Canadian "lumber is on the cusp of making money" again, the CEO of Tembec Inc. said after the struggling forestry company reported it broke even during its second quarter, helped mainly by higher pulp prices.

James Lopez said he doesn't anticipate a massive comeback in the U.S. housing market, but rather a gradual improvement in demand. That recovery also supposes continued supply constraints.

"The bleeding ... has stopped, thankfully," Lopez said in a conference call with analysts. "We have a balanced market right now ... and supply is extremely lean."

China is becoming a factor in driving demand for lumber, which, Lopez contends, has hit a new price floor of about $300 per thousand board feet.

On an annualized basis, China is now taking "2 billion board feet of lumber out of Canada." Most of that lumber is shipped out of B.C., but all Canadian producers benefit because that "volume is moving out of the domestic market."

Two billion board feet of lumber is roughly the output of 10 B.C. mills or 15 to 20 sawmills in eastern Canada, company executives said.

The rising loonie, lumber duties and the collapse of the U.S. housing market have contributed to roller-coaster lumber prices. Five years ago, with the loonie at about 70 cents U.S., 1,000 board feet of lumber was priced around $400, said Dennis Rounsville, president of Tembec's forest-products group. But last year, with an 80-cent dollar, that same lumber was selling for about $156.

Tembec is to receive $24 million in federal Green Transformation funding, but hasn't decided which mills will get energy upgrades. The company is discussing matters with B.C., Ontario and Quebec.

"We are going to deploy it where we get the best deal from provincial governments," Lopez said.

Tembec's best performance for the quarter ended March 27 came from its biggest sector, the pulp segment, where sales moved from $256 million in the prior quarter to $311 million as a result of higher volumes and selling prices. Shipments benefited from the restart of Tembec's Chetwynd, B.C., mill in late January.

Tembec is "fairly bullish" on market pulp for the "next several quarters" and is "especially bullish" on its speciality pulps, where demand "may not peak until next year," Lopez said.

Earnings were flat for the quarter ended March 27, compared with a net loss of $99 million in the corresponding quarter of 2009. Consolidated sales for the Quebec-based firm were $476 million, up from $417 million a year earlier.

Tembec is expected to close a deal to sell two French mills in early May.

Read more: http://www.montrealgazette.com/business/Pulp+prices+help+Tembec+break+even/2963581/story.html#ixzz0n0pBUGjh