WEST FRASER ANNOUNCES CLOSURE OF MAXVILLE SAWMILL AND INDEFINITE CURTAILMENT OF HUTTIG SAWMILL

Rhea-AI Summary

West Fraser Timber Co. Ltd. (WFG) to Close Sawmill in Florida and Curtail Operations in Arkansas, Impacting 220 Employees and Reducing U.S. Lumber Capacity by 270 Million Board Feet

Positive

• None.

Negative

• High fiber costs and soft lumber markets leading to closure and curtailment
• Anticipated restructuring and impairment charges of approximately $50 million in Q4 2023

Insights

Market Research Analyst

The announcement by West Fraser Timber Co. Ltd. regarding the closure of its Maxville sawmill and the curtailment of its Huttig operations is a significant strategic shift. This decision reflects a response to the prevailing high fiber costs and a soft lumber market. In the context of supply chain management, such closures are indicative of the company's efforts to balance supply with demand, a fundamental principle that can lead to cost savings and inventory optimization. However, this also suggests a potential oversupply in the market or a decrease in demand for lumber products.

For stakeholders, the immediate impact is the reduction of operational costs and the avoidance of operating at a loss due to unfavorable market conditions. The long-term implications may include improved margins if the market conditions stabilize or improve. However, stakeholders should also consider the risks associated with the loss of market share and the potential difficulty in scaling operations back up if the market recovers swiftly. The mitigation efforts to provide work opportunities for affected employees at other company operations could help maintain corporate reputation and employee morale, which is essential for long-term operational stability.

Financial Analyst

West Fraser's anticipated restructuring and impairment charges of approximately $50 million in the fourth quarter of 2023 are a critical financial indicator. These charges are likely to impact the company's short-term profitability and will be a key consideration for analysts and investors assessing the company's financial health. The reduction of U.S. lumber capacity by approximately 270 million board feet could be seen as a move to streamline operations and reduce excess capacity, which is a common strategy for companies in commodity-driven industries facing pricing pressure.

Investors should note that such restructuring often aims to strengthen a company's financial position in the long term. However, it is also essential to monitor how these changes affect the company's competitive position within the industry. The lumber industry is cyclical and the ability to quickly adapt to market changes is crucial. The reduction in capacity may affect West Fraser's ability to capitalize on future market upswings. Therefore, a careful examination of the company's operational flexibility and the broader market trends is necessary.

Economist

From an economic perspective, the actions taken by West Fraser signal a contraction within the lumber sector, which could be a precursor to broader economic shifts. High fiber costs are often a result of market dynamics such as supply constraints or increased competition for raw materials. When combined with soft lumber markets, which indicate lower demand, it suggests a potential slowdown in construction activity or a shift in consumer preferences. This is relevant as the lumber industry is closely tied to construction and housing markets, which are key economic indicators.

Moreover, the impact on employment in Maxville and Huttig could have a ripple effect on local economies, as the loss of jobs can lead to reduced consumer spending and economic activity in those areas. The company's strategy to reallocate employees may alleviate some of this impact, but the broader economic implications will depend on the duration of the market downturn and the company's ability to adapt to changing economic conditions.

VANCOUVER, BC, Jan. 9, 2024 /PRNewswire/ - West Fraser Timber Co. Ltd. ("West Fraser" or the "Company") (TSX and NYSE: WFG) announced today that it will close its sawmill in Maxville, Florida and indefinitely curtail operations at its sawmill in Huttig, Arkansas by the end of this month. Today's decision is the result of high fiber costs and soft lumber markets.

The closure of Maxville Sawmill will impact approximately 80 employees, while the indefinite curtailment of Huttig will impact 140 employees. In aggregate this will reduce West Fraser's U.S. lumber capacity by approximately 270 million board feet. West Fraser expects to mitigate the impact on affected employees by providing work opportunities at other company operations.

High fiber costs at Maxville and the current low-price commodity environment have impaired the ability of both mills to profitably operate. The closure of Maxville and the indefinite curtailment of the Huttig sawmill better aligns our U.S. lumber capacity with demand.

West Fraser anticipates taking restructuring and impairment charges of approximately $50 million in the fourth quarter of 2023 associated with this announcement.

About West Fraser

West Fraser is a diversified wood products company with more than 60 facilities in Canada, the United States, the United Kingdom, and Europe. From responsibly sourced and sustainably managed forest resources, the Company produces lumber, engineered wood products (OSB, LVL, MDF, plywood, and particleboard), pulp, newsprint, wood chips, other residuals, and renewable energy. West Fraser's products are used in home construction, repair and remodelling, industrial applications, papers, tissue, and box materials. For more information about West Fraser, visit www.westfraser.com.

Forward-Looking Statements

This news release contains forward-looking information or forward-looking statements (collectively, "forward-looking statements") within the meaning of applicable securities laws, including those relating to the Company's closure of the Maxville sawmill and indefinite closure of the Huttig sawmill and anticipated timing thereof, expected reduction of lumber capacity, anticipated impairment charge in the fourth quarter of 2023 as well as related workforce impact and our ability to mitigate the impact on affected employees and better align production capacity with demand. Any such forward-looking statements are based on information currently available to us and are based on assumptions and analyses made by us considering our experience and our perception of historical trends and current conditions, including our assessment of higher fiber supply costs, the low-price commodity environment and our ability to operate the Maxville and Huttig sawmills profitably and are subject to inherent risks and uncertainties. Readers should also refer to the risk factors set forth in the Company's annual information form and management's discussion and analysis for the year ended December 31, 2022, each dated February 14, 2023, as updated in our management's discussion and analysis for the three and nine months ended September 29, 2023, dated October 25, 2023, each available at SEDAR+ (www.sedarplus.ca) and EDGAR (www.sec.gov/edgar). There can be no assurance that the plans, intentions, or expectations upon which forward-looking statements are based will be realized. Actual results may differ, and the difference may be material and adverse to the Company and its shareholders. Except as may be required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.

View original content:https://www.prnewswire.com/news-releases/west-fraser-announces-closure-of-maxville-sawmill-and-indefinite-curtailment-of-huttig-sawmill-302030430.html

SOURCE West Fraser Timber Co. Ltd.

FAQ

Why is West Fraser Timber Co. Ltd. (WFG) closing its sawmill in Maxville, Florida and curtailing operations in Huttig, Arkansas?

The closure and curtailment are due to high fiber costs and soft lumber markets, impairing the mills' ability to operate profitably.

How many employees will be impacted by the closure and curtailment?

Approximately 80 employees at Maxville and 140 employees at Huttig will be impacted, totaling 220 employees.

What is the expected impact on West Fraser's U.S. lumber capacity?

The closure and curtailment will reduce West Fraser's U.S. lumber capacity by approximately 270 million board feet.

What charges is West Fraser anticipating in relation to this announcement?

West Fraser anticipates taking restructuring and impairment charges of approximately $50 million in the fourth quarter of 2023.