Good day, and welcome to the Q2 twenty eighteen STORA INFO Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Ula Salyanan, Head of Investor Relations. Please go ahead, ma'am.
Thank you, Tracy. Good afternoon, everyone. I'm Ula Payenesen, Head of Storey Enso, Investor Relations. And welcome to our Q2 twenty eighteen earnings conference call. And we will start it the regular way.
Our CEO, Kare Sjundstrom, will give you a presentation about the results together with our CFO, Seppo Parvi. And after that, we will have a Q and A session for the audience to ask questions. So please go ahead, Kale.
Thank you, Ulla, and good morning or good afternoon depending on where you are in the world. I would like to start with a couple of comments regarding the past quarter. So sales increased 5.4. And if I exclude the divested pool market, it's up 7%. That's the sixth consecutive quarter of sales growth for the total company of Storenso.
Operational EBIT almost increasing 50% to €327,000,000 and an EBIT margin of 12.3% versus 8.7% a year ago. This is the fourth consecutive quarter with double digit EBIT margin in a row. EPS up 46%, cash flow continuing on a high level, and we have continued to strengthen the balance sheet with a net debt to EBITDA of 1.3 times. For the fourth consecutive quarter in a row, we have managed to be above the strategic 13% and it's a 50% plus improvement in return on capital employed versus a year ago. However, we did have some headwinds.
We have all time high sales in Consumer Board. But as you are aware of, Consumer Board do have long pricing, while prices are not adjusted like in many of the other divisions. And this is a 10% sales growth. Packaging Solutions continued with a solid performance, reaching very high profitability despite that we had an investment shutdown of the Hainanola mill where we improved in quality and also in capacity during the quarter. Biomaterial reached all time high EBIT and sales figures, an improvement by 76%.
And we had record results in Wood Products, reaching the record high return on capital employed. And we have had a significant profit improvement in the paper business, almost five times. But despite that, the full potential was not reached in the quarter. We had a wood shortage, which has meant that in many of our integrate mills, have not been able to run them full and actually being able to take additional volumes to the market. And that is an impact of $12,000,000 And that is because of the tight wood situation.
And we've been buying wood from Poland and Ireland at high levels to keep our pulp mill up and working. We came out with a $15,000,000 higher versus the guidance of 40,000,000 for the maintenance impact. It was both more expensive and it took longer time that we have estimated. And then we have had production challenges in Q1, mainly in the areas around Consumer Board. So of the $32,000,000 of headwinds we had, basically CHF 12,000,000 is with Consumer Board.
And that's coming from wood shortage impact and production challenges, mainly in twice in Skogal and once in Imatra. We continue to deliver return on capital employed above the strategic target of thirteen percent in the fourth consecutive quarter. And I would say that I would like to highlight that we have now stabilized ourselves above 13% for the time being and we see no difference going forward. In the quarter, we also announced through an environmental impact assessment, which is a semi public document that we are considering a conversion of the Oulu fine paper mill to become a packaging mill integrated with brown based cross pulp and integrated new CTMP plant. There are two machines that are planned there.
One is for cotton board, 450,000 tons and 400,000 tonnes kraftliner. The products we are focusing on are CUK and kraftliner. If we would consider to continue with this, we're talking about SEK $750,000,000 to SEK 800,000,000 in additional sales out of this mill, while at the same time, it will be a reduction about 20% of the paper capacity. However, the option is to continue to make current fine paper if we don't meet the numbers when we go through these assessments. In the transformation, in the latest step, we have completed the MFS investment in Ingeroys, which means that we have MFC capacity in both in Matra, Foz and now in Ingeroys.
We have concluded investment in Hainola, where we have improved quality and quantity and which is more output. And we have also started up Skubtgware, which is now fully converted to fluff. We have announced in the quarter investment in sawmilling and planing in Laukhalne. And we also released the release today of an investment of €25,000,000 in Maxau to be able to reduce energy costs and also generate additional green power. The ongoing restructuring of Bergvik Skog is continuing according to plan, and we hope to be in a situation to be ready with this by the end of the year.
Before handing over to Zeppel, I would like to say that we are on the journey of transformation. And as you can see, we have now reached 72% in sales coming from the growth businesses and 83% of the profit, even though I must say it was a very impressive performance of paper in this quarter. With that, I would like to hand over to Sefo.
Thank you, Karl. And I start with some of the key figures for the quarter that we have reported today. First of all, sales line up 5.4% and operational EBIT up 49.4%, an increase to €327,000,000 Operational EBIT 12.3%, also a significant improvement compared to a year ago when operational EBIT margin was 8.7%. Earnings per share up 46.3% and operational return on capital employed at 15.5%, also significant improvement compared to 10.3% reported a year ago. Also our balance sheet continues to strengthen.
And net debt to last twelve months operational EBITDA was has been decreasing now from 1.9 a year ago to 1.3 in second quarter this year. And this is despite paying the increased dividend during the quarter. Then moving to Consumer Board, where all time high sales despite headwinds was reported. Sales were up 10%, reaching all time high of €691,000,000 This driven by higher volumes in European mills and ramping up of Beihai mill. It is worth to notice that this has an effect both on sales and profitability, that more than half of the sales are coming from long term pricing contracts.
And those have not been up to renewal yet. And that means that the higher variable costs, mainly wood, pulp, chemical and fillers have not been fully compensated by higher selling prices. Production challenges in European mills and wood shortage impact was EUR 12,000,000 during the quarter. And Beihai mill ramp up is continuing as planned. But there also it's worth to notice that as we have decided not to go ahead with the chemical pulp mill there that we are importing pulp there from our Veracel Mill as well as buying some pulp
This of course, to a large extent, neutral on store as a group level, but this of course has an effect on Consumer Board division profitability as pulp prices have been going up. Operational return on capital reached 13.1 percent, which is slightly less than a year ago due to the mentioned headwinds and operational challenges. MFC invested at Inkronen Mill was completed during the quarter, and we have also announced a new joint development agreement with startup Sulapak. This is to license Sulapak materials and technology and also to begin the development of fully renewable caps and closures for liquid packages. And moving to Packaging Solutions.
Their solid performance has continued despite investment shutdown at the Hainola Mill. Sales up 5% to record high €329,000,000 for the Q2. Also, operational EBIT up 42% reaching record high level. Ae nova investment was successfully completed. This was our €28,000,000 investment to improve both quality and to increase production capacity at the field.
And operational return on capital clearly above the strategic target of 25.6%. And this is a clear improvement demonstrating strong profitability. And then a year ago it was 18.3%, so over First commercial deliveries have been already shipped. In Wood Products division, return on capital was at record level.
Sales increased 7% excluding the divested Boomerke and sales were €430,000,000 This is thanks to improved prices and active mix management. Operational EBIT was up 33% at record high level for the quarter at EUR47 million, and this was actually highest since 02/2007. Ramp up of the LVL production at Warkar's mill was also completed during the quarter. And also when it comes to biocomposite granulates that we have been starting up at our meal, our new meal in Hulte in Sweden. We have now made first commercial deliveries and launched a new brand, LuraSense by Stora Enso.
In the case of investments, we are proceeding as planned with our CLP mill at Grover, expecting to start the production at the first during the first quarter next year. And Laukowne sawmill and plane capacity increase €30,000,000 has been announced. There we plan to start the production during the Q2 or Q3 next year. Paper division reached significant profitability improvement during the quarter. Sales increased 5% to €754,000,000 and operational EBIT increased €43,000,000 to €54,000,000 There are higher sales prices in all grades, only partly offset by higher variable costs coming mainly from wood pulp and logistics.
Also cash flow continues at good level and reached 5.7% to net sales, which is slightly below the 7% targeted level. And we have also today announced a new €25,000,000 oil investment to reduce energy costs and to boost green energy generation at our Maxau mill in Germany. This project is expected to be completed in 2020. Then we have also today announced revised strategic leverage targets. These trigger targets are due to strong cash flow generation capabilities and higher profitability levels that we have reached now and our transformation has come to a new stage.
Rewards targets for net debt to pressure EBITDA to be below two point zero, old level was three point zero and net debt to equity ratio to be below 0.6 or one point zero point eight. And this is also demonstrating the fact that our transformation to Renewable Materials growth company has been successful and we have reached a new milestone there. During the last years, our balance sheet has strengthened considerably, thanks to strong cash flow generation combined with sale of non core assets. And we also reduced our capital expenditure now to about €600,000,000 level, which is aligned with our depreciation and operational decrease in the value of biological assets. And this is the level also that we aim to keep going forward.
And even with this new type of financial policy and targets, we expect to keep the level of strategic flexibility we need also going forward. And this is to enforce our commitment to efficient management of capital. Before I hand over back to Karl, some comments on our strategic targets where good progress is visible. But there is, of course, still more potential. A lot of green dots, as you can see already, couple red and one yellow, still work to be done on fixed cost of sales where we are now at 23.5% level, still above the targeted 20%, but clear improvement compared to year ago.
On the Singapore slightly below at 13% level, below the 20% targeted level. And Paper, as mentioned, slightly below the targeted 7% level when it comes to cash flow target. But very happy about the development in Packaging Solutions division, where they are 25.6% level when it comes to return on capital improvement compared to year ago. And Biomaterials and Wood Products, both showing record levels when it comes to return on capital. With that, I hand over back to you, Karl.
Thank you, Seppo. And guidance for the 2018. Sales are estimated to be similar to the amount of EUR2664 million recorded in the 2018. Operational EBIT is expected to be in line with the EUR327 million recorded in the 2018. The impact of annual maintenance shutdown is expected to be approximately EUR5 million lower than in 2018.
Second quarter maintenance impact was $15,000,000 higher than initially forecasted. The Nordic wood supply situation is expected to continue tight due to the risk of forest fires affecting the harvesting conditions. The wood supply is expected to be impact on the wood supply expected to approximately EUR 10,000,000 negative in Q3 twenty eighteen. These impacts are included in the above outlook. And for maintenance, we will have Imatra and Inge Reuss with an annual maintenance shutdown Packaging Solutions, Ostro Mill and Diode Material, Sunilla and Paper Weitzelotto Mill.
Before handing over to the Q and A session, I just want to round up this presentation. And that is that we have had six consecutive quarter of sales, fourth consecutive quarters of double digit operation EBIT margin, operational return on capital employed above the 13% level for the fourth consecutive quarter. We have set new tighter targets for net debt and debt equity. Wood sourcing is still a challenge, and we are moving ahead from asset transformation to innovation and sales transformation. With that, I hand over to Ulla.
Okay. Thank you, Karl. And just before we go to the Q and A session, I just want to remind you all that we are hosting Capital Markets Day here in Helsinki, November 7. So you are all welcome to join us. And after that, a site visit to Lassi and Hainola Corrugated and Essi fruiting units.
So Tracy, please, we will start now the Q and A session.
Thank you, We will now take our first question from Antti Kosyukuri from Bank of Please go ahead.
Yes, thank you. I would have two questions. Firstly, about the Consumer Board margins. You mentioned that the contract structure is long as we know. I just wanted to know if you feel that you have already made the price increases that are needed for to restore the margins and that's just an issue of timing?
Or do you still feel that there's work to do on pricing in this division? And then secondly, about the Q3 guidance for EBIT guidance. Could you walk us through the waterfall chart, if you will, where you see the key negatives? As I guess, pork prices are still continuing a bit upwards and you're guiding a bit less maintenance cost as well in Q3. I guess Q3 is typically a bit better seasonally than Q2.
Could you comment a
bit on that? Thank you.
So first of all, for those who don't know it, basically liquid packaging board and food service board and are basically about 50% of the consumer board sales. They are a limited number of customers and they have usually quite long contracts. We have not renegotiated any of these contracts in the two quarters of this year. Renegotiations will start during next year and the end of this year. And that is basically a little bit what is happening in Consumer Board in the third quarter, which means that we will have the maintenance shutdown for E Matra and Ingeroys and we don't expect price increases for these big parts of the portfolio.
So I think I answered the question there. So regarding the others, we can say that we see that, for example, that we believe that quarter on quarter kraftliner will be slightly higher. RCP containerboard stable, corrugated packaging slightly higher. When it comes to pulp, softwood Europe slightly lower, Hardwood Europe stable, Fluff Europe slightly higher, Softwood China lower, Hardwood China lower, Dissolving China lower. But you have to remember that the Chinese part of our pulp business is about 22%.
Did that answer your question?
Yes. Thank you. The first one, still a little bit on the Q3 versus Q2. What are you seeing on the cost side? Should we expect that the variable cost will go up versus Q2?
There is a bit of a cost pressure, but the big impact is when you take Imatra and Inge Roys down. And then obviously, we guided for the wood shortage, which means that usually for Consumer Board and for paper and to a certain extent for packaging solution, we've been producing more pulp and selling the pulp on top of it because of the wood shortage that we have to go all the way to Poland in a certain extent and even to Ireland to keep the mill going. Have only been producing to be able to produce the boards and we have not had the capabilities of producing extra tons in the pulp mill, which they are capable of and sell that on the market. And we expect that to continue.
All right.
Thank you very much.
Thank you.
We will now take our next question from Mikael Jas from Kepler. Please go ahead.
Yes. Hello, everybody. It's Mikael Jas from Kepler Cheuvreux. A couple of questions for me. The first is around the wood sourcing issue.
I know it's difficult for you to go into more details, but could you just give us some color and flavor? Is this something that will go on now for a very long time? Or is this something that happens every now and then? That would be my first question. Then second one is around wood products.
I mean, you are doing quite well in your wood products in terms profitability and margin. And you have also done a lot of changes in that business area. Is this sort of a new normal that we could look forward to? Or is this sort of just a cyclical peak? And then thirdly, perhaps a couple of words on publication paper pricing, what are you experiencing there?
Thank you.
So when I start on the wood supply, you have to remember that we came in with okay ish kind of inventories in the beginning of this year. Then we had a very wet and not a real winter in Finland, which means that we had a hard time and we were consuming quite a lot of our inventories. In Sweden, we had too much snow. In the middle of Sweden, we couldn't get the logs out. Then came a very short spring and went directly into summer, and that was good.
We started to fill already in the first weeks of June. We had to reduce the harvesting because of the heat to certain parts. And we actually in one week in June, we took it down by 75% because of the fire risk. And that was in the if you remember when there was a fire in Warmland because of sports from the railroad. So we have adjusted because if this continues, and it's not only in Sweden, it's in Finland, it's in Russia and to a certain extent in Norway as well, that you can only harvest during nighttime and maybe with the aim of spraying water from helicopters before harvest.
There
is a reason.
Okay. Sorry about the echo. I hope it will vanish now.
Yes. So that means that you consume inventory and that's the $10,000,000 that we've included in the guidance. I don't know if there is going to come rain. Today, came rain in Helsinki. And Rick, I hope I answered your question.
Yes, the first one, yes. Thank you.
And the second one regarding Wood Products, this is the best quarter usually for Wood Products. Quarter. But the level of profitability, I think, with the increased demand for wood based building, because we are the biggest supplier of wooden based construction material in Europe, we are looking very positive regarding this continuation in development. And we have moved away into more value added business from doing different kind of business before. And I think we are in a little bit of a lead here, but people will try to catch up.
But for the time being, we are feeling very positive about Wood Products. And then your last one regarding paper. We believe that the demand year over year is a bit weaker, but we believe prices will be slightly higher going into the next quarter.
Yes. Maybe to add on top of what Karl has said that please notice that Q2 is seasonally best for wood products as the billing activities increased during the springtime. And July is a holiday amount that has an effect in the quarter.
Perfect. Many thanks.
Thank you.
We will now take our next question from Lars Kjellberg from Credit Suisse. Please go ahead.
Thank you. I just wanted to come back to the guidance because we did it before and had a discussion. I still can't make it work in a way, right? You had a host of temporary things impacting your numbers and you called it out in your slide deck. So underlying, if you like, three fifty nine million.
Temporary means we probably sold some of those issues with maybe with the wood suppliers still continuing at roughly the similar quantum. Production issues, I would hope, would have been resolved in Consumer Boards. You get sequentially higher prices for some of the containerboard grades, pulp and paper. So what are we missing if we had sort of an underlying around the $359,000,000 and go down to $327,000,000 with those positives? There's got to be something else out there.
It's Zepoj. Maybe I can take this. First of all, you have to remember that the guidance is a range and we have said it's in line with Q2, we have done EUR 27,000,000. Then secondly, like I've also mentioned in case of Wood Products, Q2 compared to Q3, yes, in Q3, we have a holiday month, July included, which has some effect on some businesses and volumes. And there is some pressure on variable costs that continues to have an effect in development of the costs.
And like Karl said, in the case of Consumer Board, we have seen a number of contracts that have not been renegotiated, and that will take time to catch up with the margins.
So basically, we don't believe in any change in the price in Q3 on Consumer Board. And on top of that, you have eMatra and IngeRoyce in maintenance.
Absolutely. But to be clear, you're calling down maintenance cost for the group by €5,000,000 So you're moving the bucket Yes. A
But I so and then we have a little bit on the China pulp coming down and also softwood Europe coming down a bit on the pulp side,
as I said in the previous. Sorry. We're looking at when we're talking you mentioned wood costs in a number of times in the press release today, but the main focus where we talked about is the wood supply shortages. Can you give us any sense of the actual wood price? I mean, there's been news coming from various sources suggesting there's been some significant pulpwood price increases, which I would assume will not going to impact you at this early stage given that you have still a significant amount of timber standing timber that you purchase.
So can you give us any sense of cost inflation when it comes to actual wood? And if we should expect that to ramp up as we head into 2019? As I read somewhere that Swedish wood pulpwood costs were up in ballpark ish 17% at the June year on year, if that's something you can No. Say yes
When I look upon wood costs, it's an increase about 7% and probably slightly higher in both Finland and Sweden, but the blended rate is 7% for the whole. And that is also partly driven what I said that with the shortage you've been buying on the margin from both Poland and as far as Ireland to keep the pulp mill weakened up and running. But I think we are on a higher level, some 7% that I think all in all going forward when it comes to wood cost. And it also will depend what's happening now in Sweden and Finland if the strong weather continues and we might have to reduce harvesting for the time being. So it's a supply and demand and then it's a transportation cost if you have to take from far away.
But right now, we see about 7%.
If I may just In
your attach, wood price impact is more negative than Sautex impact, yes.
Just a couple of follow-up, if I may. Just if you have a let's assume a price increase from wood today in the marketplace, when would you see that coming through in your P and L given the how you buy forward, I. E, standing timber? And I also would like to your Wood Products division, of course, as you pointed out and rightly so, it's an incredibly good performance. It seems as if it hasn't really been impacted by the same wood issues like the rest of the company, if you can put some color to that.
And the final one for me is just, I just wanted to understand a bit what's going on in China. Obviously, as we've been reading for some time, there's a lot of production downtime in China citing weak demand, of course, on the more commodity end of the Consumer Board, but notwithstanding, it's surprising to me that they're calling out weak demand. And so essentially my question to you is, what are you sensing in the Chinese market? And the final thing, I was slightly surprised you're saying that softwood pulp, do you expect that to be down in Europe in this quarter? Why are we seeing that pressure coming?
That's it for me. Thanks.
Okay. So when it comes to the I would say it's a fairly short period and it's very dynamic because it's a combination of actually being able to buy from ships from sawmillers, it's about buying pulpwood in the market. So I would say it's usually within three months, the effect that you see and we have seen fairly big movements in a very short period in the wood pricing. When we talk about China, it is folding boxboard. We are not talking about liquid or CUK, which is slightly different.
But so that's different when we talk about that. And we look into China, we do see that it's like lower demand. But that could very well depend on how strict they're going to be on the import recycled paper. It's coming news every day that they're to inspect even more, which might change that again. So it's a bit of an unknown.
And also just to comment on wood products when you asked about the wood cost effect there and how we manage it. First of all, should remember that they have quite substantial operations in Central Europe. Their wood costs have not been increasing as much as in the Scandinavian countries. So that been effective positive. And also they have been managing selling prices also well, being able to compensate for higher cost with higher selling prices.
Thank you.
We will now take our next question from Linus Larsson from SEB. Please go ahead.
Yes. Thank you very much. Maybe continuing on variable costs, you said that you saw an increase on the group level of €30,000,000 in the second versus the first quarter. Would you expect more or less or roughly the same magnitude of variable cost inflation if we look at Q3 versus Q2?
I think it's fair to say that on average sort of if you look at so in general, if I look at the post inflation levels, which by the way has been pretty well or even well managed and compensated by higher selling prices with the exception of the consumer quarter that's been discussed already here a couple of times. We expect that this kind of 6% to seven percent on average increases continue. So that's comparable quarter on quarter. This is year on year change that I'm talking about.
I see, I see. Yes, I was just trying to gauge how much of sequential cost inflation we're seeing in wood and maybe other variable costs as well. Is it I
think sequentially, they are more or less at the same level.
Okay. Okay. Because then it's like just coming back to the previous topic of trying to understand the guidance for the third quarter. Had there been significant variable cost inflation baked into that guidance, it could have been somewhat easier to reconciliate your guidance for the third quarter. So I'm basically trying to understand your third quarter guidance.
How much of paper price improvement have you baked in? You mentioned that you expect slightly higher paper prices Q3 on Q2. How much of that in millions or percent or something like that is baked into this guidance, if at all?
It's a couple of percentage points.
Okay, that's helpful. Thank you. Also related
I would like to point out that when you look upon this, it is a lot around the Consumer Board because as I said, we will not have the same volume. We will have basically the same prices and we will not have the same volumes because of the maintenance.
Right. And that part, I mean, you've had a strong seasonality and my perception has been that Consumer Board has been seasonally strong regardless of your maintenance schedule, and fourth quarter has been seasonally weak. Could you just talk a little bit about that? Is that the pattern that, for some reason we should not expect in Q3 and Q4 this year?
I
would say that the pattern is the same.
Okay. Okay. Okay. And then maybe finally, and that's also a follow-up question on pulp. Could you just talk a bit more about your previous comments about softwood pulp prices expected to be lower Q3 on Q2?
And you said, if I heard you correctly, both in China and Europe, is that based on negotiations that you finalized?
So very clear what I said was softwood Europe slightly lower, hardwood Europe stable, softwood China lower, and then hardwood China slightly lower, dissolving China slightly lower. And that is what we see right now.
Right, right. And what's driving the decline in soft wood pulp pricing?
It's season because it's usually a season where there is remember, August is the time we always discuss, and we've done it for the last five years.
It's difficult summer seasonality related things that pulp market is getting a bit softer than it's holiday seasons. And then when people are back from holidays, then it's sort of recovering. There's been a couple of exceptions versus last year, but I guess was it the year before when there's been some production disturbances at the big mills. And then it has not always been working like that. But that's a typical cycle.
Thanks. That's very helpful. Thank you very much.
We will now take our next question from Roman Santareta from Carnegie. Please go ahead.
Thank you very much. Now still in terms of this quarter on quarter EBIT guidance you have, is it sort of safe to draw the conclusions that you expect earnings to be stable or to improve in all the other divisions except for Consumer Board where
we don't guide, but from the information that we have been trying to provide you, we have said that and giving this, we have said that it's basically no price increases in Consumer Board and we are giving an in line for the totality. So you have to draw your own conclusions there. I don't want to open up for guidance for each and every division because that's not what we have done. And that would be a new step that we haven't taken.
Okay. I understand. And in terms of this underlying wood cost inflation of 7%, is that something you're seeing at the moment for Q3? Because if I recall right, you have spoken about mid single digit wood cost inflation previously this year, even low If single
the fire risk would disappear tomorrow, I would probably have a different opinion. But right now, I'm worried that the harvesting that we can't refill our wood yard is a big risk. And that will drive up prices because we then have to buy at a smaller market, plus we have to probably continue to import wood from far away with very high transportation costs.
I see. But I was trying to see
I I could say that it's going to be a rainy summer in the Scandinavia because then if that was the case, I would have a different opinion.
Yes, I understand. But if you disregard the shortage that we potentially will have or already perhaps have, what is the underlying wood raw material cost inflation that you had in the second quarter If you disregard this 12,000,000
It's very hard. We had a planning parameter in the mid single digits. That's what we were planning. And we got a little bit higher. And that is partly driven.
And I have not done the detailed analysis, but my gut feeling says that between mid single digit and the 7% is probably coming from the shortage and the importation consequences of it on the cost of wood. Then obviously, when you can't run your pulp mills at full, you're also losing a lot of revenue and other areas, which means that we have to work to optimize the mix in a different way than we would have had if we had unlimited supply of wood.
Good. I understand. And related to wood sourcing, could you just remind us the markets that you I guess, you buy some 35% from Finland, 25% from Sweden. Do you have that sort of split in your head or on the table there?
First of all, started well. So it's 36% in Finland, 25% in Sweden, 7% Central Russia, 14% Central Europe, 14% Russia, 7% Uruguay, 6% Brazil both the countries 5%, Brazil 5%, 1% China. It's not from our mind.
Okay, good. Thanks. And finally, still on this part of sort of the quite cautious comments related to the summer sort of months. Is this only a summer slump that you are looking or that you're planning sort of
in So if I take the big picture on that one, we usually have had a net capacity coming online every year of 1,400,000 tons for many years. Now when we look forward, it seems like with the announcements made as of today, it's looking at 1,100,000 net ton coming online, which is lower in an industry that is growing, which tells me that this would probably stay on this level until 2021, 2022, because there has been no big new announcement of any big pulp mills.
I understand. Good. Thanks. That's all for me.
We will now take our next question from Hari Thiessen from Nordea. Please go ahead.
Good afternoon. Sort of looking at the pulp balance, obviously, if you talk about the tonnage terms, could you sort of quantify how much really sort of did you lose that sort of volumes in the paper and sort of consumer board if you were usually able to sell pulp from the integrated mills to the market and sort of get a feel of the volume impact and how much it sort of if this goes on, what's the annualized sort of volume impact for this year? This year, so we
are producing about 5,800,000 tonnes of pulp, of which 1.95 is basically market pulp. And what we have seen is that we probably lost in this 50,000 to 52,000 tons of pulp. 1,000 in the quarter, 50,000 to 52,000 tons in the quarter.
Okay. And this 50,000 that would be in the Consumer Board and paper Or is it also in the
If I look upon it, it's Consumer Board, a bit in packaging
and in
biomaterials and in paper.
Okay. Okay. Well, is it sort of I mean, if you were talking about softness or summer softness in the pulp market and if this availability issue remains, do you see any kind of implications on the supply? Because obviously, pulp prices and the whole cycle has been driven by production disturbances throughout the last one point five years, would this become an issue keeping having an impact on supply demand in the pulp?
Maybe some, but not a lot. I think it's more a seasonal thing, and we see a weakness in Q3. But it's also depending on, as I said earlier, what happening in China. Is are they going to be very strict with the import of the recycled paper because our estimated that some 2,000,000 to 3,000,000 tons on an annual basis that could be based there. But it is a summer seasonal effect that we're seeing.
We've also seen and we believe that there is some a little bit of weakness in the pricing.
Okay. Thank you very much.
Thank you.
We will now take a follow-up question from Lars Ulzberg from Credit Suisse. Please go ahead.
I just want to come back to your Oulu plants and try to fully I'll get some more color on it. Clearly, containerboard has been and is seemingly quite in tight supply, so I can fully appreciate the potential need for that. If I look specifics on CUK, it's something that is imported about half at least half the demand in Europe today. So how do you think about placing that amount of tonnes in the European market? And where would you aim to place it?
And the next question is, can you or would you consider to do one of the two? Or is it all packaging or nothing or some stake coated?
So
we are actually looking at all potential alternatives. And if I didn't have to we were forced to go public for the environmental impact assessment. And I would rather have been able to do all the calculation, all the pre studies before, but now we had to do it to be able to get to the finer details. When it comes to CUK, which we call and we are selling quite a bit called CKB, it's a grade that has huge demand. We are actually importing from to Europe from of Sea Bay cannoli, as we call it, from Beihai into Europe because we can't supply.
And we've been constantly undersupplying it for years. So we don't see any problem over time to supply that into the market, not at all. And kraftliner is a good grade. And as you see here, it's kraftliner this time with CTMC, which is basically a new grade.
Okay. But again, do you need to do both or staying with Yes, close I to those new think they're
going to all alternatives.
We are still at the PCCreative study phase. So by end of the year, say around New Year, we are ready with the PCCreative study. And then we can look at different alternatives and start to make conclusions that what alternative makes sense to change something or like Karl said to continue paper manufacturing if we come to a conclusion that conversion doesn't work out.
All right. Thank you.
We will now take our final question from Emily McKeig from BlackRock. Please go ahead. Hi. Thanks for taking my question. Given your current leverage and your new leverage targets, how are you feeling about your rating with S and P on Moody?
So obviously and that is no news. We wouldn't mind having an investment grade rating. That we have talked about in previous calls and with a strong cash generation, feel very comfortable having this new target. Did that answer your question? Yes,
I guess so. Thank you.
Thank you.
This concludes the Q and A session. I would now like to turn the conference back to your Seltzer for any additional or closing remarks.
Okay. Thank you, everyone, for listening in and following us on the web. And we will announce our third quarter results on October 26, and I wish we will be in touch then. And have a nice summer, all of you who get still some holiday. Okay, thank you.
Thank you. Thank you.
This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.