According to a report by Euler Hermes, several factors have contributed to the growth in the global paper and forest products industry.
The forest products industry suffered during the 2009 recession, which was triggered by the collapse of the U.S. housing market and subsequent financial crisis. While the housing market has recovered in the last three years, Euler Hermes notes that industry profit margins have improved only slightly.
However, going forward as the U.S. housing market continues to improve, the forest product industry can expect robust growth. In October this year, housing starts in the U.S., a key housing market data, showed seven consecutive months of more than one million units.
According to Jemi Fibre Corp. (TSX-Venture:JFI), a Canada-based forest products company, this is the longest stretch of housing starts above one million units since 2007. Remember that 2007 marked the peak of the housing market.
Jemi Fibre noted that the housing starts data suggests a sustainable recovery in the U.S. housing market, which is still a major economic driver in the forestry industry. However, there is one concern for the industry. The concern is the economic slowdown in China.
This has come at a time when the North American market is oversupplied. Jemi Fibre noted that this caused key benchmark lumber prices to fall in this quarter to levels not seen in the past three years.
This morning, Jemi Fibre also reported its financial results for the second quarter ended October 31, 2015. For the quarter, the company reported adjusted EBITDA of $4.5 million, compared to $4.1 million reported in the previous quarter. The company’s revenue for the quarter was $18.5 million, compared to $20.5 million reported in the previous quarter.
For the same period in the previous year, Jemi Fibre had reported adjusted EBITDA of $2.6 million on revenue of $14.2 million.
During the second quarter, JFI successfully integrated Aallcann Wood Suppliers Inc., an acquisition the company completed in the first quarter of fiscal year 2016. Aallcann was integrated into JFI’s wood treatment and post-peeling operations.
Commenting on the second quarter, Mike Jenks, Chairman and CEO at Jemi Fibre, said that JFI’s second-quarter results continue to demonstrate the value of its integrated forestry assets.
Jenks further said that the company continues to grow, with year-to-date adjusted EBITDA up 221% over the prior year, and as the company progresses through its third quarter, it is pleased with the upward production trends it anticipated into the winter months.
Even though the sector has been improving, the underlying stock price for JFI has been selling off in 2015 with shares down about 80% since the start of the year. Shares are currently at their
2014 lows, which should act as a support for prices in the coming weeks.
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