Good day. Welcome to the Q2 2018 Stora Enso Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ulla Paajanen, Head of Investor Relations. Please go ahead, ma'am.
Thank you, Tracy. Good afternoon, everyone. I'm Ulla Paajanen, Head of Stora Enso Investor Relations. Welcome to our Q2 2018 Earnings Conference Call. We will start it the regular way. Our CEO, Karl-Henrik Sundström, will give you a presentation about the results together with our CFO, Seppo Parvi. After that, we will have a Q&A session for the audience to ask questions. Please go ahead, Kalle.
Thank you, Ulla. 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. Sales increased 5.4%, and if I exclude the divested pulp markets, up 7%, that's the sixth consecutive quarter of sales growth for the total company of Stora Enso. Operational EBIT almost increasing 50% to EUR 327 million 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, why prices are not adjusted like in many of the other divisions. 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 Heinola 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%. We had record results in Wood Product, reaching the record-high return on capital employed.
We have had a significant profit improvement in the paper business, almost five times. Despite that, the full potential was not reached in the quarter. We had a wood shortage, which has meant that in many of our integrated mills, we have not been able to run them full and actually being able to take additional volumes to the market. That is an impact of EUR 12 million. 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 EUR 15 million higher, versus the guidance of EUR 40 for the maintenance impact. It was both more expensive, and it took longer time that we have estimated. We have had production challenges in Q1, mainly in the areas around consumer board.
Of the EUR 32 million of headwinds we had, basically EUR 12 million is with consumer board, and that's coming from wood shortage impact and production challenges, mainly twice in Skoghall and once in Imatra. We continue to deliver return on capital employed above the strategic target of 13% in the fourth consecutive quarter. 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 kraft pulp and integrated new CTMP plant. There are two machines that are planned there. One is for cartonboard, 450,000 tons, and 400,000 tons kraftliner.
The products we are focusing on are CUK and kraftliner. If we would consider to continue with this, we're talking about EUR 750 million to EUR 800 million 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 Ingerois, which means that we have MFC capacity in both Imatra, Fors, and now in Ingerois. We have concluded the investment in Heinola where we have improved quality and quantity, which is more output. We have also started up Skutskär, which is now fully converted to fluff. We have announced in the quarter investment in sawmilling and planing in Laukaa.
We also released a release today of investment of EUR 25 million in Maxau to be able to reduce energy cost 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 Seppo, I would like to say that we are on the journey of transformation, 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 Seppo.
Thank you, Kalle. 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% and increased to EUR 327 million. 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 12 months operational EBITDA has been decreasing now from 1.9 a year ago to 1.3 in second quarter this year. This is despite paying the increased dividend during the quarter. Moving to Consumer Board, where all-time high sales despite headwinds was reported. Sales were up 10%, reaching all-time high of EUR 691 million.
This is driven by higher volumes in European mills and ramping up of Beihai mill. It's worth to notice that these have 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. 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 million during the quarter, and Beihai mill ramp-up is continuing as planned. There also it's worth to notice that as we have decided not to move ahead with the chemical pulp mill there, that we are importing pulp there from our Veracel mill, as well as buying some pulp from the market.
This, of course, to large extent, neutral on Stora Enso group level, but this, of course, have an effect on Consumer Board division profitability as pulp prices have been going up. Operational return on capital reached 13.1%. This is slightly less than a year ago due to the mentioned headwinds and operational challenges. MFC investment at Ingerois mill was completed during the quarter, and we have also announced a new joint development agreement with a startup, Sulapac. This is to license Sulapac materials and technology, and also to begin the development of fully renewable caps and closures for liquid packages. Moving to Packaging Solutions. Their solid performance has continued despite investment shutdown at the Heinola mill. Sales up 5% to record high, EUR 329 million during the Q2. Also, operational EBIT up 42%, reaching record high level. Heinola investment was successfully completed.
This was our EUR 28 million investment to improve both quality and to increase production capacity at the mill. Operational return on capital clearly above the strategic target of 25.6%. This is a clear improvement demonstrating strong profitability, and a year ago it was 18.3, so over seven percentage points. First commercial deliveries have been already shipped. In Wood Products division, return on capital was at record level. Sales increased 7%, excluding the divested Puumerkki, and sales were EUR 430 million. This is thanks to improved prices and active mix management. Operational EBIT was up 33% at record high level for the quarter at EUR 47 million, and this was actually highest since 2007. Ramp-up of the LVL production at Varkaus mill was also completed during the quarter.
Also, when it comes to biocomposite granules that we have been starting up at our new mill in Hylte in Sweden, we have now made first commercial deliveries and launched a new brand, DuraSense by Stora Enso. In the case of investments, we are proceeding as planned with our CLT mill at Gruvön, expecting to start the production during the first quarter next year, and Laukaa sawmill and plane capacity increase, EUR 30 million 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 EUR 754 million, and operational EBIT increased EUR 43 million to EUR 54 million. 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. We have also today announced a new EUR 25 million boiler 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 when our transformation has come to a new stage. Revised targets for net debt to operational EBITDA are to be below 2.0, old level was 3.0, and net debt to equity ratio to be below 0.6, old one was 0.8.
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. We have also reduced our capital expenditure now to about EUR 600 million level, which is aligned with our depreciation and operational decrease in the value of biological assets. This is the level also we aim to keep going forward. Even with this new tight financial policy and targets, we expect to keep the level of strategic flexibility we need also going forward. This is to enforce our commitment to efficient management of capital.
Before I hand over back to Kalle, some comments on our strategic targets where good progress is visible, but there is, of course, still more potential. 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 a year ago. Consumer board 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, clear improvement compared to a 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, Kalle.
Thank you, Seppo. Guidance for the third quarter of 2018. Sales are estimated to be similar to the amount of EUR 2,664,000,000 recorded in the second quarter of 2018. Operational EBIT is expected to be in line with the EUR 327 million recorded in the second quarter of 2018. The impact of annual maintenance shutdown is expected to be approximately EUR 5 million lower than in second quarter of 2018. Second quarter maintenance impact was EUR 15 million 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 impact on the wood supply is expected approximately EUR 10 million negative in Q3 2018. These impact are included in the above outlook.
For maintenance, we will have Imatra and Ingerois with an annual maintenance shutdown, Packaging Solution, Ostrołęka mill, and Biomaterial, Sunila, and Paper, Veitsiluoto mill. Before handing over to the Q&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, we are moving ahead from asset transformation to innovation and sales transformation. With that, I hand over to Ulla.
Okay. Thank you, Kalle. Just before we go to the Q&A session, I just want to remind you all that we are hosting Capital Markets Day here in Helsinki, 7th of November. You are all welcome to join us. After that, a site visit to Lahti and Heinola Corrugated and AC fluting units. Tracy, please, we will start now the Q&A session.
Thank you, ma'am. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will now take our first question from Antti Paasivirta from Danske Bank. 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 to restore the margins, and that's just an issue of timing, or do you still feel that there is work to do on pricing in this division? 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 pulp prices are still continuing a bit upwards, and you're guiding a bit less maintenance cost as well in Q3, and I guess Q3 is typically a bit better seasonally than Q2. Could you comment a bit on that? Thank you.
First of all, for those who don't know it, basically liquid packaging board and food service board 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. 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 Imatra and Ingerois, and we don't expect price increases for these big parts of the portfolio. I think I answered the question there.
Yeah.
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. 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.
It is when you take Imatra and Ingerois down.
All right.
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. We 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.
We expect that to continue.
All right. Thank you very much.
Thank you.
We will now take our next question from Mikael Jafs from Kepler. Please go ahead.
Yes. Hello, everybody. It's Mikael Jafs 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. Second one is around wood products. You are doing quite well in your wood products in terms of profitability and margin. 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 just a cyclical peak? Thirdly, perhaps, a couple of words on publication paper pricing. What are you experiencing there? Thank you.
When I start on the woods supply, you have to remember that we came in with okay-ish inventories in the beginning of this year. 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. 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 a certain portion. Actually, in one week in June, we took it down by 75% because of the fire risk, and that was, if you remember, when there was a fire in Värmland because of sparks from the railroad.
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 harvesting. Obviously, there is a risk.
Okay, sorry about the echo. I hope it will vanish now.
Yes. That means that you consume inventory, and that's the EUR 10 million that we've included in the guidance. I don't know if there is going to come rain. Today it came rain in Helsinki. Rick, I hope I answered your question.
Yeah, the first one. Yes, thank you.
The second one regarding wood products. This is the best quarter usually for wood products. It's the second quarter. 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. We have moved away into more value-added business from doing different kind of business before. I think we are in a little bit of a lead here, but people will try to catch up. For the time being, we are feeling very positive about wood product. Your last one regarding paper. We believe that the demand year-over-year is a bit weak, but we believe prices will be slightly higher going into the next quarter.
Eppu here. Maybe to add on top of what Kalle said, that please notice that Q2 is seasonally best for wood products as the building activities increase during the springtime. July is a holiday month, and that has an effect then in the quarter.
Perfect. Many thanks.
Thank you.
We will now take our next question. Lars Kjellberg from Credit Suisse. Please go ahead.
Thank you. I just wanted to come back to the guidance because within the beforehand discussion, I still can't make it work in a way, right? You had a host of temporary things impacting your numbers, and you call it out in your slide deck. Underlying, if you like, EUR 359. Temporary means we probably solved some of those issues 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 container board grades, pulp, and paper. What are we missing if we had sort of an underlying around EUR 359 and go down to EUR 327 with those positives? There's got to be something else out there.
It's Seppo here. Maybe I can take this. First of all, you have to remember that the guidance is a range, and we are in line with Q2, we have done EUR 27 million. Secondly, like I've also mentioned the case of wood products Q2 compared to Q3. During Q3, we have a holiday month, July included, which has some effect on some businesses and volumes. There is some pressure on variable costs that continues to have an effect in the development of the costs. Like Kalle said, in the case of consumer board, we have still a number of contracts that have not been renegotiated, and that will take time to catch up with the margins.
Basically, we don't believe in any change in the price in Q3 on consumer board. On top of that, you have Imatra and Ingerois in maintenance.
Absolutely. To be clear, you're calling down maintenance cost for the group by EUR 5 million. You're moving the bucket a bit.
Yes. 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 preview.
Yeah.
Yes.
Sorry. You mentioned wood costs a number of times in the press release today. The main focus, what we talked about, is the wood supply shortages. Can you give us any sense of the actual wood price? There's been news flow coming from various sources suggesting there's been some significant pulp wood price increases, which I would assume were not going to impact you at this early stage, given that you have still a significant amount of standing timber that you purchase. 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? I read somewhere that Swedish pulp wood costs were up in ballpark-ish 17% at the end of June year-on-year. If that's something you can say yes to.
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. That is also partly driven what I said, that with the shortage, you've been buying on the margin from both Poland and forest islands to keep the pulp mill up and running. I think we are on a higher level, probably some 7% that I think all in all going forward when it comes to wood cost. 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. It's a supply and demand, then it's transportation cost if you have to take from far away. Right now, we see about 7%.
If I may.
In EUR terms, wood price impact is more negative than saw logs impact. Yes.
Just a couple of follow-up, if I may. If you have, let's assume, a price increase from wood today in the marketplace, when would you see that coming through in your P&L, given how you buy forward, i.e., standing timber? I also like 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. 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. Essentially my question to you is, what are you sensing in the Chinese market? The final thing, I was slightly surprised you saying that softwood pulp, you expect that to be down in Europe in this quarter. Where are we seeing that pressure coming? That's it for me. Thanks.
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 saw millers, it's about buying pulp wood in the market. 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. That's different when we talk about that. When we look into China, we do see that it's slightly lower demand. That could very well depend on how strict they're going to be on the import of the recycled paper. It's coming news every day that they're going to inspect even more, which might change that again.
It's a bit of an unknown.
Also just to comment on wood products, when you ask about the wood cost effect there and how we manage it. First of all, you should remember that they have quite substantial operations in Central Europe. The wood costs have not been increasing as much as in the Scandinavian countries. That has been affecting positive. Also they have been managing selling prices also well, being able to compensate for higher costs 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 EUR 30 million 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, if you look at generally, if I look at the cost 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 board that has been discussed already here a couple of times. We expect that this kind of 6%-7% on average increases continue.
Sort of comparable quarter-on-quarter. This is year-on-year change that I'm talking about.
I see. I was just trying to gauge how much of a sequential cost inflation we're seeing in wood and maybe other variable costs as well.
I think sequentially they are more or less at the same level.
Okay. 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 reconcile your guidance for the third quarter. 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 % 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.
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. That apart, historically, 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 a 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. Maybe finally, 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? You said, if I heard you correctly, both in China and Europe. Is that based on negotiations that you finalized?
Very clear what I said was softwood Europe, slightly lower. Hardwood Europe, stable. Softwood China, lower. Hardwood China, slightly lower. Dissolving China, slightly lower.
That is what we see right now.
Right. What is driving the decline in softwood pulp pricing?
It is season, because it is usually a season where. You remember August is the time we always discuss, and we have done it for the last five years. It is typical summer seasonality related thing that pulp market is getting a bit.
Yes
softer when it is holiday seasons. When people are back from holidays, then it is sort of recovering. There has been a couple exceptions, for instance, last year, I guess, was it the year before when there has been some production disturbances.
Yes
At the big mills. It has not always been working like that, but that is a typical cycle.
Thanks, that's very helpful. Thank you very much.
We will now take our next question from Robin Santavirta of Carnegie. Please go ahead.
Thank you very much. Now still in terms of this quote-unquote, 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.
We don't guide, but from the information that we have been trying to provide you, and giving this, we have said that it's basically no price increases in consumer board, and we have given an inline for the totality.
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. Does this underlying wood cost inflation of 7%, is that something you're seeing at the moment for Q3? If I recall right, you have spoken about mid-single digit wood cost inflation previously this year, even low single digits.
If the fire risk would disappear tomorrow, I would probably have a different opinion. Right now, I'm worried that the harvesting, that we can't refill our wood yards is a big risk. 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.
I wish I could say that it's going to be a rainy summer in Scandinavia, because then if that was the case, I would have a different opinion.
Yeah, I understand. 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 EUR 12 million?
It is very hard. We had a planning parameter in the mid-single digits. That was where we were planning. We got a little bit higher, and that is partly driven. I have not done the detailed analysis, but my gut feeling says that between mid-single digit and the seven, it is probably coming from the shortage and the importation consequences of it on the cost of wood. Obviously, when you cannot run your pulp mills at full, you are also losing a lot of revenue in 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. 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 split in your head or on a table there?
First of all, you started well. It's 36% in Finland, 25% in Sweden, 7% Central Russia, Central Europe 14%, Russia 7%, Uruguay 6%, Baltic countries 5%, Brazil 5%, 1% China. It's not from my mind.
Okay, good, thanks. Finally, still on this pulp, the quite cautious comments related to the summer months. Is this only a summer slump that you are looking or that you're planning?
If I take the big picture on that one, we usually have had a net capacity coming online every year of 1.4 million tons for many years. Now when we look forward, it seems like with the announcements made as of today, it's looking at 1.1 million net tons 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 mill.
I understand. Good. Thanks. That's all for me.
We will now take our next question from Harri Tiittanen from Nordea. Please go ahead.
Yes, good afternoon. Looking at the pulp balance of If you talk about the tonnage terms, could you quantify or how much really did you lose the volumes in the paper and consumer board, if you were usually able to sell pulp from the integrated mills to the market? To get a feel of the volume impact, if this goes on, what's the annualized volume impact for this year?
For this year-
If not a full year, no. Yeah
We are producing about 5.8 million tons of pulp, of which 1,950,000 is basically market pulp. What we have seen is that we probably lost in this 50,000-52,000 tons of pulp in the quarter.
Okay. This 50,000, that would be in the consumer board and paper or is it also in the-
If I took upon it's consumer board, a bit in packaging and in biomaterials, and in paper.
Okay. If you were talking about softness or summer softness in the pulp market, if this availability issue remains, do you see any kind of implications on the supply? Obviously pulp prices and the whole cycle has been driven by production disturbances throughout the last one and a half years. Would this become an issue having an impact on supply demand in the pulp?
Maybe some, but not a lot. I think it's more a seasonal thing. We see a weakness in Q3. It's also depending on, as I said earlier, what happening in China. Are they going to be very strict with the import of their recycled paper? Because our estimated at some 2 million-3 million tons on an annual basis, that could be based there. It is a summer seasonal effect that we're seeing. We're also seeing, and we believe that there is a little bit of weakness in the pricing.
Okay. Thank you very much.
Thank you.
As a reminder to ask a question, please signal by pressing star one. We will now take a follow-up question from Lars Kjellberg from Credit Suisse. Please go ahead.
I just want to come back to your Oulu plans and try to fully, I will get some more color on it. Clearly, containerboard has been and is seemingly quite in tight supply, I can fully appreciate the potential need for that. If I look specifics on CUK, it's something that is imported about at least half the demand in Europe today. How do you think about placing that amount of tons in the European market, and where would you aim to place it? The next question is, would you consider to do one of the two, or is it all packaging or nothing, or stay coated?
We are actually looking at all potential alternatives, we were forced to go public for the environmental impact assessment.
I would rather have been able to do all the calculation, all the pre-studies before, 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 to Europe of CKB Carrara, as we call it, from Beihai into Europe because we can't supply, and we've been constantly under-supplying it for years. We don't see any problem over time to supply that into the market. Not at all. Kraftliner is a good grade. As you see here, it's kraftliner this time with CTMP, which is basically a new grade.
Okay. Again, do you need to do both or staying with coated or do packaging?
We are going through all alternatives.
We are still at the feasibility study phase. By end of the year, say around New Year, we are ready with the feasibility study, and then we can look at the different alternatives and start to make conclusions that what alternative makes sense to change something or, like Kalle 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 Bubeck from BlackRock. Please go ahead.
Oh, hi. Thanks for taking my question. Given your current leverage and your new leverage targets, how are you feeling about your rating with S&P or Moody's?
Obviously, and that is no news, we wouldn't mind having a 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?
Thank you. Yeah, I guess so. Thank you.
Thank you.
This concludes the Q&A session. I would now like to turn the conference back to you, Ulla, for any additional or closing remarks.
Okay. Thank you everyone for listening in and following us on the web. We will announce our third quarter results on 26th of October. I wish we will be in touch then. 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.