes.

Speaker Change: The softwood lumber duties, we had not perhaps anticipated the I E.

Speaker Change: Potential duties or the 232 tariffs that's new.

Speaker Change: But but as Kevin said each time the duties have been talked about.

Speaker Change: The market has responded futures went up.

Speaker Change: Some of that gets priced in and it certainly makes it more expensive for customers, who want to buy our product which of course will have an impact it could have an impact on demand. So we're watching that but I think what we have done et cetera selves up to the best extent possible to be able to withstand this this volatility and this market uncertainties associated with.

Speaker Change: These ongoing trade Spitz, our hope is that.

Susan Yurkovich: Our hope is that, you know, things will resolve and we will find a way forward and that would be advantageous not only for our industry, but for many others.

Speaker Change: Things will resolve and we will find a way forward and that would be advantageous not only for our industry, but for many others.

Susan Yurkovich: Susan, have you done any kind of scenario planning around, you know, when duties go up and if we assume that, you know, demand slows down, and then the question becomes, you know, who bears the cost of these increased duties in the event that, you know, prices don't rise to the same degree, kind of, what is the approach then? Yeah, well, you know, have we done scenario planning like all day, every day? Yes, because it's been a very interesting operating environment. But, you know, look, there has to be, you know, my expectation, if you look back at the history on the trade file, when duties come in, there is generally a price response and it goes up usually a little bit higher and then moderates up.

Speaker Change: Does that have you all done any kind of scenario planning around.

Speaker Change: When duties go up.

Speaker Change: We assume that in our demand slows down.

Speaker Change: And then the question becomes will bear.

Speaker Change: The cost of the increased duty.

Speaker Change: Dan.

Speaker Change: Prices don't rise to the same degree.

Speaker Change: What is the approach them.

Speaker Change: Yeah well.

Speaker Change: Have we done scenario planning like all day everyday yes, because it's been a very interesting operating environment, but you know look there has to.

Speaker Change: The expectation if you look back at the history on the trade file when duties come in there is generally a price response and it goes up usually.

Speaker Change: A little bit higher and then moderate now is past history I'm going to be what happens in the future. It's unclear, but I will say you know.

Susan Yurkovich: Now, is past history going to be what happens in the future? It's unclear, but I will say, you know, none of these regions, you know, these regions selling into the U.S. if there is these extremely high duty amounts, they can't withstand it. So there's either going to be a price response or people are going to have to, you know, shut down or curtail. And of course, what we know is, despite, you know, maybe some assertions that there is enough domestic supply in the U.S. to meet demand, that's just not the case. There is about a 14 billion board foot ish gap, give or take, between what's produced and what is consumed in the U.S.

Speaker Change: None of these regions. These as the regions are selling into the U S. If there is these extremely high duty amounts they can't withstand it so.

Speaker Change: There is either going to be a price response or people are going to have to.

Speaker Change: Shut down or curtail and of course, what we know is.

Speaker Change: Despite.

Speaker Change: Maybe some assertions that there is enough domestic supply in the U S to meet demand that's just not the case there.

Speaker Change: There is about a 14 billion board foot ish gap give or take between what's produced and what is consumed in the U S. So there is demand that will not be met in that.

Susan Yurkovich: So there is demand that will not be met. And that means that either people won't be able to access their products and there'll be a slowdown. And that has other implications for the U.S. economy or there will be a price response, which also, of course, will have an impact on affordability. So, yes, we've been looking at all kinds of scenarios. It's very it's it's a very interesting time to be operating and we're doing lots of scenario planning. But what we are doing is we're focusing on the things that we can control and working hard to make sure that our assets are running optimally and and focusing on cost control and making sure that we're delivering our products to our customers.

Speaker Change: Means that other people won't be able to access their products and there'll be a slowdown and that has other implications for the U S economy or there will be a price response, which also of course will have an.

Speaker Change: And impact on affordability. So yes, we've been looking at all kinds of scenarios. It's very it's a very interesting time to be operating and we're doing lots of scenario planning, but what we are doing is we're focusing on the things that we can control and I'm working hard to make sure their assets are running.

Speaker Change: Optimally and and focusing on cost control and making sure that we're delivering our products to our customers.

Susan Yurkovich: Thanks, Susan. That's helpful perspective. I'll jump back in the queue. Thank you.

Speaker Change: Thanks, that's helpful perspective, I'll jump back in the queue.

Speaker Change: Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.

Joanna: Ladies and gentlemen, as a reminder, should you have any questions, please press star 1.

Matthew Mckellar: Next question comes from Matthew McKellar at RBC Capital Markets. Please go ahead. Good morning, thanks for taking my questions. First for me, it sounds like you're expecting an uplift in European lumber prices in Q2, but also higher log costs. Are those essentially offsetting each other so far through the quarter? Or should we be thinking about some margin compression or expansion here? And then what do you expect to modulate your production levels at all in Q2 versus maybe Q2 last year to contain those log costs a bit? Thanks.

Speaker Change: Next question comes from Matthew Mckellar at RBC capital markets. Please go ahead.

Matthew Mckellar: Good morning, Thanks for taking my questions.

Matthew Mckellar: For me it sounds like Youre expecting an uplift in European lumber prices in Q2, but also higher log costs are those essentially offsetting each other so far into the quarter or should we be thinking about some margin compression or expansion here and then what do you expect to modulate your production levels at all in Q2 versus Q2 last year to contain those log costs.

Matthew Mckellar: Thanks.

Patrick Elliott: Yeah, Matt, it's Pat. I think it's hard to say. I mean, we've seen actually pretty robust pricing opportunity in Europe, more than maybe our team there had expected. And so I'd say it's still a little bit dynamic. I think there is an opportunity to protect the margin in the second quarter. So as you know, the Swedes take a lot of downtime in July. And so there'll be a big block of downtime in July. But at this point, we don't have any other downtime plan for the second Okay, thanks, Pat.

Matthew Mckellar: Yes.

Speaker Change: Pat I think it's hard to say I mean, we've seen actually pretty robust pricing opportunity in Europe.

Speaker Change: More than maybe our team there had expected and so I'd say, it's still a little bit dynamic I think there is an opportunity to protect the margin in the second quarter. So.

Speaker Change: As you know the suites take a lot of downtime in July and so there'll be a big block of downtime in July but at this point, we don't have any other downtime planned for the second quarter.

Speaker Change: Okay.

Matthew Mckellar: Okay. Thanks Pat.

Stephen Mackie: And then last for me, just thinking through the comments around duties and what those could potentially apply for your fiber supply for the pulp business. What kind of change in lumber production levels in the area around Prince George, or however you would define the procurement area, would potentially create an issue for your pulp production volumes, or at least drive higher input costs to the extent you could consume more pulpwood? Thanks.

Speaker Change: Then last for me.

Speaker Change: Thinking through the comments about duties and what those could potentially apply for your fiber supply for the pulp business.

Speaker Change: What sort of changed among their production levels and the area around Prince George or however, you define the procurement area.

Speaker Change: With potentially create an issue for your pulp production volumes or at least drive higher input costs to the extent if you could see more bulk with thanks.

Stephen Mackie: Hey Matt, it's Stephen here. Yeah, I mean where we're at today is we do have sufficient supply to and reasonable sort of visibility to align a site of supply that will support our current operating platform in Prince George out through the balance of this year and into well into 2026. So we're encouraged by the progress that we've made. We're certainly relying on a higher percentage of whole log chip and pulpwood than we had historically, given some of the capacity reductions in the lumber space. There's obviously the uncertainty associated with duties and the response that may come in lumber production as a result of duty implications or implementation.

Stephen Mackie: Hey, Matt it's Stephen here, yes.

Speaker Change: Where we're at today is we do have sufficient supply to end reasonable sort of visibility to a line of sight of supply that will support our current operating platform and Prince George out through the balance of this year and into well into 2026. So we are encouraged by the progress that we've made certainly relying on a higher percentage of whole log chips.

Speaker Change: Pulpwood than we had historically given some of the capacity reductions in the lumber space.

Speaker Change: Theres, obviously, the uncertainty associated with duties and the response that may come in and lumber production as a result of duty implications or implementation, but as Susan I think articulated really well, we do anticipate a market price response, and we're cautiously optimistic that we will we will have sufficient supply to support the operating capacity, but we will obviously have responded.

Matthew Mckellar: But as Susan I think articulated really well, we do anticipate a market price response and and we're cautiously optimistic that we'll have sufficient supply to support the operating capacity but we'll obviously respond as it's pretty volatile and dynamic situation and we'll respond as we see changes. Thanks for that, Collar. I'll turn it back. Thank you. We have no further questions.

Speaker Change: It's pretty volatile and dynamic situation and will respond for us we see changes.

Speaker Change: Thanks for that color I'll turn it back.

Speaker Change: Okay.

Speaker Change: Thank you we have no further questions I'll turn the call back over to Susan Yurkovich for closing comments.

Susan Yurkovich: I'll turn the call back over to Susan Yurkovich for closing comments. Okay, thank you, Joanna, and thanks all for participating in the call today and we'll look forward to chatting to you next quarter.

Speaker Change: Okay.

Speaker Change: Thank you Joanna and thanks, all for participating in the call today are mall.

Speaker Change: To chatting to you next quarter.

Joanna: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect.

Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.

Speaker Change: [noise].