Driven by a swing to a loss in its lumber segment, Canfor Corp.'s overall net income fell 18.9% in the second quarter from the year-earlier period to reach to C$26.2 million (US$27 million) on a 2.5% drop in sales to C$619.1 million (US$637.7 million), the company reported Thursday.

"We are seeing several positive indicators in lumber markets, especially Asia where we shipped record high volumes in the quarter," company president and CEO Don Kayne, said. "That said, a sustained recovery of lumber markets and prices will not begin until there is a turnaround in the U.S. economy, and particularly the housing sector."

The Vancouver, British-Columbia based company said U.S. lumber demand is forecast to show a modest recovery in the third quarter of 2011 as home building and renovation markets enjoy a seasonal increase in activity. "Strong offshore demand is forecast to continue through the balance of the year," it added. Canfor also said unusually wet weather in many parts of British Columbia have hurt log hartvesting, and if they continue, then some mills may need to take downtime in the coming weeks.

Canfor produces both lumber and pulp/paper products. Its lumber segment swung to an operating loss of C$11.1 million (US$11.4 million) in the second quarter from an operating profit of C$21 million (US$20.4 million) in the April-June 2010 quarter. That swing came despite the fact the sales slipped only 1.7% to C$331.2 million (US$341.1 million). (Conversions from Canadian to U.S. dollars were made using Canfor-provided average exchange rates for each quarter.) SPF lumber production rose 8.7% year-over-year but prices after conversion to Canadian currency dropped 15%, while SYP products production leaped 21.6% but prices sank 37.7%.

"Offshore markets remained strong, the company noted. "In China, the concrete forming, remanufacture and wood frame construction sectors continued to increase their consumption of [British Columbia] lumber. In Japan, rebuilding efforts in the aftermath of the March 11 earthquake and tsunami are progressing slowly as a result of the sheer scale of the damage caused. However, Japanese lumber demand has remained quite resilient, with housing starts in the first half of 2011 ahead of last year's levels."

Canfor ran its lumber mills at 72% of capacity, four points better than in the first three months of 2011, enabling it cut reduce manufacturing costs by 3% from the first quarter.