West Fraser Timber Co Ltd

TSX:WFG

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen, and welcome to the West Fraser Q2 2020 Results Conference Call. [Operator Instructions] During this conference call, West Fraser's representatives will be making certain statements about potential future developments. These forward-looking statements are intended to provide reasonable guidance to investors, but the accuracy of these statements depends on a number of assumptions and is subject to various risks and uncertainties. Actual outcomes will depend on a number of factors that could affect the ability of the company to execute its business plans, including those matters described under risks and uncertainties in the company's annual MD&A, which can be accessed on the West Fraser's website or through SEDAR and as supplemented by the company's quarterly MD&As. Accordingly, listeners should exercise caution in relying upon forward-looking statements. This call is being recorded on July 28, 2020. And I would now like to turn the call over to Mr. Ray Ferris. Please go ahead, sir.

[Raymond W. Ferris, CEO, President & Corporate Director]

Thank you, Sylvie. Good morning, everyone, and thank you for joining our call this morning. With me is our Chief Financial Officer, Chris Virostek; and Chris McIver, VP of Sales and Marketing; and several other members of our West Fraser executive team. And I'm going to turn the call over to Chris Virostek.

[Christopher A. Virostek, CFO & VP of Finance]

Thanks, Ray, and good morning, everyone, and thanks for joining the call this morning. I'll briefly review the company's financial performance for the quarter, and then Ray will provide a business update and some comments on outlook. We reported adjusted EBITDA for the quarter of $184 million as compared to $127 million in the first quarter of 2020. The most significant impact was in our lumber segment, where adjusted EBITDA increased by $50 million to $156 million. Panel results were $20 million of adjusted EBITDA or $12 million higher than the prior quarter. Of that increase of $12 million, $7 million relates to the insurance claim proceeds on the business interruption claim indicated in our results. Pulp results were largely in line with the prior quarter. Turning to the income statement. Operating earnings were $83 million, an increase of $70 million from the $13 million recorded in the first quarter. Finance expenses declined $3 million as we repaid $325 million of debt in the second quarter and variable interest rates were lower. Net earnings were $48 million compared to $12 million in the prior quarter. Throughout the quarter, we were able to maintain a solid pace of lumber shipments, clearing some backlog from Q1 relating to rail blockades and taking advantage of sales opportunities in Asia. As the quarter progressed, stronger-than-expected demand, industry curtailments and a low supply chain inventory position led to increased prices. SYP experienced the price increases well in advance of SPF, which was more delayed. The downtime that we took in the quarter has been reported in our MD&A. Stepping through our results. The impact of price relative to Q1 was a benefit of $33 million to adjusted EBITDA. Lumber contributed $23 million of this change. SYP was a significant benefit, but was partially offset by lower realizations on SPF. Panels pricing was slightly positive as plywood pricing increased toward the end of the quarter and rising pulp prices from earlier in the year flowed through. Volume was a modest benefit as SPF volume gains over Q1 were partially offset by a pullback in panel shipments. Costs were also better by $13 million. Costs in Canadian lumber were slightly better versus Q1 and were significantly better in U.S. lumber, leading to an overall impact of $20 million in costs in the lumber segment. The first part of the prior year, we experienced multiple disruptions that affected our operating rhythm. Stronger demand, less disruption from capital in progress, and fewer weather-related impacts to operations, all contributed to improved manufacturing performance in the U.S. Ray will touch later on an update on our project at McDavid, Florida. These improvements were partially offset by cost headwinds in pulp, stemming in large part from unscheduled downtime. As previously indicated, we recorded a $7 million benefit for business interruption relating to the 2016 West Pine incident as part of a final resolution of the insurance claim. Reviewing our key metrics for the quarter, lumber production was 77 million board feet or about 5% lower than Q1. Shipments, however, were 165 million feet higher as Q1 backlogs were cleared and we capitalized on markets that improved over the course of the quarter. As previously mentioned, price improvements in SYP, panels and pulp, improved costs in lumber and a slight increase from volume, all helped lift consolidated results and consolidated adjusted EBITDA increased to $184 million. Cash flow from operations in the quarter was $439 million, benefiting from improved operating results, the seasonal drawdown in log inventory and cash tax refunds received on account of 2019 results. Major capital projects, most notably Dudley, remain on track, and capital spending was in line with targets. Net debt-to-capital declined to 28% or $939 million as we repaid $325 million of debt and accumulated an additional $27 million of cash. Cumulative duties on deposit at quarter end stand at USD 436 million. Subsequent to quarter end, the DOC announced yet another tolling of AR1, which will mean the adjustment in rates will not likely occur until at least sometime in November. Turning to liquidity. We ended the quarter with $800 million of available liquidity, an attractive maturity profile with no near-term maturities and ample room on our debt covenants. With that, I'd like to turn it over to Ray for an update on business conditions and a recap.

[Raymond W. Ferris, CEO, President & Corporate Director]

Thanks, Chris. Looking at the demand graphs for our products. I think we can say that there is nothing there that adequately describes in the first half of 2020 and more so, how Q2 has unfolded. And although, as Chris mentioned, we are currently experiencing strong demand and associated pricing for our wood products, it's important to reflect how Q2 started. First, in Canadian SPF lumber, we started into Q2 and experienced a rapid and deep reduction in demand. Beginning in early to mid-March for frankly, 4 to 6 weeks, there was minimal to almost no lumber sales and pricing dropped quickly to over -- by over $150 a thousand, which led to significant and very quick unprecedented lumber curtailments. Our BC lumber manufacturing was effectively curtailed for the month of April. As the supply chain emptied out, and as downstream demand did not fall off as much as anticipated, pricing rebounded surprisingly quick to strong levels. And while offshore is down somewhat year-over-year, export to Asia remains an important and reliable customer. While SPF lumber sales plummeted in late Q1 and early Q2, we did not see the same pace of slowdown in our U.S. Southern Yellow Pine business. Although we did reduce production for a period of time in the U.S., we quickly ramped production back up to meet surprisingly strong demand, driven primarily by robust repair and remodel and a resilient house construction. I thought I would comment on our plywood business as well. And I will remind everyone on the call, as I've done before, our plywood is an integrated extension of our lumber business in Canada, where we were able to extract the highest value from the trees of which we harvest. For the most part, our plywood is essentially a Canadian business with more than 95% standing in Canada. Over the past few decades, this business has been very steady and operating with little-to-no market downtime. An outright collapse in demand due to construction shutdowns in Eastern Canada led to a similar impingement of supply chain and resulted in unprecedented downtime throughout our operations. Demand and pricing rebounded strongly after restriction on construction was lifted primarily in Ontario and Québec, and the turnaround in plywood has been swept. With regards to pulp, as a result of the impact of sawmill curtailments in British Columbia, which led to Cariboo pulp taking approximately 4 weeks of fiber-related downtime. And that shut was extended by roughly 1 week to bring forward maintenance related activities from this fall. The mill restart after being down for more than 5 weeks went very well. In contrast to pulp, as we went into COVID, the Wood Products business was in relatively good shape with what appeared to be rising housing starts, solid U.S. consumer strength, and reasonably lean seasonal inventories throughout the supply chain and, of course, low mortgage rates. The pulp business, however, entered 2020 with world inventories high and a slowing China, and then with the pandemic outbreak, a collapse in printing and writing demand, resulting in an ongoing rebalancing a shakeout in the industry that appears to be currently underway. Although we see the next few quarters will likely remain a difficult pricing environment in pulp, we remain constructive on our longer-term outlook for both -- for growth in world pulp consumption. And as Chris mentioned, we entered Q3 with all of our operations running at near capacity or in ramp-up after capital. Operationally, it's been a very challenging and disruptive start to the year as our operations adapted to an ever-changing landscape as a result of the impact of the COVID pandemic. No one can accurately predict what the next few quarters will look like as demand ebbs and flows, particularly with the impacts of the pandemic still unknown at this point. However, I think it's important to note that the underlying fundamentals that we see are for our Wood Products business. Housing starts only recently returning to above a level that was previously seen as cyclical lows. In 1980, there were 75 million more people in the U.S. than there are today, all adding to a formation deficit that will need to be filled, and the stock continues to age. The largest cohort of potential home builders and buyers are just entering the market, the 28-to 32-year olds as reported by most of the major homebuilders, and are finally showing signs of moving into their own homes, taking advantage of exceptional low interest rates, of course. And on the supply side, we believe the industry has a much muted ability to respond to the supply or to the demand. In the past couple of years, BC has further reduced production by more than 2 billion feet of permanent reduction, while production is coming on more slowly than expected in the U.S. South. So with that, I just want to touch briefly on our -- some of our capital. We've done this in the last couple of calls. But just a bit of a glimpse on some of the progress that we're making in the U.S. South on our growth and margin improvement projects. And as Chris mentioned, recognizing that 2019 was a very disruptive and a significant renovation year for West Fraser in the South. Although not without some difficulties, we are pleased to see the gains beginning to flow through. The McDavid canter line replacement is a good example. After a month of downtime, and to be clear, not all of our projects started up this well, this project came up very quickly and up to speed and is now exceeding our initial payback assumptions, more volume, better grade, significantly higher yield recovery and, of course, lower costs. Although we've made some good gains in our operating platform in the U.S. South, as in McDavid, we continue to see ample runway for further improvement. With respect to overall operations, and while we still have much more work to do, we are encouraged by the recent trajectory in both manufacturing costs and productivity of both our NBSK pulp and our U.S. South lumber businesses, which complement our strong Canadian wood products and BCTMP operations. With respect to markets, it would be great to say the worst is behind us and that market volatility will improve. But we expect a continued bumpy ride and are focused on being able to adapt as necessary. Before I turn it back to the operator, notwithstanding stronger-than-expected markets and an improved financial position overall, our priorities at West Fraser remain clear and unchanged. One, the health and safety of our employees in the communities that we operate in; secondly, executing, that is, operationalizing and achieving the gains from our prior capital and operational excellence initiatives; and thirdly, maintaining and strengthening a prudent balance sheet. And while there is short term uncertainty, we see long-term fundamentals remain strong and our geographic and product diversity leave us well positioned; finally, safely and efficiently, our employees continue to adapt to a never-changing market while continuing to improve productivity and lowering cost in almost every segment. And I thank them for their hard work and commitment to our success.With that, I will turn it back to the operator for questions.

[Operator]

[Operator Instructions] And your first question will be from Sean Steuart at TD Securities.

[Sean Steuart, Research Analyst]

A couple of questions. Ray, I guess I want to start with your sawmill portfolio first. And I'm trying to gauge your ability to add extra supply out of your system in response to the strengths we're seeing in markets right now. And I'm not sure if you can put some numbers around additional volume to come from McDavid and potentially some of your other U.S. South assets. But any detail you can provide with respect to your ability to add supply and more broadly, thoughts on the industry's ability to add supply into this strong market?

[Raymond W. Ferris, CEO, President & Corporate Director]

Sean, I'll do my best here. Maybe Chris Virostek can chirp in here as well. But so just broadly across the landscape, so first, I can -- I think in Western Canada, we have a pretty good understanding of British Columbia and Alberta. And I would say there's little to no upside in anyone improving demand, and particularly us. I don't see us being able to supply additional volume from our areas. We've been working hard to maintain the volumes that we have. I'd say that our perspective would be that there's little ability in the balance of Canada. I mean there may be a few spots where there's some minor ability to increase supply, but I think that's pretty not material. And then really, when we look across the U.S., I mean, the only area, and of course, that's where we're -- a heavy part of our focus is the U.S. South. And so I'm hesitant to put a number on it. But certainly, when you look at our projects, I'd say our projects are primarily based on improving margins, which are higher -- better recovery, so lowering our wood costs, improving grade, better productivity. And I'd say growth is there, but it's not a fundamental driver of how we approach our capital. It's a piece of it. So I would say that in the U.S. South, I think it's going to -- we're going to -- I think our expectation would be to continue to grow our volume at a certain rate. I think if you look back at the last few years, it's probably a pretty good indication of kind of where we're going in the future. And I guess we'll see where that goes. But I think production growth comes on slower than what you might expect in the U.S. South, and I think we're going to take our time as we grow out our portfolio. I think what we're focused on is making what we have really good and growth #2. Chris, anything you want to add?

[Christopher A. Virostek, CFO & VP of Finance]

No, it's a good summary. I think the last couple of years in the U.S. South, when you look at the production growth overall in the industry, it does come on slower and comes in small increments.

[Sean Steuart, Research Analyst]

Okay. And my second question is regarding capital allocation priorities. It looks like you're keeping your CapEx guidance steady in 2020. And I presume the near-term focus is further balance sheet deleveraging. But as you look ahead to 2021, can you provide some context on how you're thinking about prioritizing discretionary CapEx, M&A, return of capital to shareholders, how are you thinking about those options going forward?

[Christopher A. Virostek, CFO & VP of Finance]

Thanks, Sean. Yes. So I think we got to keep in mind here. I think on the last call, in Q1, we said we're 9 weeks into this or something like that when we were last talking at the end of April or something. And it feels like now we're about 9 weeks into what's been a pretty good market. So it's been a very rapid recovery, but it's been short in duration so far. So I think what's important is we don't get ahead of ourselves in terms of assessing or predicting how durable this is. The more durable it is, the better, but there's just a challenge in the visibility to how sustainable is this going to be for how long? I think we'll be guided over the longer-term by that approach to allocation that we've always talked about is we need to make sure we're modernizing our mills to be efficient and making prudent investments where necessary. We need to make sure we've got financial flexibility on the balance sheet to pursue growth when it's there and to provide returns to shareholders. So we're going to try to strike a balance for that over the long term, try not to make that a quarter-to-quarter decision. And I think we just have to keep in mind that it's still early days of how this is unfolding. And I think it's a little premature for us to be thinking too far out yet in terms of what does next year -- what does next year look like in terms of capital? I think we'll be having those discussions here over the next several months.

[Operator]

Next question will be from Mark Wilde at BMO.

[Mark William Wilde, Senior Analyst]

Chris, I'd like to just come back on that capital allocation question, more from the -- from a balance sheet perspective. Can you give us some sense of how you're thinking about debt reduction, what level you might like to take that down to?

[Christopher A. Virostek, CFO & VP of Finance]

Thanks, Mark. So I think one of the things we keep in mind is, well, there's a few things, I guess, I would comment on is, this is a seasonal business, right, with the log inventory build in the first quarter. And so we have to keep in mind building up that liquidity through the middle part of the year to get ready to get back in the logging season, which is about to resume here. And we consider the investment-grade rating as an important part of how we manage the capital structure. And so that's partially going to guide our decision-making as well as is making sure that we're growing earnings and we're deleveraging to preserve that rating and preserve the confidence of the agencies that we can remain in investment grade. So in terms of putting a dollar figure or a ratio on it, I don't know that we're going to do that today. And I think in this market, it's a little tough to do that. But I would say those would be 2 of the main things that are going to guide our decision-making.

[Mark William Wilde, Senior Analyst]

Okay. And then I wonder just kind of toggling over to M&A. If either you or Ray want to give us some sense of what you're seeing kind of available in the market and what valuations look like? It seemed like if we go back to 2018, valuations had started to get pretty frothy for sawmilling properties in the U.S. South.

[Raymond W. Ferris, CEO, President & Corporate Director]

Well, Mark, I'll try and do that. Well, you're right. Things did get very frothy. And I think with -- there's always something going on, Mark. And I would just say that just kind of back to the capital allocation balance sheet. I think we want to be conservative and not get ahead ourselves. I think Chris, when he said, we don't want to get ahead ourselves, I think that's really it. And so -- so that you can take advantage of those opportunities in M&A when they come up. I would say it's relatively quiet out there today. And I would say that people remember the valuations of a couple of years ago, they look at the fundamentals. I don't think it's -- I don't want to be speculative, but we've had record pricing in -- in the last -- twice in the last 2 years. And I think that speaks to kind of the tension in the supply and demand. So when I think when we think about the long road that we've taken to get here on -- from the last recession, I expect people, unless they're in significant financial trouble, probably have still pretty healthy expectations of what their business is worth. That's kind of how I'd leave it. But I'd say it's relatively quiet out there right at the moment.

[Mark William Wilde, Senior Analyst]

Okay. Just one more on the M&A side, Ray. There are a couple of idled sawmills in the U.S. South with European technology that a lot of people struggle with in the North America market. Any view on that technology?

[Raymond W. Ferris, CEO, President & Corporate Director]

No. I think I'll stay away from that one, Mark. Thank you.

[Mark William Wilde, Senior Analyst]

Okay. The last question I have for here, Ray is maybe you could talk a little bit about the labor situation, particularly in the U.S. South. Is labor ban at all a bottleneck during the pandemic?

[Raymond W. Ferris, CEO, President & Corporate Director]

Good question, Mark. Labor continues to be a challenge in the South. I wouldn't say it's different than it was. I think it's maybe a slightly different challenge with -- but I would say, for the most part, it hasn't been an impact to us in U.S. South. I think there are certainly -- we're back into and have been back into hiring mode in certain regions of the U.S. South. And you might -- I think that would be -- the challenge is that with so many people off work, it's been a bit of a challenge to find people that want to come to work. But to this point, we've been able to man up and operate our mills at normal. It's just -- it's always seemed to be challenging in the South.

[Mark William Wilde, Senior Analyst]

Okay. But this issue that we've had where you've had pretty generous kind of pandemic payments to people. You haven't seen that as a disincentive to workers that has made it hard for you to get enough labor to run the mills. Is that fair?

[Raymond W. Ferris, CEO, President & Corporate Director]

It's -- I would say, we're aware of it. It is a challenge. We're able to find enough people to operate our mills, but I would say it's not an easy process.

[Operator]

Next question will be from Hamir Patel at CIBC Capital Markets.

[Hamir Patel]

Ray, we saw the 2x6 and 2x10 grades up substantially in the South in Q2. I know in recent years, you've been focused on increasing the 2x4 mix. Could you remind us where your mix stands today? And how flexible are you to be able to take advantage of some of those spreads when they arise?

[Raymond W. Ferris, CEO, President & Corporate Director]

Yes. Hamir, so I'm not sure I can provide much -- I can't provide any color on what our current mix is. I mean what I would say is that what we -- a lot of our capital that we deploy in our mill, what we -- we try and do it in a way that provides us the flexibility to meet the ever-changing market demand. But there's only so much room to move that, but we certainly have some ability. And so my takeaway in the 2x6, 2x10 is that, that's a great signal because it typically means that housing and other construction activities are strong beyond -- and so I would say, not a great answer to your question, Hamir, but sorry about that.

[Hamir Patel]

Fair enough, Ray. And then I just wanted to turn to the duty delay. If this keeps getting pushed out, does that mean that the next duty revision would also get delayed such that you still get the sort of 12-month window of the lower duties? Or is there a risk that if they keep pushing this out that, that period of lower duties, which was supposed to last 12 months, might only be 6 months?

[Christopher A. Virostek, CFO & VP of Finance]

We're actually investigating that issue right now. It's not clear what happens there. Whether AR2 would get extended such that rates from AR2 take effect on a delayed basis or not, we're grappling with that question with the trade lawyers right now actually.

[Hamir Patel]

Okay. Great. Chris, that's helpful. And just another one for you. I know you guys had a modest inventory write-down in the quarter. One of your peers reported a pretty substantial inventory recovery. I know there's different accounting treatments. So should we expect at current lumber prices a similar large inventory recovery out of West Fraser in Q3?

[Christopher A. Virostek, CFO & VP of Finance]

We weren't carrying very much in the way of inventory reserves at the end of the second quarter. So there was very little write-down in the aggregate, applied to any of the inventory given where pricing was. So there's not -- the short answer is, there's not much there that's to reverse. And I -- yes, I guess I would leave it at that at these prices, inventory write-down should be less of an issue going forward.

[Operator]

[Operator Instructions] Your next question will be from Paul Quinn at RBC Capital Markets.

[Paul C. Quinn]

Just a question on lumber order files, where they ship right now? And where are you pegging current inventories in the distribution channel?

[Raymond W. Ferris, CEO, President & Corporate Director]

Well, we're fortunate -- I can give you a great answer, but we're fortunate to have Chris McIver here joining us, Paul. So we're going to let him tackle that one.

[Christopher D. McIver, Vice]

Yes, I would say that with regards to order files on the lumber side, we are about as strong as we have seen in the last 2 or 3 years, both in the U.S. and in Canada on that side. So we've made a choice of extending our files there. With regards to inventory, again, we can only really tell by what our customers are telling us and -- because there's not a lot of visibility. But our sales folks are spending 3, 4, 5 hours a day, dealing with customers that don't have any inventory. And whether it's in plywood or whether it's in lumber, everybody is still very, very short, including the box stores. And so from what we can tell, it's still very lean. What they're telling us, they don't expect that to change in any particular -- too quickly. And then the other piece is we really feel that housing is beginning to kick in. And we didn't see that in the early part of the pandemic, and we're really beginning to see that now. So our expectation is, we might see R&R slow down a little bit, but continue to increase in housing.

[Paul C. Quinn]

Okay. And then maybe a question just on capital allocation. It sounds like you're going to be prudent on CapEx plans and M&A still sits out there as potential opportunities. Just -- I guess the focus will be a debt paydown. But where do you sit on buybacks at this price? I mean if I look at West Fraser shares, last time lumber was at this price, it's significantly higher, and it seems like a pretty good opportunity right now.

[Christopher A. Virostek, CFO & VP of Finance]

Yes. So I'll start, and then Ray can jump in if you want. I think as we kind of alluded to earlier, we're kind of 9 weeks into this recovery or thereabout since. So the onset of this was very quick, and the recovery of it was very quick. And I think that gives us pause with respect to getting too far in front of anything. This has been a series of several tough quarters, I think, starting towards the back half of '18 and certainly last year was a very challenging year. We're encouraged by the second quarter. I think there's a way to go yet in terms of deleveraging and rebuilding financial flexibility. And we'll kind of let that govern our actions in the near term. So Ray, anything you want to add to that?

[Raymond W. Ferris, CEO, President & Corporate Director]

I think that's great.

[Operator]

Next question will be Mark Wilde at BMO.

[Mark William Wilde, Senior Analyst]

Just a few follow-ons. First, any sense of what we should expect in terms of BC fiber costs in the second half of the year?

[Raymond W. Ferris, CEO, President & Corporate Director]

So Mark, we do expect stumpage to come down a little bit couple of bucks, I think it is in October first. And I guess it's probably a little bit early to see what's going on in the purchased wood market. But I can tell you that from our perspective, notwithstanding a reduction in stumpage, I think we're going to be -- I can only tell you what we're going to do is, we're going to be very thoughtful and be very reluctant to -- we're going to want to make sure we wood up our mills, where we're going to try and do that in the most cautious, prudent as we can to do that. British Columbia is still a very difficult area to operate in generally, that's all.

[Mark William Wilde, Senior Analyst]

Yes. Then secondly, just that $23 million project at McDavid. Can you give us some sense of -- as it stands right now, what do you think the return on that project looks like?

[Raymond W. Ferris, CEO, President & Corporate Director]

So I'm going to just -- a good question. I'm going to answer in 2 ways, Mark, just to be vague, which would be -- I would say our higher strategic capital certainly tends to be a longer payer -- - paybacks. And I think we've talked about that in the past. Typically, in this range, anything kind of in that less than -- this would be a bit of an exception. I'd say anything kind of less than $5 million or $10 million. We're typically in the 2-year range. And the McDavid one is certainly a shorter payback than our longer-term strategic stuff. So I would put it in, in that kind of somewhere between 1 and 3 years, so how's that?

[Mark William Wilde, Senior Analyst]

Yes. That's fair. How much of this kind of stuff is left? I remember when you guys bought Gilman, you talked about prospectively, some pretty big improvements that you thought you could make at Gilman over time.

[Raymond W. Ferris, CEO, President & Corporate Director]

So I think someone asked me that a couple of quarters ago about what inning we're in. And so I would just say that we have -- we see lots of opportunity in the U.S. to continue to improve our operating platform. So -- and relatively, both in longer-term strategic stuff and in shorter term, higher payback stuff. So Mark, we still think we have lots to do.

[Mark William Wilde, Senior Analyst]

Okay. And then last one for me is maybe for Chris McIver. And that is to just give us some sense of kind of the conditions in the Asian export markets, what volume into those markets looks like? And then maybe some sense of what you're selling into that mix. I think at one point, you were probably selling a lot of beetle kill. I'm assuming there's less of that to sell now. So just a sense of how much and what the mix would look like going into those markets.

[Christopher D. McIver, Vice]

Sure, Mark. Well, what I would say is coming out of Q1 and into Q2, we were pretty aggressive in Asia and China, in particular. And a lot of that was low grade. We were probably among the first to go back in with the pandemic. Since that time, we backed off, and a lot of that's due to Europe was kind of out of that market for a little while. They had container issues. They had vessel issues. They are back there with the European spruce, which I'm sure everybody on the phone is aware of. They're very aggressive, both in lumber and logs. We've chosen to back out of there somewhat. But still keeping a meaningful presence. So I would say demand in China is good. I would say pricing today is poor. We're staying there mainly in low grades, not in higher grades because there's just really not that greater return on that side. I would say, within Japan, it's been hit quite hard, both through COVID, and we think the postponement of the Olympics has made them cautious. Again, we're staying there. We're trying to increase our market share but into a smaller market. So I think that we will continue to see a strong demand out of China. I think it's going to be competitive with Europeans for a number of years, but there are spots where I think we can fit. And then Japan, I think we'll see it recover over the next into 6 to 8 months. But we remain in both markets. And the rest of the world is a bit spot here and there. So hope that helps.

[Mark William Wilde, Senior Analyst]

That's helpful, Chris. Yes, good luck in the second half of the year, guys.

[Operator]

And at this time, Mr. Ferris, we have no other questions. Please proceed.

[Raymond W. Ferris, CEO, President & Corporate Director]

Well, thank you very much, operator, and thank you for everyone on the call for joining us, and we will look forward to talking to you in Q3. Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.