Midway unfazed by pulp friction

GEELONG-BASED wood fibre exporter Midway remains confident in the long-term prospects for sales growth into the Asia-Pacific, despite significant falls in the price of pulp.

About $80 million has been wiped off the company’s market value since it reported uncertainty into how issues hitting the pulp price would affect the company this year.

The jolt to the share price came despite recording a record after-tax profit of $26.2 million in FY19, up 42 per cent on the previous year, on annual revenue of more than $280 million.

But Midway is predicting only modest profit growth in FY20 based on a conservative view of pricing.

The company has told investors it is in a strong financial position and continuing to look for opportunities to grow across the four major pillars of the business.

In its annual report to shareholders released last week, Midway chairman Greg McCormack said pulp prices had dropped significantly in recent months.

Key drivers were overproduction at Brazilian pulp mills, which Mr McCormack said was being addressed, and Chinese traders running their inventories to extremely low levels.

He said once the Chinese recommenced buying, it was expected pulp prices would improve.

But the “short-term imbalance” between supply and demand in the global pulp market was having a flow-on effect in the global wood fibre market.

“Midway has secured export shipments to China in the last few months, but it is too early to be precise about the full impact of current market conditions on export wood fibre volumes and prices during the 2020 financial year,” Mr McCormack said.

Earlier this year the company consolidated its wood fibre processing at operations at Geelong, Portland, Brisbane, Tasmania and the Tiwi Islands to highlight the overall growth in its wood fibre export business.

However, wood chip volumes processed through Geelong are forecast to decline over the next five years, from 1.04 million green metric tonne in FY19, to 700,000 green metric tonne in FY23.

The reduced volumes at Geelong will rebound once current plantation plantings create additional volumes.

Midway shares were last week trading at $2.58, down from $3.49 on August 28 when the FY19 results and outlook were first announced to the market.