Ladies and gentlemen, welcome to UPM's second quarter 2020 result webcast. My name is Jussi Pesonen. I'm the CEO of UPM, and I'm here with our CFO, Tapio Korpeinen.
Hello to everyone.
In Q2, people and businesses around the world felt the impact of COVID-19 pandemic and the related lockdowns. The COVID-19 lockdowns clearly impacted the market demand for UPM products, and impact was divided. Demand for graphic papers seriously suffered as a result of the lockdowns. This affected, of course, the profitability of UPM Communication Papers in Q2. At the same time, strong demand for label materials and Specialty Papers was further supported by consumer reaction during the lockdowns. Our businesses in specialty packaging materials value chain, UPM Raflatac and UPM Specialty Papers delivered excellent result.
Our financial standing remains strong, as we all know. Our strategy for growth projects continues as planned. In here, our Q2 sales decreased by 20% from that of last year. There were three main drivers for that: 29% lower graphic paper deliveries, 26% lower pulp prices, and 9% lower graphic paper prices as compared with the last year's figures. As you can see from the chart, our quarter of the last year was a record quarter. Compared to last year, our comparable EBIT decreased by 41% to EUR 203 million, and our EBIT margin was 9.8%.
Then if we talk about safety and business continuity during the COVID-19, it did not directly impact our operations in any material way. We have implemented extensive precautions to protect the health and safety of our people, and we have been able to ensure business continuity during the pandemic. These measures have been successful. Only few UPM employees have been infected so far, and we have been able to serve our customers without any interruptions. I think this is a very good achievement and has enabled this satisfactory result in the highly exceptional circumstances.
Ladies and gentlemen, moving into the business part of the consequences and impacts. While our operations have not been impacted by COVID-19 epidemic itself, the related lockdown measures around the world have had significant impacts on demand for various UPM products, both positive and negative ones. Let me start with the graphic papers. As many businesses, offices, and schools were and have been closed, printing advertising and use of office papers fell significantly. In Q2, the European demand for graphic paper demand decreased by 32% from that of last year.
I want to be clear here that the Q2 demand impact is not structural change or even caused by the weak economy. This is a forced shock as businesses have been closed, and people have been staying and working from home. Consistently, our order inflow bottomed in end of May and began to recover gradually as European countries started to opening their economies. The early recovery has been more visible in advertising end uses, whereas the demand in office and that kind of uses is still low.
As mentioned earlier, Raflatac and Specialty Paper got additional demand boost during the Q2 from the consumer reactions during the lockdowns. As restaurants and the work and school cafeterias were closed, people increased their purchases of daily consumer goods in the grocery stores. At the same time, e-commerce grew. These both drivers increased demand for many labeling and packaging materials. In Europe, the Q2 demand for self-adhesive label materials increased by 10% from that of last year.
Here I want to be as clear that the strong Q2 growth was driven by consumer reactions during the lockdowns. Raflatac and Specialty Papers are highly attractive growth businesses for UPM, offering good market growth and solid barrier to entry. 10% growth in the weak economy is not the new normal, as we all can understand, not for labels, not for Specialty Papers, nor any other packaging materials. Consistently, as the lockdowns have been easing, we have been seeing order inflow normalizing in late Q2 and Q3.
Some words about pulp. Pulp demand and shipments for us held up relatively well in Q2, supported by good demand for tissue and many packaging and specialty paper products. Pulp consumption in graphic papers decreased, as we all know. You can see from our report that our pulp deliveries were very strong in Q2, our second-best quarter ever in deliveries. This is, I would like to underline, a very strong proof that our businesses are truly separate, market-integrated based, and business model of UPM is working well.
Fall in pulp consumption in our Communication Paper business in Q2 did not impact our pulp sales. Finally, ladies and gentlemen, I am happy to say some words about the transformative growth projects, both in the new pulp mill project in Uruguay and the biochemical refinery project in Germany. They are well on track. Starting with Uruguay, all parts of our project are making progress. Be it the mill site in Paso de los Toros, the pulp mill terminal in Montevideo port, or the other infrastructure initiatives.
The total CapEx frame is unchanged, and most importantly, the low-cost cash position, as it has been estimated, $280, is valid as we speak today. Looking at the COVID-19 pandemic, I have to say that Uruguay as a country has impressed me once again. The country is very determined to fight against the pandemic and has been very successful in all measures, and the country and the project has been able to proceed as planned. Unlike many other Latin American neighbors, Uruguay has taken very stringent COVID-19 measures and has managed to keep the overall level of infections in a very low level throughout the country.
This is, of course, confirming the high level of testing and segregation and what have you. All this, combined with UPM's own extensive safety procedures, has kept our sites in Uruguay free of the COVID-19 pandemic. Three months ago, we provided you a sunny postcard of the Uruguay pictures where we are in those proceedings, and what is the status of the project. Now you can see here a postcard, which is maybe less sunny as it is wintertime in Uruguay. The progress is good. We have been able to actually proceed as planned.
On the left-hand side, you see the mill construction site. In the middle, the housing areas. On the right-hand side of the pictures, Montevideo port. Ladies and gentlemen, what is coming and what is ahead of us, I would like to use this slide to talk about it. In the coming quarters, we will focus in two main topics. First, we will take necessary actions to ensure the good performance in all our businesses through these exceptional times. Ensuring performance is really a key focus of what we do.
During the current uncertainty, we have adjusted our operations using measures such as temporary layoffs and shift arrangements, and such. In addition, we have taken and will continue to take actions to ensure profitability and competitiveness of our operations, both during current downturn and in the long run. We take what needs to be implemented. Last week, we announced the closure of the Chapelle, final decision of the Chapelle paper mill in France, and this week we decided finally to close the U.S. plywood mill.
Timely actions as we speak. Our second focus area, obviously and clearly, is that we are successful in implementation of our transformative growth projects, the low-cost pulp mill in Uruguay and the first-of-its-kind biochemicals refinery in Germany. On top of these two, our development work continues to scale up our biofuels business in highly competitive and sustainable way in that area as well. Ladies and gentlemen, at this point of time, I will hand over to Tapio, and Tapio will analyze our result more in detail. Tapio, please.
Thank you, Jussi. Here, analyzing the change in comparable EBIT, we can see that compared with the last year's second quarter, the main negative earnings driver was lower sales prices in all business areas. Variable costs were clearly lower than last year, but could only compensate for part of the sales price headwind. As Jussi described the lockdowns had both positive and negative volume impacts to UPM businesses. On net terms, though, the fall in paper deliveries turns the volume impact clearly negative on group level.
However, as you can see here, we were able to reduce fixed costs by about EUR 60 million compared to last year. This was enough to offset for the lower delivery volumes on UPM level. When we compare sequentially to the first quarter this year, the picture is quite simple. Our EBIT decreased due to lower paper deliveries. Normally, our fixed costs would increase seasonally from the first quarter into the second. This year, we achieved a small decrease sequentially in fixed costs, which is a fair achievement, but clearly not enough to compensate for the short-term volume impact. We experienced only minor price decreases during the second quarter compared to the first. Variable costs overall did not decrease either.
Here, on this slide on the right-hand side, you can see the excellent results we achieved in Raflatac and Specialty Papers, as Jussi mentioned, meaning in our two specialty packaging materials businesses. Over the past two years, both business areas have been consistently working to improve margins and to develop product mix and to reduce fixed costs. As we discussed already after the first quarter results, this means that we started this year with very good margins and relatively lean fixed costs.
Now with the strong demand situation, you can see the impact on the bottom line. On the top row in the middle, the driver for the sequential fall in Communication Papers' EBIT is simply the 22% lower deliveries. Fixed costs decreased, also due to the underlying seasonality only to a small degree. In Biorefining, pulp prices continued on a low level. In the second quarter, we did not have any pulp mill maintenance shutdowns, which we have postponed to the fourth quarter, and we were not held back by the strike in Finland, which was the case in the first quarter. Therefore, we could run our pulp mills at full capacity.
As Jussi said, we achieved the second highest quarterly pulp deliveries, up 8% from last year. In the biofuels business, demand for renewable diesel and naphtha continued to be good, even if the overall fuel consumption in the markets was lower during the lockdowns. UPM Energy achieved a good result despite lower electricity prices. Market was highly volatile during the second quarter, and we were able to optimize around that. In the second quarter, there was the annual maintenance shutdown at the Olkiluoto Nuclear Power Plants. Plywood had a relatively solid quarter, although the market for birch plywood remains weak.
Here we have the cash flow. Our second quarter operating cash flow was EUR 156 million as we had an increase of EUR 75 million in working capital. Usually, UPM ties working capital seasonally during the first half of the year and releases it in the second half. Here as well we discussed the working capital situation in the context of the first quarter results and noted then that at the end of the last year, our working capital was very low, which partly normalized in the first quarter.
This, combined with the normal seasonality, increased the working capital during Q1. During the second quarter, as already was described, we had fast changes in the different UPM businesses, which were moving actually in the opposite directions. Lower volumes in Communication Papers, strong volumes in Pulp, Specialty Papers, and Raflatac. This made working capital optimization in the short term challenging. Communication Papers did release some working capital during the second quarter. For example, inventories decreased despite low deliveries.
However, in this kind of quite rapid change, the working capital release was relatively minor in the short term. At the same time, as said, activity in several other businesses was high, which added to the underlying seasonal increase in working capital. Our financial position is very strong. Net debt decreased from the end of last year, second quarter, to EUR 301 million. After in the second quarter, we paid EUR 693 million in dividends. Our liquidity reserves are high, totaling EUR 2 billion.
This includes the EUR 750 million sustainability-linked revolving credit facility we signed in the first quarter and EUR 550 million of bilateral committed credit facilities signed during the second quarter. There are no financial covenants in UPM debt or the facilities. Here we have our CapEx estimate for this year. The estimate has come down. We have made more detailed analysis of the timing of the CapEx items.
Now our estimate for this year's CapEx is EUR 1.1 billion, including EUR 800 million related to the transformational growth projects. Our maintenance investment needs are low, below EUR 200 million. We have today reintroduced an outlook for 2020. Obviously, there continues to be high uncertainty for the second half of 2020 due to the ongoing COVID-19 pandemic, due to uncertain development of various lockdown measures around the world, and high uncertainty also exists to the consequences in the general economy. However, it's clear that the lockdowns in the second quarter had significant demand impacts to several of our businesses.
As the lockdowns have been gradually lifted in Europe, we have seen signs of normalization in order inflows, like Jussi described earlier. We expect a moderate decrease in paper prices for the third quarter compared to the second quarter. Pulp prices are starting now going into the second half of the year at a low level. As you know, we rescheduled two pulp mill maintenance shutdowns from the second quarter to the fourth of this year due to the pandemic, which means that there will be more maintenance in the second half than we had in the first half. We will continue to take measures to decrease fixed and variable costs. Now I will hand over to Jussi for some final comments.
Thank you, Tapio. Ladies and gentlemen, once again, our work continues. We will focus on two main topics. First, we will ensure our good performance in all businesses, and secondly, we are focusing on implementing transformational growth projects with the good success. This is how we are creating value to our shareholders. This is definitely clear and has been clear and no change. UPM's long-term value creation is driven by our spearhead of growth initiatives. These are sustainable businesses with strong long-term fundamentals for demand growth and high barrier to entry.
Due to strong financial position, we can continue implementing our strategy and our transformative growth projects even during the current uncertainties. We have today reported record earnings in Raflatac and excellent result in Specialty Papers, which is the specialty packaging materials area. We continue to see attractive growth opportunities in these specialty packaging materials for the coming years. As I said already earlier, we all understand that the Q2 is not the new normal for paper, nor for the specialty packaging areas.
Anecdotal comment here that Q2 in this area, Specialty Papers or specialty packaging materials area, was same size as sales as the UPM Communication Papers business, more than EUR 700 million, and the EBIT margin was more than 15% for that area. Very attractive area to grow for the future. On our highly competitive pulp mill investment, Uruguay is proceeding in line with the planned startup schedule. Once up and running, it represents step change in UPM earnings and will grow the business when it concerns volumes and sales more than 50% so i t will be a big step up in UPM earnings and growth as well.
Then moving to the right side of the picture, engineering and planning are ongoing for biochemicals refinery investment in Germany in line with the original schedule and t his also is a very attractive investment, which will open totally new market for UPM's long-term growth. Development work continues regarding our next steps of the biofuels business, that has proceeded well as well. Continued success in the biochemicals and biofuels businesses has a huge potential, not only to grow UPM's earnings significantly over time, but also change the perception and value of the company as well.
Finally, once again, we will keep the foundation, which is Communication Papers, Plywood, and Energy, in a good shape. Ladies and gentlemen, with these words, before concluding my presentation, I take the opportunity to remind you all of the virtual CMD, Capital Markets Day in September. We have at least three main topics, on top of that, plentiful of good discussions. We will definitely focus on the spearhead of growth more in detail, and we will discuss about the sustainability as a major driver for UPM value creation for the future. Of course, the performance, like every day, is in our focus. I wish you all warmly welcome to the event. With this slide, I'm not going to repeat any of the messages. I conclude my presentation. Dear operator, Tapio and myself, we are ready to take questions. Thank you.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name's announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Our first question comes from the line of Justin Jordan at Exane BNP Paribas. Please go ahead. Your line is open.
Thank you. Good afternoon, everyone. I've just got two quick questions. Firstly, on Communication Paper. I guess this is really for you, Jussi. I remember well back in 2009, you took some very decisive action clearly then to rationalize capacity. Clearly, I know you've already closed the Chapelle newsprint mill. I'm not asking you to comment on specific mills. That would be unfair. I'm assuming you are reviewing the situation regarding actions that may be required over the next 6- 12 months for Communication Paper capacity for UPM.
That is correct. Roger that. In UPM, we are running the optimization model every month, actually. What should we do? Our basic philosophy and strategy is as valid as ever before, and that is we are running with the high operating rates, and we are targeting to have high operating rates. If that actually means actions in the asset restructurings, that needs to be then implemented. The efficiencies and cost efficiency comes only with high efficiencies of running the asset. Yes, it is something that one should consider. Like I said, that Q2 is not representing of the structural change or any of the long-term changes. That is something that we are also analyzing as we speak.
Okay, thank you. I've just got a quick follow-up for Tapio, really on the CapEx. Clearly, you're now guiding to EUR 200 million less CapEx in calendar 2020. I just want to clarify, that's the EUR 100 million reduction in the Uruguay or experience-related CapEx. I presume that's just a timing issue that presumably will be just increased in 2021 or 2022. Really the other EUR 100 million, that's reduced UPM maintenance CapEx, shall we say? Or how would you describe that, Tapio?
Well, roughly so. Yes. Basically, as said, we have a better estimate at this point in time of what is the CapEx for this year. In the case of Uruguay, as actually Jussi already earlier mentioned, the overall capital frame that we have communicated in context of the investment remains as we have earlier said, so no change there but t hen a more sort of accurate estimate of what will be the CapEx for this year. Also another point related to that already Jussi said that again, the progress of the project on the two sites is as planned. It's only matter of having a more accurate estimate for this year and-
Thank you.
...same for the maintenance CapEx as well.
Thank you, Tapio.
Thank you. Our next question comes from the line of Lars Kjellberg of Credit Suisse. Please go ahead. Your line is open.
Thank you. I have a couple of questions. If we start, Jussi and Tapio, with what you're talking about the early stages of normalization. You, of course, talked about paper, starting to see improving order books and somewhat more normalized on the labels business. How should we view the pace of that normalization? Also if you can comment on the pulp side, which of course was record high deliveries in the second quarter, as I guess tissue normalizes a bit now. How does that translate into your order books for pulp?
If I start from the paper, of course Tapio can comment as well, but paper, we saw the order inflow turning end of May. Then consequently our deliveries turned one month later, so end of June and i t has been normalizing. We don't want to go in details because we do have still some uncertainties. Of course, it was a total lockdown in Europe, which meant that a lot of advertising and a lot of offices and everything was stopped. Of course, then there has been an inventory cycle as well and n ow we have been getting quite nicely back on order inflow figures that are better than on the worst moment.
The trend change is clear, and that is for clear. Then, of course, talking about Raflatac and Specialty Papers similarly as well, where there has been a strong demand anyway. We already started the Raflatac good order inflow and Specialty Papers before the pandemic and t hat is something that is more normal. Pulp deliveries were strong for us, and o bviously we have the direct contacts to our customers. Therefore we have been able to allocate, as I said, volumes to long-term customers without having a challenge of the Communication Papers declining markets. That is, like I said, a great proof point that they are really businesses that are running their sales separately from each other.
There's no trend change specifically in the pulp business, negative or positive?
Pulp business, if you just only review the shipments, they are quite strongly up from that of last year. Was it 7.8%? Of course, now we do not have all the Brazilian statistics in, but that is what has been reported. That doesn't tell the underlying demand changes as well, and that is very difficult, of course, to actually justify what is the underlying demand. Of course, as in pulp business always, there's inventory cycles as well. I don't believe that it is so strong when it concerns the underlying demand but w e do have a quite comfortable feeling of the second half of the year when it comes to volumes.
Just a couple of short ones. Raflatac, you talk about obviously not a new normal necessarily, but to look at the margin succession up from, call it 8% around 15%. How should we think about the new normal in terms of margins in Raflatac? Just two questions specifically on the costs. Clearly there's been an element of short work weeks, temporary layoffs, et cetera. Tapio, if you can comment on that fixed cost reduction that we've seen, how much of that would be sustainable and how much would be temporary, if you like? Finally, working capital, of course, a very big outflow. One would expect in tough markets like this to have a working capital inflow. Should we expect a kind of normalization back to the working capital that you had end of 2019 by the end of the current year?
Well, maybe quick comments on those three questions from you last, if I may. On Raflatac, I would look at the beginning of the year as such, that's in a sense, the kind of foundation that we have been building on, let's say both commercially, business mix, and let's say cost-wise. Even if, let's say this kind of positives from the first part of the second quarter will sort of normalize, still we have a, I would say, a kind of a solid margin position to continue with.
Obviously, as was discussed earlier, we have had some tailwind from the costs that have helped, but then our own sort of actions are the sort of longer-term foundations that we have been building there. I would say also that for the coming quarters here during the second half of the year, the cost picture is relatively benign. Pretty stable cost situation overall from Raflatac point of view. Then on the fixed cost, if we compare second quarter this year to second quarter last year and the fixed cost change or difference was about EUR 60 million.
One can say roughly half of that is more the sort of temporary short-term effects of adjusting to the second quarter situation, particularly in Communication Papers. Overall, in the company as well, the temporary layoffs that we had to deal with the volume drop in UPM Communication Papers, but also in the wood products businesses, plywood and timber is one part. Second part actually is meaningfully, obviously lower travel and related costs in all businesses and overall in the company because obviously, as you know, very little travel during the quarter.
Third point, let's say separate from the fact that we did not have the annual shuts in maintenance then in the kind of ongoing maintenance, there was less activity as well. You might think about or their next question might be that, okay, what does that mean going forward from here? Obviously, some of these temporary cost reductions will reverse because when production volumes are recovering, it means less temporary layoffs, that's obviously then linked to business picking up as well.
But then also we have taken action to reduce fixed cost, the UPM plywood mill, the Chapelle newsprint mill, plus we believe that we can retain actually significant part of this travel-related cost savings during the second half of the year. In that sense, I believe we can offset to a large extent the reversal of any of these kind of temporary fixed cost reductions. We come to the topic that Jussi already commented on, which is thinking about the longer-term outlook and the actions that we have to take related to that.
In terms of working capital, as said this is a different situation than what we saw, for instance, in 2008 and 2009, where we had a slowdown across all businesses that took place over several quarters. Obviously in that kind of a situation, then it is much more feasible and, of course, also necessary to drive down working capital and maintain or improve working capital efficiency. Now we have had a kind of a mixed quarter. One business particularly quite sharply down in a short period of time while then on the other hand, volume growth and strong performance in several areas.
In that sort of a situation, as said, it's much more difficult to be as lean as far as working capital is concerned and perhaps realistically one can assume that as the recovery now is uncertain, there may be some stop-and-go kind of periods that we experience. Who knows? We will see during these coming quarters. Again, in that sense, optimizing working capital is not as easy. I think we will reverse and we will, let's say, normalize as we seasonally also typically during the second half of the year do as far as our working capital levels and efficiency is concerned. That remains to be seen. This is a different year from any other year.
Got it. Thank you. I'll get back into the queue.
Thank you. And our next question comes from the line of Harri Taittonen of Nordea. Please go ahead. Your line is open.
Yes, good afternoon. Now that you talk about paper prices expected to decrease moderately, does it sort of cover combined Communication Papers and Specialty Papers, or what does that keep in, and how do you see China in that context? I understood that the prices took a pretty steep dive already in the second quarter, so if you could comment on these two issues here, please.
Harri, first of all, this moderately means mainly, of course, Communication Papers. In Specialty Papers, we have different drivers, and it is something that happened now end of Q2, early Q3, so that is a comment which is related to that. In China, we have seen stabilizing prices, of course, during the Q2. We saw the drop of the prices as well as general, but like I said, that they are now stabilizing, and we have been able to cope with that as well. Mainly it is actually Communication Papers. Mid-single-digit drop.
Exactly. That's what I wanted to clarify. On the sort of Raflatac and label sort of self-adhesive value chain overall, are you already seeing this sort of normalization in sort of normal from peak levels or is it something you anticipate to happen further down in the future? Also related to that you got the Nordland conversion to release liner completed now, and how that has gone and absorbed by the market?
Harri, this call I was trying to somehow elaborate the whole situation that when the lockdown is tight, then you are seeing a drop, and when the economies and the societies are starting to open, that means also that the activity starts to improve and t herefore, it is very much related to that when in Europe, in end of May or during May, it was totally locked down.
Ever since that, it has been m oving to the better, the societies have been opening and the lockdowns have been released in many respects, so meaning that the normalization started to happen on that point. I'm trying to say that the lockdown is something that has affected positively in Raflatac and Specialty Papers in those weeks when it was totally locked, and then similarly in the paper business where the order inflow dropped dramatically on those weeks that it was totally locked down.
Understood. The final question is on the cost of the main cost lines and what are you seeing in the round wood price development going forward?
It depends, of course. In Uruguay it is very fixed. We know what it is. In Finland the wood prices are trending downwards, but moderately.
Yeah. Okay. Thank you very much.
Thank you. Our next question comes from the line of Robin Santavirta of Carnegie. Please go ahead, your line is open.
Thank you very much. In terms of the pulp and especially the paper market, the development has been very harsh recently in the market. I was just wondering, what are you seeing in the competitive environment in those two segments? Are high-cost producers gradually losing ground and market share, or are they still out there in the market producing as normally? What do you see as the outlook for the competitive environment in both of those segments?
Specialty paper market, especially when it concerns release liner and all of that, has not been that harsh at all. There has been a very good demand over the last quarter consequently to what we see in Raflatac and labeling business. It has been pretty solid and a strong market. Obviously, the Chinese part of the graphic papers obviously has had that, UPM is having a very dedicated position there as well, where we deliver what is our service kind of agreements with our customers. Yes, of course, when the pulp prices are starting from the very low level and are on the low level, that is definitely challenging the non-competitive assets. It remains to be seen what is the outcome of the structuring of this area as well.
But in graphic papers in Europe, you're not seeing any major changes in market share distribution?
Did you mean graphic papers, not Specialty Papers?
Yes. Graphic papers, yeah.
I thought that you were saying Specialty Papers and that was maybe my comment. Graphic papers, there's a lot of actions. We hear almost every week that somebody is turning their assets into the packaging grades. Norske Skog a couple of weeks ago, and Stora Enso as we speak, is turning that. Obviously, that is definitely changing the world, and more to come, I believe.
Have you any consideration of converting? I know you don't want to go into containerboard, but to convert to some other grades some of the paper capacity that you have, and what grades do you find most attractive, if so?
Nordland is a great example of where we have changed the kind of end-use segment totally from graphic papers to release liner specialties packaging grades. That is when it suits for us. Why should we go for somewhere where everybody wants to do? We are not in the business of me-too business.
I understand. In terms of China, apparently some softness in delayed spring in a few of your segments, but what are you seeing now going into Q3 in terms of just overall activity, whether it's label materials, paper or pulp, sort of business activity in China for you guys at the moment now, end of summer?
The guidance is what we have been saying, but of course the Chinese economy is now gradually getting back into the more normal situation, which is definitely then consequently coming to our businesses as well. We are not immune to economic development, and China is gradually getting better.
All right. Thanks. Finally, just maybe for Tapio, any kind of guidance or comments on the sort of rough result impact from the maintenance shuts that you will have in H2?
Well, I said we will have two shuts in the fourth quarter, Kaukas and Pietarsaari. Typically, the sort of cost impact of the maintenance shutdown as such is EUR 10 million-EUR 15 million for a big mill. Let's say lost margin on the volume side there. That gives you an idea of two big mills where we'll take the maintenance shutdown in the fourth quarter.
That is helpful. Thank you very much.
Thank you. Our next question comes from the line of Mikael Doepel of UBS. Please go ahead. Your line is open.
Thank you. Can I just come back to Tapio's comments around the cost takeouts and how costs are trending. In terms of the cost takeouts for this year, would you be able to quantify how big of an impact you expect overall, and how much of that can be regarded as permanent?
Well, as I said, if we look at the second quarter fixed cost was down about EUR 60 million. I believe for the first half it's around EUR 90 million down. We did have temporary impacts again as I described in the second quarter, some impact obviously in the first quarter also coming from the Finnish strikes. We have obviously the benefit in the remainder, in a sense of the capacity fixed cost actions that were already implemented during last year. We announced the cost savings that are coming from the now most recent decisions, Rauma, Jyväskylä which are already impacting obviously not at the full year rate but still impacting already second half of the year. There will be additional sort of permanent takeout from that.
In that sense that's why I was commenting maybe excluding again this what we discussed just a minute earlier impact on the fourth quarter of the maintenance shuts of the two mills. Otherwise the running fixed cost there we should be able to even if some of these temporary sort of impacts will kind of reverse obviously only when the business also recovers we can offset that with the fact that we do have permanent cost improvements on the way as well.
Okay. Thank you. A final question on the pulp volumes in Q2. As you pointed out yourself, they were quite strong, up by about 8% year-over-year. Could you say how much of that? On a net basis, how much were your long position in the second quarter in terms of market pulp?
No, I don't have a figure nor I think it's very meaningful in a sense to look at that on such a sort of a short period of time.
All right. Thank you very much.
Thank you. Our next question comes from the line of Alexander Berglund of Bank of America Merrill Lynch. Please go ahead. Your line is open.
Thank you very much. I think most of my question's been answered. I got two ones. The first one is a bit more of a detailed modeling question so I apologize for that. I believe you renegotiated a pulp contract with BillerudKorsnäs and as a consequence you will be compensated EUR 15 million in 2020. I was wondering if that figure is in your Q2 numbers or if that's yet to come. I'll stop there and then let you answer that question first and then I have another one.
No, it's not. It will be in a sense accrued over time.
Okay. That would not be an underlying number it would be adjusted number?
I'm not sure if I understood your question there but again the point is that.
It's a one-off.
it is a renewal of a contract over time then basically that sort of benefit is also accounted for over the time of the new contract. It's over several periods going ahead.
Okay. Thank you. Moving on to my second question is a bit more of a higher level question and it might be a hard one to answer. Do you think or consider any potential change in the behavior of customers as a function of this lockdown more specifically relating to graphic paper consumption? Is there any conversations that you are having with your customers for example of a risk that this move from printed paper to digital might be accelerated because we get used from working from home or learning from home in school, etc.? Just if you have any thoughts on that.
Obviously that is the work that we in end-use studies we have been doing in UPM for decades already and I guess that we are very much focusing on that work today. Obviously it is clear that this pandemic is changing our behaviors and we need to just then review what are the segments where there's kind of positive options for us whether it's in the Specialty Papers, Raflatac and so on. We need to really actually go through the s tructural change view on the paper business but w e are not ready yet there, and of course, also our customers are considering what will be structural and what will be coming back and where the options are. It doesn't necessarily mean only negative things even in the paper business.
Thank you very much for that. Appreciate the color.
Thank you. Our next question comes from the line of Linus Larsson of SEB. Please go ahead. Your line is open.
Yes, thank you very much. On Biorefining, you had a strong performance in the second quarter. Shipment to capacity, I think is in excess of 100% and y ou write somewhere in the report that the results leave room for improvement. I wonder if that is only referring to external factors and maybe price in particular, or do you still see upside in terms of production on the current production footprint that you have or something else?
Well, obviously, the main point there is the point that as we all know, we are at the low point in the price cycle so t hat has an impact on the bottom line for the time being, and eventually, that will start to improve, obviously. That is obviously the sort of main point that we are kind of referring to there. Of course, our output from the mills, we have debottlenecked over the time, and we continue to optimize.
There's always work to be done to improve, and then eventually the new mill on top of it. We continue to work obviously in the pulp business on the levers that are in our own hands as well. The main point about the comment is more about the fact that, again, we are at the low point in the price cycle in the pulp business, and that leaves room for improvement, as said.
Okay, great. Thank you. On the full year, what's your expected group net pulp position?
Don't have a figure for that either yet.
That shows that how much we follow that kind of number, we don't. Honestly, we don't know it here.
Sure. Then just one final follow-up question on CapEx. You reduced your 2020 CapEx guidance by EUR 200 million. I guess this is a timing question, but do I read it right that 2021 will have higher CapEx than 2020? If so, by how much roughly?
Cannot say yet, but probably so. I said again, particularly obviously the big outflow at the moment is for the Uruguay pulp mill project, and there we have, in a sense, more accurate estimate now than we had in the beginning of the year for the outflow and rate of completion during this year that determines the CapEx figure. We have not changed the overall figure for the investment. In that sense, obviously, one would expect that then we will have more outflow next year, early to give a figure on that.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Johannes Grunselius of Kepler Cheuvreux. Please go ahead. Your line is open. If your phone is on mute, Johannes, you will need to unmute that.
Okay. Can you hear me now?
We can, yes.
Johannes speaking. Perfect. Thank you. A question on your Plywood business. Earnings is holding up very good despite of, I assume, negative COVID-19 effects here in the second quarter. Could you elaborate a little bit on the earnings outlook? Have you taken out any fixed costs here? Are you seeing better demand? What's behind the good results in the second quarter?
It is actually, I guess that it's multiple actions that we have been taking. If you remember, we have been investing into low-cost countries like Russia and Estonia, and that is actually one thing. Obviously here in Finland, we have been restructuring, as you know, that we have been able to really take actions to improve our cost position. This week we made the final decision on the close of one of the mills. Consistent long-term, many actions and different activities, investing, restructuring, streamlining, lot of market commercial actions to be competitive and getting the margin so m ultiple actions that has caused that solid profits on that area.
Good to know. You're assuming those benefits will continue for the foreseeable future?
We will work on that every day.
Yes. I have a bit of a different question on more the market dynamics, and it's about FX. I think over the last three months, we have seen a weakness versus the euro. Is it 6%, 7%, perhaps? Do you think this will impact trade flows between Europe and North America, perhaps other continents? Do we need to see more of a dollar weakening in order for that to sort of have a reverse negative impact on trade dynamics?
I would say so that let's say change in trade related to exchange rate fluctuations is still relatively minor. At least, let's say in the segments or businesses that are important for us. Let's say trade in those products doesn't sort of ebb and flow just based on exchange rates. Otherwise, obviously, as you know, a stronger dollar is better for us, and that's particularly the case for pulp business where our costs are in peso or in euro. Let's say, in a sense, the global currency in the pulp trade is driven by U.S. dollar.
Okay, thanks for clarifying. Perhaps a final question. I was just thinking about the great results in the labeling material business. I mean, not just for the second quarter, but for a sustainable time. What's the outlook for new supply in the market? I mean, are competitors doing a lot here or do you foresee supply growth to be quite muted over the, let's say one, two years here?
Let's say when it comes to Specialty Papers and particularly release liner, where we are now ramping up the new machine in Nordland. After the conversion, the barriers to entry are pretty high in that business in terms of being able to achieve the efficiency and the quality. The rate of entry of new capacity therefore has been quite low. There have been some players adding capacity in the Asian market during the past years. Some of them through conversions, most of them actually not being able to achieve the quality that we are able to achieve in our Changshu mill with our new machine, which we have expanded, as you know, already. I would say that in that business, again, the sort of barriers to entry put a dampener to the kind of entry of new capacity or new players.
Label materials business is a little bit different business. The barriers are more commercial there because, again, also we can sort of manage our capacity depending on shift arrangements and so on and so forth. There, let's say again, the competitive structure is quite good. We have two global players and then a clear difference to the next tier players. In that sense, I think the competitive situation is good for us.
Okay. Thank you very much.
Thank you. Our final question comes from the line of Markku Järvinen of Handelsbanken. Please go ahead. Your line is open.
Yes, good afternoon. I had a few more questions about pulp. I was wondering if you could comment on your view about the pulp market now in the second half. For the first half, we saw solid demand from tissue. Now you're saying that you see graphic paper gradually moving back towards normal and a lot of maintenance has been in relation to you. Other people have also rescheduled their maintenance to H2. How does the balance look to you now that we're going to H2?
The pulp demand and pulp deliveries will be definitely very much related to economic development. Of course, that is still uncertain how it goes. Maybe one note here that when a lot of annual shutdowns were postponed from second quarter to the autumn time it is actually definitely on the supply side. It is actually positive in that respect. We will see. There is not that kind of view that we would actually present here.
While you don't produce in Brazil yourself, you sit quite close in Uruguay. Do you see any impact on the industry from the COVID-19 situation in Brazil?
That is something that I do not have a knowledge at this stage. That what would be the kind of consequences, I have no information on that.
On sort of the longer-term view, you sell a lot of your pulp to China. There have been several recent announcements of quite large integrated pulp and board mills in China with the integrated chemical pulp lines, which is perhaps a bit new. Do you see some sort of shift in this dynamic and what's driving that? Does that have an impact on your pulp business going forward?
China is, of course, the area where there's not fiber enough, forests, and that is actually therefore China will be always very much relating and tied to the imported pulp, which is definitely coming from Latin America mainly. There has been always this kind of integrated mills as well. I do not see any kind of particular change in this.
Okay. Thank you.
Ladies and gentlemen, thank you for your interest, and we did have a long list of questions and very good. Thank you and have a very nice day. Thank you. Bye now.