Mercer International reported a sharp deterioration in 2025 results, with full-year Operating EBITDA turning negative $22 million and a net loss of $497.9 million, driven by weak pulp markets and $238.7 million in non-cash impairments, largely at its Peace River mill. Management is responding with production shifts toward softwood, stakeholder engagement on energy and carbon capture opportunities, and a cost-cutting drive, while modestly better operational performance and a growing mass timber order book, alongside expected price improvements in pulp and lumber markets in early 2026, offer some relief for investors and creditors.
The company's "One Goal One Hundred" efficiency program delivered about $30 million in savings and reliability gains in 2025 and targets $100 million by the end of 2026. Despite the challenging macro backdrop and continued pulp price pressure, Mercer's rising cash flow from operations and anticipated modest price increases in key pulp and lumber markets could help stabilize operations and support its strategic pivot toward higher-value mass timber and optimized mill configurations.
Mr. Juan Carlos Bueno, Chief Executive Officer, stated: "To address the challenging hardwood pulp environment that has weighed on our Peace River mill's results, we have engaged with all stakeholders and several initiatives have been underway. These include shifting production mix at the mill further towards softwood and engaging government on accretive opportunities surrounding energy and carbon capture. We are considering all options in respect of this asset.
Despite the non-cash impairments and the challenging business climate, our underlying operational performance improved quarter-over-quarter, reflecting our focus on cost reduction and efficiency initiatives. These will remain a key focus in 2026.
We continue to advance our "One Goal One Hundred" program launched in the second quarter of 2025. The program includes cost reduction initiatives and operational efficiency measures targeting $100 million in cost savings and operational improvements by the end of 2026, using 2024 as a baseline. We realized approximately $30 million in cost savings and reliability improvements during 2025 and remain confident that we will achieve our target by the end of 2026.
In the fourth quarter of 2025, softwood pulp third-party list prices in Europe were relatively stable, while North American list prices and third-party net prices in China decreased compared to the third quarter of 2025. The decreases in these markets primarily resulted from continued weak demand stemming from the current economic climate and continuing global trade policy uncertainty. For hardwood pulp, the third-party net price in China increased in the fourth quarter of 2025 compared to the third quarter, driven by strengthening demand and higher domestic fiber costs. In North America, hardwood pulp third-party list prices remained flat. We currently expect pulp prices to modestly increase in all our markets in the first quarter of 2026 due to stable demand and global supply constraints.
In October 2025, the U.S. imposed a 10% global tariff on imported lumber under Section 232. While minimal impact is expected on our European lumber sales, Canadian producers now face combined duties of approximately 45% to 58%. This has triggered Canadian sawmill closures and tightened regional fiber supply for our Celgar mill. We continue to monitor these developments and their impact on global fiber supply.
Per unit fiber costs for our pulp and solid wood segments remained relatively steady in the fourth quarter of 2025 compared to the third quarter. We currently expect per unit fiber costs to increase across our segments in the first quarter of 2026 due to supply constraints.
In the fourth quarter of 2025, our pulp mills had 21 days of planned annual maintenance downtime (approximately 41,500 ADMTs). There is currently no annual maintenance downtime planned in the first quarter of 2026.
While our overall solid wood segment remains pressured by high interest rates in the U.S. and by European economic headwinds, we anticipate a strong recovery as the rate environment eases and supply constraints amplify pricing once pent-up demand returns to the market. Within this segment, our mass timber business has achieved significant growth since the last quarter, backed by a strong pipeline of projects and an order book of contracts and commitments totaling approximately $163 million. These projects consist of multifamily residential developments, institutional and higher education facilities as well as data centers and warehouse facilities. We currently expect production to scale significantly in 2026, contributing positively to our operating results."
Mr. Bueno concluded: "During the fourth quarter, the macro challenges we faced through 2025 continued. In this dynamic environment, we continue to prioritize improving liquidity and working capital, committing to rebalancing our asset portfolio and maintaining operating discipline in order to outperform the current macro environment. These efforts improved liquidity by over $50 million in the fourth quarter of 2025 despite operating losses and the impact of the current market environment."
