January 27, 2011 / 2:31 PM / 7 years ago

UPDATE 3-Tembec Q1 loss widens on weak lumber sales; shares drop

* Q1 loss/shr C$0.12 vs loss/shr C$0.09 year ago

* Q1 loss widens 33 pct to C$12 mln

* Q1 rev up 2 pct to C$422 mln

* Sees forest products unit to remain unprofitable

* Shares down 21 pct

(Recasts; adds conference call, analyst comments, updates shares)

By Gowri Jayakumar

BANGALORE, Jan 27 (Reuters) - Canadian forest products-maker Tembec Inc's (TMB.TO) quarterly loss widened by a third, hurt by weakened demand for lumber and a stronger Canadian dollar, sending its shares down as much as 21 percent.

Quebec-based Tembec said negative EBITDA at the forest products segment more than doubled to C$11 million, due to weak demand for Spruce-Pine-Fir (SPF) lumber, used for commercial and residential construction.

Chief executive James Lopez forecast the unit to remain unprofitable in the coming quarters this year, in a conference call.

Tembec, which supplies the North American housing space with SPF, could see higher lumber prices due to improvements in U.S. housing starts to about 700,000 this year, and Chinese demand, the CEO added.

Canada has also been at loggerheads with the U.S. over a decade-old infestation of mountain pine beetles in Alberta and British Columbia, which has cut into supplies of forestry companies like West Fraser Timber Co (WFT.TO) and Canfor Corp (CFP.TO).

U.S. had accused Canada of violating a lumber trade deal by underpricing wood from trees killed in a massive insect infestation in British Columbia. [ID:nN18153348]

Tembec has a few lumber mills in British Columbia and Ontario.

"We're heading for a very bullish lumber cycle," said analyst Kevin Cohen of Imperial Capital, citing supply reductions in Canada due to the infestation, and government restrictions on the number of trees that companies are allowed to harvest.

Prices at the dissolving pulp segment, which contributed about 35 percent to total revenue in the first-quarter, will likely rise due to an increase in demand for viscous rayon fiber -- which needs dissolving pulp to feed it -- in emerging markets.

The company, which has a market cap of about C$470 million, had said it expects high-yield pulp prices to "move sideways" or remain relatively flat in the coming quarters, in a statement.

On Wednesday, U.S.-based Kimberly-Clark Corp (KMB.N), the maker of Kleenex tissues, said it plans to quit the business of making the pulp used in its paper products as it copes with rising fiber and oil costs. [ID:nN25180047]

"I suspect revenue contribution is poised to grow in wood products because of a potential boom in lumber prices coming over the next year or two," Cohen said, adding that pulp prices were already very high.

Shares of the company shed as much as 21 percent in value Thursday morning, before paring some losses to close at C$4.07. The stock was one of the top losers on the Toronto Stock Exchange. (Reporting by Gowri Jayakumar in Bangalore; Editing by Sriraj Kalluvila, Prem Udayabhanu)

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