Mercer International (NASDAQ:MERC) reported a wider second-quarter loss as elevated fiber costs in Germany, weak pulp pricing and market uncertainty pressured both its pulp and solid wood businesses. The company also said it is evaluating strategic alternatives to improve liquidity and strengthen its balance sheet, while disclosing substantial doubt about its ability to continue as a going concern under accounting standards.
The company posted operating EBITDA of negative $21 million for the second quarter of 2026, compared with positive $8 million in the first quarter. Its Pulp Segment generated negative EBITDA of $13 million, while the Solid Wood Segment reported negative EBITDA of $8 million.
Liquidity and capital-structure review
Chief Financial Officer and Secretary Richard Short said Mercer’s aggregate liquidity fell by $37 million during the quarter to approximately $192 million, consisting of $79 million in cash and $113 million of undrawn revolving credit facilities. He attributed the reduction to weak operating results. Excluding the inventory impairment, working capital declined modestly by $6 million.
Mercer invested $12 million in capital expenditures during the quarter, mostly for maintenance. Short said the company expects third-quarter cash flow items, including capital spending, interest, taxes and working capital, to be broadly similar to the second quarter.
The company is working with advisers and actively evaluating strategic alternatives intended to enhance liquidity and improve its balance sheet. President and Chief Executive Officer Juan Carlos Bueno said a special committee of independent directors is assessing potential alternatives and that Mercer is in discussions with holders of its 2028 and 2029 senior notes and other stakeholders about possible financing and liquidity-enhancing transactions.
Mercer classified its revolving credit facilities as current liabilities. Its Canadian revolver matures in January 2027, and management said it believes it can renegotiate or replace the facility before maturity. The company has a waiver on the leverage ratio for its German revolvers through Sept. 30, 2026, but said market conditions indicate it will likely miss the required ratio in the fourth quarter.
Fiber costs and pulp-market pressure
Second-quarter pulp production totaled roughly 456,000 tons, down from 466,000 tons in the first quarter, while sales volumes fell to approximately 450,000 tons from 471,000 tons. Mercer said it reduced production at its German pulp mills because of limited economical fiber supply.
Softwood pulp realizations declined to $682 per ton from $696 per ton in the first quarter. In China, the net price for northern bleached softwood kraft pulp fell $27 sequentially to $658 per ton. Higher list prices in Europe and North America partly offset the China decline, with European NBSK list prices averaging $1,655 per ton and North American prices averaging $1,577 per ton.
Hardwood pulp realizations improved to $607 per ton from $564 per ton, aided by tight supply in China and North America. The eucalyptus hardwood pulp net price in China averaged $602 per ton, while the average North American hardwood list price increased $157 sequentially to $1,495 per ton.
Bueno said German pulp and sawmill fiber costs rose about 7% from the first quarter, driven by constrained supply and strong competition for fiber from pellet producers. He cited the loss of Russian wood-fiber inflows into Europe after the war in Ukraine, elevated energy costs and policies supporting wood burning for energy and home heating. In Canada, pulp and sawmill fiber costs decreased about 4% as reduced chip demand followed pulp-mill curtailments.
Management expects German pulp-fiber costs to remain elevated in the third quarter, though sawlog costs for German sawmills are expected to moderate. Canadian mills are expected to benefit from lower costs due to reduced fiber demand.
Mercer expects seasonally slower pulp demand and high mill inventories to pressure pricing in the near term. However, Bueno said the company expects NBSK markets to tighten later in 2026 and into 2027 as Northern Hemisphere maintenance outages and announced mill closures reduce inventories.
Production actions and Torgau restructuring
The company has no major maintenance downtime scheduled in the first half of 2026, but plans about 40 days of downtime in the third quarter, representing approximately 42,000 tons. Rosenthal is scheduled for a 26-day shutdown, including 12 days of market-related curtailment; Peace River is scheduled for 10 days; and Stendal is scheduled for four days. Celgar is expected to be down for 18 days in the fourth quarter.
Mercer also extended Rosenthal’s planned third-quarter maintenance shutdown by two weeks and reduced daily production rates at Stendal and Rosenthal by about 10% because of fiber constraints.
At its Torgau mill, the company is restructuring operations in response to weak European demand and elevated raw-material and energy costs. The plan includes increasing production of higher-value dimensional lumber for the U.S. market, rationalizing the product portfolio and reducing the operation from four shifts to three shifts.
Mercer reduced 100 Torgau positions in July and plans to eliminate an additional 250 positions by the second quarter of 2027. Bueno said the company expects severance costs of about $3 million in 2026 and another $3 million in 2027. He said the restructuring could improve the mill’s results by more than $20 million, with a goal for Torgau to approach profitability next year.
Solid wood and mass timber outlook
Lumber production increased about 7% sequentially to 124 million board feet, supported by improved sawlog availability, though lumber sales volumes fell 11% to 100 million board feet because of sales timing. The U.S. Random Lengths benchmark for Western SPF No. 2 and better averaged $488 per thousand board feet in the quarter, up $25 from the first quarter. Mercer said the benchmark was around $506 per thousand board feet at the time of the call.
Bueno said reduced Canadian lumber supply has supported U.S. prices, although U.S. construction activity remains affected by high mortgage rates. Forty-three percent of Mercer’s lumber volume was sold into the United States during the quarter. The company also said its European lumber imports into the U.S. face a 10% tariff, compared with an average combined tariff and duty rate of about 35% for Canadian lumber exports.
Mass timber revenue rose more than 25% sequentially, while production increased about 40%. Mercer’s mass timber backlog stood at approximately $151 million, with hyperscaler-sponsored data center projects representing roughly 70% of the backlog. The company expects mass timber production and sales to be flat in the third quarter before increasing meaningfully in the fourth quarter due to project timing.
Mercer said its One Goal 100 program delivered approximately $30 million of improvements in 2025 and another $24 million in the first half of 2026. Management said it remains on track to reach its target of $100 million in profitability improvements by the end of 2026, using 2024 as the baseline.
About Mercer International (NASDAQ:MERC)
Mercer International Inc is a publicly traded pulp producer headquartered in Vancouver, British Columbia. Listed on the NASDAQ under the symbol MERC, the company specializes in the manufacture of Northern Bleached Softwood Kraft (NBSK) pulp and dissolving pulp for use in tissue, specialty paper and textile applications.
Mercer’s core business activities include the operation of integrated pulp mills in North America and Europe. Its production portfolio encompasses NBSK pulp, renowned for its strength and versatility, and dissolving pulp, which serves as a key raw material in the manufacture of viscose, cellulose acetate and other specialty products.
The company’s facilities are located in British Columbia and the U.S.
