Dear ladies and gentlemen, welcome to UPM-Kymmene's fourth quarter and full year 2019 result webcast. My name is Jussi Pesonen, I'm the Chief Executive Officer of UPM-Kymmene, and I'm here with Tapio Korpeinen, Chief Financial Officer of UPM-Kymmene.
Hello to everybody.
Let's get started. 2019 was a year of continued good performance and all-time record cash flow. This statement, by the way, applies both Q4 and full year. We ended the year with exceptionally strong financial position. This enables us to release our transformative growth projects and at the same time pay an attractive dividend to our shareholders. We have now two truly transformative growth projects under works. Our highly competitive pulp mill project in Uruguay is proceeding well. The mill will be one of the lowest cost pulp operations in the world, and as such, an attractive investment for UPM. Once up and running, it represents a step change in UPM's future earnings. The exciting news today is obviously our decision to invest in next generation biochemicals refinery in Germany. With this investment, we are creating a totally new sustainable business with large growth potential. Markets are huge.
This is another major milestone in UPM's transformation and a very good and great showcase of years of focused R&D. As you can see on the page two, we succeeded in maintaining stable comparable EBIT and margin throughout the year. In my view, this is, by the way, a good achievement given the erosion of the product prices during the second half of the year. Our Q4 sales decreased by 10% due to two drivers or main facts: lower pulp prices and graphic paper deliveries. Pulp prices came down throughout the whole year, and the paper demand decline was somewhat faster than earlier years. Average pulp prices in Q4 were 31% lower than a year ago or year-on-year level, which affected Biorefining performance. However, Communication Papers reported a very strong earnings and record strong cash flow.
Specialty Papers reported a record EBIT on quarter four, Also UPM Raflatac reported very good cash flow on Q4. We, as a whole company, generated EUR 592 million of operating cash flow in Q4, and our net debt ended at the end of the year on negative figure of EUR 453 million. Please note that this includes roughly half a billion EUR of lease liabilities that were recognized as a debt following the adoption of the IFRS 16 in the beginning of the year 2019. As I said, our financial position is especially and exceptionally strong at this point of time. Now, ladies and gentlemen, I will hand over to Tapio for some more analysis of our result. Tapio, please.
Thank you, Jussi. Here we see our fourth quarter comparable EBIT, as it has developed compared to both the fourth quarter last year and sequentially to the third quarter of fourth quarter 2018 and sequentially to the third quarter in 2019. In the fourth quarter, we did have substantial headwind from sales price year-on-year. Biggest sales price impact came from pulp, also many paper prices and plywood prices were lower. On the positive side, we were able to offset most of the negative sales price impact with lower variable costs. Pulp costs obviously were lower for the paper businesses, as were energy costs, wood costs, also RCP logistics costs and many other raw materials.
Energy costs were particularly low in the fourth quarter. The annual energy-related refunds that are always booked in the fourth quarter contributed about EUR 20 million more than in the previous year. This is substantially influenced or due to higher CO2 prices. In the fourth quarter, delivery volumes were a negative earnings driver due to 10% lower graphic paper deliveries year-on-year. We were able to offset most of this with lower fixed costs. Sequentially, from the third quarter, you can also see the impact of lower prices and lower variable costs. Variable costs are seasonally low in the fourth quarter due to the annual energy-related refunds that I mentioned. As I said, this year, the refunds were EUR 20 million higher than in the previous year.
Fixed costs are always seasonally higher in the fourth quarter when you compare to the third quarter. In the fourth quarter of 2019, we also had the scheduled maintenance shutdown at our Fray Bentos pulp mill in Uruguay. The EBIT impact of the Fray Bentos shutdown was about -EUR 20 million . Overall, you can say that the improvement in group sales margin shown here to the fourth quarter is seasonal by nature. As I said, so is the increase in the fixed cost as well. Here we have the comparable EBIT quarter by quarter by business area. Customer demand continued to be good for pulp, biofuels, and timber in the fourth quarter. However, pulp price in the fourth quarter was about 31% lower compared to fourth quarter last year and 9% lower from the third quarter. You can clearly see the impact in Biorefining performance.
At the same time, the low pulp price was a clear benefit for the two paper businesses on the cost side. UPM Specialty Papers enjoyed good demand for its products and reached a record quarterly EBIT. The business has been able to drive down fixed costs as well, and this is a good starting point now that we are ramping up two expansion projects for label papers at the Changshu mill in China and the converted paper machine at the Nordland mill in Germany. As you can see, UPM Communication Papers had an excellent quarter. In the fourth quarter, it enjoyed the sweet spot of stable contract prices and lower variable and fixed costs. Variable costs reflect the low pulp RCP logistics and energy costs. Energy costs in the fourth quarter are seasonally low due to the annual refunds. Fixed costs already benefited from the capacity reductions that we have executed.
There are no one-off type items in the Communication Papers' fourth quarter performance, but obviously this is not the new normal for its performance either. We expect a mid-single-digit percent price reduction for graphic papers from the beginning of the first quarter, and the seasonal benefits from Energy costs and delivery volumes will not be there in the early part of the year. Energy had a strong quarter, supported by improved hydropower generation, and Raflatac continued to manage margins and succeeded in improving EBIT from the previous year. Plywood was impacted by weakening demand, lower prices, and a strike and a lockout in the fourth quarter. Page five shows our financial key figures for the full year 2019. Sales decreased by 2% and comparable EBIT by 7% from the record year in 2018. Sales prices decreased somewhat more than variable costs.
We also reported less fair value increases of our forests in 2019 than in 2018. Operating cash flow of EUR 1.847 billion is a new annual record for UPM. Here we have our group performance as a whole. We could not show earnings growth in 2019. However, our financial position is exceptionally strong. Here we have our business area return targets and the returns for the full year. UPM Energy, UPM Biorefining, UPM Communication Papers, and UPM Raflatac achieved their targets in 2019. UPM Specialty Papers during the second half as well and for the year came close to the target level. UPM Communication Papers reported particularly strong returns. Its free cash flow return on capital employed was 39% in 2019, and the regular return on capital employed reached 23%. Cash flow we already discussed.
What made this the record year and record quarter in terms of operating cash flow was also the working capital release that we achieved in 2019, and particularly in the fourth quarter. The board proposes a dividend of EUR 1.30 per share, which represents 38% of 2019 operating cash flow per share and is unchanged from last year. This reflects UPM's strong financial position and confidence in our future cash flows. I think the message here is that we are implementing two transformational growth projects, and at the same time, we are maintaining our dividend. Page 10 shows our outlook for 2020. We expect robust demand to continue in 2020 for most of our businesses. We expect demand to continue to decline for communication papers. We know that pulp prices start the year at a low level after the decreases that took place throughout 2019.
We also expect paper prices in UPM Communication Papers and UPM Specialty Papers to decrease in the beginning of the year moderately, which means a mid-single-digit percentage decrease. We will continue our actions to reduce fixed costs and variable costs. There will be additional costs related to our transformative growth projects, however, in addition to the CapEx. We aim to offset fixed cost inflation and the project-related costs to keep our fixed costs on about the same level as in 2019. Due to the decrease in sales prices, we expect comparable EBIT in the first half of 2020 to be significantly lower than in the first half of 2019. We expect comparable EBIT, however, to recover in the second half of 2020. Maybe to add some color, one can mention some contributing factors.
This year, major maintenance shutdowns are all scheduled for the second quarter, which means that the second half of the year is maintenance light. Also seasonally, H2 second half of the year for UPM is seasonally stronger than the first half. Also, the growth projects in the UPM Specialty Papers business start contributing as the year progresses. As mentioned, we are taking action on the fixed cost and variable cost side, and also we believe that those actions' contribution will come in as the year progresses. Maybe also as a note, perhaps it's helpful to say that for modeling purposes, the annual net selling position for pulp today is about one million tons. We have gained from debottlenecking our pulp mills, and on the other hand, consumption has been coming down because of closures and lower deliveries on paper.
Here on page 11, we have a summary of some of the tools that we use to ensure our competitiveness going forward. We are implementing fixed cost reduction actions in all businesses and functions, and we always aim to use our assets efficiently. In Communication Papers, we reduced our capacity in graphic papers by 620,000 tons during the second half of 2019, and we have started the consultation process for selling or closing a further 240,000 tons of newsprint capacity by the end of the second quarter 2020. We proceed with our continuous improvement programs, for example, for variable cost reduction. We were successful with our variable cost reduction in 2019, as you can see from our last year's performance. Given the sales prices in early 2020, obviously, we aim for further savings on costs.
At the same time, we continue to develop our products and product mix, as well as commercial strategies for best long-term value. Now I'll hand over back to Jussi for the exciting strategic topics.
Thank you, Tapio. As we already discussed earlier, this presentation, and Tapio went through as well, the company is in good shape. We have plans to mitigate all of the cost items that are ahead of us by having the fixed cost and variable cost programs in the company. We are able to pay an attractive dividend. Our balance sheet is strong. Today is a significant day in that respect that almost the last 12 months have been in that nature, that we have done a lot of good decisions that we have been making for our future and our future earnings. Ladies and gentlemen, let's start with the climate actions.
That is one of the key cornerstones of the future success of UPM as well, and therefore, we have this week announced our commitment to UN, United Nations Global Compact Business Ambition to limit global temperature rise to 1.5 Celsius degrees. UPM has a unique opportunity to make a positive impact and contribute to mitigate climate change in tangible actions. We act in three areas. First, we are committed to climate positive forestry, i.e. meaning sustainability and sustainable managed forests are more resilient to challenge, to change, and take the climate in good shape. We ensure that we always grow more forest than we harvest, and we will work to improve our forests, and forest growth, and ability to absorb more carbon. From this state, we are also annually reporting the carbon sink of our forest.
Secondly, we have, and we will make tangible actions to reduce our CO2 emissions by 60% by 2030. This is based on a global review and analysis of the CO2 reduction opportunities that we have in our company. We have done a lot of work last 12 months in different technologies, and also how to actually mitigate the emissions and improve our energy efficiency. In addition, we aim to reduce the emissions of our supply chain by 30%, utilizing different kind of technologies, especially in the vessels that are taking our products globally. We will improve with this way also our competitiveness. Finally, innovating novel products beyond fossils is the core of UPM's Biofore strategy and provides major value creation opportunities for the company. UPM develops safe and sustainable products and offers alternatives to fossil materials. Many of our products are already proven to be climate positive.
In the future, we aim to scientifically verify the climate impacts of all our products. Today's next generation biochemicals decision is great example of this commitment. To summarize the innovative climate positive products, and turn them into a growth businesses. At the same time, we limit risk from climate mitigation policies and physical impacts of the changing climate to our businesses and assets. All this is important for long-term value of the whole company. Page 13 shows you a very familiar strategic focus of UPM. We are advancing on all three areas of this spearhead of growth, prospects, and projects. We are currently ramping up our Specialty Papers expansion project in Germany and in China, which enables us to continue growing into attractive release liner business area.
In July, we made a decision to build a highly competitive pulp mill in Uruguay to drive the step change in UPM's future earnings. The project is proceeding as planned, and last week we made a preliminary agreement for the main pulp production technologies with Andritz. Molecular bioproducts are the core of the innovation for the future beyond fossils. We have successfully entered in the biofuels business and built a profitable business platform on that. Development continues, aiming to scale up this business area or these biomolecular businesses. Today, as you already know, we announced the first industrial scale investment in the next generation biochemicals. UPM Biochemicals is about to drive a switch from fossil raw materials to renewable solutions in various consumer-driven end uses. We are helping our customers to make their business more sustainable.
This has been made possible by more than 10 years of focused and efficient R&D work that we have had in UPM. The next page is telling the story that we have today announced an investment of EUR 550 million in the next generation biochemicals biorefinery at Leuna in Germany, eastern part of Germany. The biorefinery will produce a range of 100% wood-based biochemicals with total annual output of 220,000 tons. The plant is scheduled to start up by the end of 2022. Safety and sustainability of the value chain from the forest to the customer will be based on UPM's high standards. This is a major milestone in UPM's transformation. We are creating a totally new business. This is, I would like to underline, totally new products, totally new business with large growth potential for the future. We expect also the first investment to generate attractive returns.
Our return on capital employed target is 14% once the facility is in full run, and ramped up, and optimized. We believe our products responds to our customers' increasing need and commitments for renewable alternatives in their businesses. Supply of the such alternative is very limited, and high quality biochemicals are priced at the premium in the markets already currently. We expect to reach a good cost position comparable to the fossil-based alternatives. This is based on sustainable wood supply, unique technology concept that we have, and integration to existing infrastructure, and proximity to our customers. This slide summarizes the product areas and products of the biorefinery. bio-monoethylene glycol is used, for example, for textiles, PET bottles, packaging, and de-icing fluids. Lignin-based Renewable Functional Fillers are used for various rubber applications as a sustainable, lightweight, and high purity alternative to carbon black and silica.
The two first ones, BioMEG and Renewable Functional Fillers, will form a main part of the refinery's output. We have two other main products, bio-monopropylene glycol, which is used in composites, pharma, cosmetics, and detergents, for example. Industrial sugars are used for various applications in the chemical industry. The latter two products, while they are smaller in size, are important part of the optimizing the total value creation of the refinery. As you can see on this slide, the global market for glycols, as well as carbon black and silica, are large in size and growth numbers are healthy. The current market supply is based on fossil raw materials, oil, gas, and coal, or other non-renewable materials, in the case of silica. Our customers are increasingly committed to find renewable solutions, reduce carbon footprint, and promote circular economy. Our products fit perfectly in these targets.
Our biochemicals also fit directly into a customer's existing processes and existing recycling infrastructure. Page 19 shows a simplified chart of the process in the biorefinery, and I'm sorry to say here that we are not going to open that much because it is novel process and with the totally new product that is coming out. With this said, we expect to achieve high yield and optimal total value creation for the raw material. Our biorefinery actually has clearly fewer process steps than in the petrochemical routes of producing the current products on the markets. The selected chemical site, Leuna, will provide the biorefinery with existing processes, logistics, and different kind of arrangements and infrastructure for various services and utilities. It is a great place to put this facility. Customers and suppliers are close by.
Availability of sustainably sourced hardwood is good in the region from forest thinnings and residuals of the sawn timber mills. UPM will be responsible local producer with an entire European value chain. Most of these points are already covered, as we see in this page. To summarize, we are truly excited about creating another sustainable business with a really large market growth potential. Germany and the selected chemical site, Leuna, are attractive location for this kind of investment. That was, ladies and gentlemen, part of the Biochemicals, and then we move to the next page to talk about our Paso de los Toros pulp mill. Here, I want to shortly remind everybody of the highly competitive pulp mill investment in Uruguay that we have, which is also very important to our future value creation.
As you remember, we are investing about $2.7 billion in world-scale pulp mill in Paso de los Toros in Uruguay, plus investments in port operations in Montevideo and local facilities in the Paso de los Toros town. Competitiveness of the operations is based on competitive wood supply, state-of-the-art mill design, and efficient logistic setup. Safety and sustainability performance of the value chain from plantations to customers are expected to be industrial leading level. The mill is expected to reach highly competitive total cash cost level of that what we announced half a year ago, $280 per delivered ton of the pulp. With this cost competitiveness, we expect attractive returns for the investments in various market scenarios. The investment represents a step change in UPM's future earnings and in the scale and/or competitiveness of our pulp business. This page 24, outlines the construction schedule of the pulp mill.
I'm not going to go in details, but from that you can read that how it will be then handled, in various steps. Page 25 shows the update of our CapEx estimate for 2020. As we can see that our expected CapEx for the year of 2020 is EUR 1.3 billion, including about EUR 900 million from Uruguay project. Our maintenance investment needs are consistently low at around EUR 200 million or less. Ladies and gentlemen, with this, I will close my presentation, and most probably, I don't want to or need to repeat this, what we have been doing. This is a significant day for UPM. Thank you. Now we are ready for the questions. Dear operator, let's take the Q&A session.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad and you will enter a queue. After you are announced, please ask your question. Our first question comes from the line of Lars Kjellberg of Credit Suisse. Please go ahead. Your line is open.
Thank you. You provided an awful lot of details, so not a lot of questions left, but I just wanted to stick with the current a bit. Of course, there is some meaningful market headwinds. If you'd like to share with us how you'd see the strike that we're now having in terms of costs that that would potentially have in the current quarter, and also get some sort of sense in how you think about significant, what that really means. If you want at all give any view on the full year, how you would characterize this versus 2019. Also somewhat curious about the significant working capital release you've had, which is truly significant indeed, and certainly in Q4. Was there anything particular there, or should we view this as a new normal relative to sales?
The final question from me, again, coming back to the significant investment in Leuna, the uniqueness of this project, do you see any competition specifically going into this area? Was this truly unique, and how can you scale this up to the point that you mentioned your facility is comparatively small in a very large market? How can you scale this up, both from a perspective of wood supply in the region and the potential to scale up operations at the site itself?
Can I start and Tapio then follows? Tapio can explain the significance. I would only start that this day is significant because of the decisions as well. That's my way of taking the significant wording. Tapio might come to your question. When it comes to the strike, I think that it is obviously for the short term, it will have some kind of effect on our profitability, that is no doubt. On the other hand, there are dynamic consequences as well when there will be less supply of different materials, whether it's paper or also pulp. Difficult to really draw a final conclusion what happens throughout the whole year. That's how I think. I think that what we are fighting here in Finland is to get a competitive union agreement, and that's why we are here today.
Short term, yes, there will be a consequence, but then it is also having a positive consequences that are dynamic, whether it is in the wood supply or in the prices of our products. We will see that then later on. I hand over to Tapio.
Yes. Well, let's say unfortunately I don't have a ruler, in a sense, to help you with the wording other guidance than we have just given. Again, I would sort of just point to the factors that we mentioned that we obviously do have in the first half, the impact from the pulp price, as it is in the beginning of the year, and the paper sort of mid-single digit reduction in the sales price. Those you know, and you can sort of estimate the impact on that. Also in the second quarter of this year, we have the typical seasonality, and on top of that, this year, the maintenance activity is focused on the first half and on the second quarter of this year. That's why also, as we have guided, we are saying that we expect the second half EBIT to recover.
Again, no further guidance on that than what we have just today given. As far as the working capital is concerned, of course, one thing that obviously is good to remember is that what we have seen now in this cycle is that when in the previous years, the economy was sort of accelerating or growing healthily during still 2018, then we were tying cash into working capital as, let's say there was inventory buildup, but also particularly the value of finished goods or raw materials in inventory was going up. Obviously, now we have seen, in a sense, the reverse effect throughout the year and particularly at the end of the year. Then, of course, also the fact that when we are downscaling our UPM Communication Papers business, that means that that has a sort of releasing effect on our working capital.
I would say that obviously we work to keep our working capital efficiency up going forward as well as in the previous years. Typically in the beginning of the year, there is some buildup of working capital, and then typically at the end of the year, we then release cash or work our working capital down.
If I take the Leuna scaling up question that, Lars, you had, which is a good question. You know that in the biofuels, we did have this Leuna project in Lappeenranta, and the plan that is currently under development phase. We are talking about four to five times bigger plant actually, which is now in our minds. Basically, yes, we are always considering the next steps of scaling up. Similar happens in Leuna, and most probably that mill site will host options to grow as well. We are seriously now coming into this business, but of course this is the first step of its kind. It is novelty in this whole globe. Nobody has done this before. This 220,000 tons of products, it is a already industrial size investment with EUR 550 million investment.
Yes, we do have a plan how to move on then thereafter. Let's put ourselves now and our nose into the implementation, and we have two big significant growth projects ongoing in Uruguay and now starting in Germany as we speak. The decision was made today, happy with that.
Just one follow-up, the 220,000 tons that will launch in 2022, do you have customers lined up from that or will you need to launch the product into a market, or do you have already customers lined up, so to speak? Do you know who's going to be the taker?
Yes, we have worked with this whole issue ever since 2010, and last 12 months or even maybe 18 months, we have worked heavily with customers already concretely with the pilot products and the product kind of features to get their interest, and there's a huge interest today.
Thank you.
Basically, we are well done, and we have still three years to go to really make that market entry solid.
Very good. Thank you so much.
Our next question comes from the line of Antti Koskivuori of Danske Bank. Please go ahead. Your line is open.
Yes, thank you. Two questions from me. First of all, I would like to hear a comment about the topic of the mild winter that we are seeing now in Finland and the potential impact on wood costs in, let's say, H1 2020. Do you see a risk that there could potentially be the higher wood cost due to the current weather that we have? Second question about your pulp business. I was just wondering about the effective pulp price for you going into Q1. We've seen that the spot prices have been stabilizing or have been stable for a while already now. Should we expect that your effective price is still coming down in Q1, whether it's a timing related issue or higher rebates or whatever? How should we think about that?
If I take the mild winter, Tapio prepares the answer for the pulp business. Yes, there has been milder winter that we expected for this year, but this is nothing comparable what we had two years ago. In Finland, yes, the southern part has been a bit more challenging and is more challenging as we currently speak. We are much more well prepared for that actually than two years ago. Therefore, we don't see that as that challenging at this point of time. Like I said earlier, once again the strike will help on that as well. Basically, we don't see that as badly affecting us at all as we had two years ago.
All right.
Maybe if I'll comment on the pulp price. I think, in a sense, obviously you have to make your own estimate because basically, as you know, what happened was that we did still have some movement down in the market price in the fourth quarter, in Europe primarily, but less so than in the third quarter. In that sense, what kind of a delta there might be on the average price in the fourth quarter vis-à-vis first quarter then depends on what the curve is for the remainder of this quarter. You can sort of make your estimate on that.
Could you comment anything on the level of rebates? Has there been any changes to that?
No, we don't comment that.
All right, v ery clear. Thank you.
Thank you. Our next question comes from the line of Alexander Berglund of Bank of America. Please go ahead. Your line is now open.
Thank you very much. Two questions from my side. The first one is on graphic paper and supply and demand. If you look now, how much capacity closures have been announced in Europe in 2020 as a percent of the total market. Do you think that this is enough, or do you think we need to have more closures announced? Where would those come from? Do you think that the lower prices in the first half now is going to put pressure on high-cost producers? Has the deflation we've seen in pulp and ONP made that these mills are still quite profitable? My second question is on the Biochemicals. It's just as a comment on the return on capital employed. My question is just why is this so much lower than my understanding where it is in Biofuels? Is this because there's different credits or subsidies?
Just if you can help me understand that. If you would compare these markets, which one would you see as more attractive, biochemicals or biofuels on a long-term basis? Thank you.
If I take at least these three questions, one attractiveness, the last one. Graphic papers and closures, UPM-Kymmene, as already Tapio explained, we are taking more than 800,000 tons of capacity when all the actions are done. We are doing it for ourselves as we have been doing always, to have a high utilization rate for all our remaining mills. Which means cost competitiveness and thus good cash flow and that's our way how we operate. Where the closures will come, obviously, it is interesting that there are not only any more that this company or this mill will be closed because of non-profit-making, but also there's a high interest to turn and convert those machines into packaging grades and therefore, even big units like [uncertain] or then Oulu machines are turned to packaging grades, which I think that is one factor on this whole ball game.
UPM-Kymmene's way of operating has been and will be that we are keeping our machines filled with high operating rates, and we take capacity down as we need to take to get the efficiency and the cash flow out of the business. UPM Biochemicals return on capital employed 14%, we said we will meet that target and obviously this is attractive business and we will meet that 14% level. This didn't mean that we are not going to be above that, but we will meet that target after the optimization. Which of these is more attractive? I think that they both are very attractive. This world is moving into where the CO2 emission reduction needs to be in the transportation and traffic, which I think that will only promote a good demand for biofuels. The biochemicals is having a feature that biofuels doesn't.
There's a plentiful of molecules that you can choose. This is the selection that we made for this mill. When moving on, we can turn solid wood to different molecules as well. Basically, the market is really having a lot of opportunities. We did have a big selection process for those molecules that we just selected and therefore it is having even bigger opportunities from the market point of view. The same factors once again, our customers, the world is committing themselves into a 1.5 Celsius degrees increase in climate warming and that will trigger a good market for both of these grades.
Maybe just to clarify, we haven't said whether the ROCE is higher or lower for biochemicals or biofuels. This 14% is our target for the capital-intensive businesses that we have in biorefining, and the biofuel plant in Lappeenranta is exceeding that, and we believe that the biochemical business will exceed that as well.
Okay. Thank you. I know I was just comparing it with some of your peers in the biofuels business. Thank you for your answers.
Thank you. Our next question comes from the line of Harri Taittonen of Nordea. Please go ahead. Your line is open.
Yes, good afternoon. A couple of questions on the major project, if I may. On the line up, can you give some color on the wood intake or how much is the typical unit consumption and overall, what is the procurement side? How is it organized and for how much? Particularly given that if there is a potential to scale up later on, to get a feel of what sort of wood intake this involves.
Harri, we have not disclosed how much it will take, but that the yield will be high. Whereas in pulp making, the yield typically is 50% or so, roughly speaking. This is becoming quite high number on yield. Therefore, it doesn't need that much of wood. We do have a very good process. Obviously, UPM-Kymmene currently is operating in Germany in wood sourcing. We do have the network in place, and that helps us a lot. We have our current operations, which will be then adding this capacity, and therefore, the wood supply is in well-developed.
Face at this point of time.
Sure. Okay. On the pulp side, you now mentioned that the net exposure or net sales position has reached 1 million tons. Just how are you finding acceptance in the customer base? Overall, maybe if you can give a bit of a feel of your thinking on where you are seeing the pulp inventories at the moment in the global system.
Well, I guess what you can look at is our deliveries. They were up in the fourth quarter, so demand from our customers is good, as mentioned. In that sense, I would say the customer demand is working well for us, and obviously that is a good thing that we have this sort of volume base, building up the customers and the business then for the future startup of the second mill in Uruguay. Well, I think you know the kind of statistics as well as we do here in terms of what is available in the pulp business, that the inventories have started to come down on the producer side during the past months and quarters. That's probably why also in China, the prices have stabilized.
Obviously, we'll know in terms of statistics more when the actual figures from the Brazilians come, probably during the next month. That's what we, and you I'm sure, can see from the statistics.
Exactly. Okay. Many thanks.
Thank you. Our next question comes from the line of Mikael Doepel of UBS. Please go ahead. Your line is open.
Thank you. I had a couple of questions still left here. Just firstly on the guidance and just to be clear on that. What you're saying is that the H1 2020 profit will be down year-over-year. Then you're saying that it's going to recover in the second half of 2020. Is that recovery in relationship to H1 2020, or is it also on a year-over-year basis as you guide for the first half of this year? That would be my first question.
Yes. That is relative to the first half of this year. We see that then the comparable, if it will recover in the second half of the year.
Okay, good. That's clear. Switching to paper and the European market. As Jussi pointed out there in the beginning, we saw pretty steep declines in paper demand in 2019. I guess the question is, will this continue going into this year, or was there some specific things that drove that exceptionally weak demand last year? What's your thinking around that going forward? Do you expect to see some sort of a, I don't know, call it a mean reversion in the trend declines, or should we expect these double-digit declines to continue going forward?
Our trend idea has not changed that much. We are talking about 5 %+ as a trend decline. All of what we have seen before, a couple of years ago or now is very much related to general economy. If general economy like 2017 was booming and going up in Europe, it meant that the demand decline was only 3%. Now when there's a kind of a slowdown in the economy, it has been triggering higher number on our trend. It is very much related to also general economy. Our trend idea has not changed that much. Maybe this is not somewhat higher than that of 5%, but not much.
Okay. That's clear. Then just a final question from me, switching to China and the fine paper market outlook there. Now, in the latter parts of last year, we saw good demand there, driven partly by the 17th anniversary, and we also saw prices moving up. We also saw some fairly big conversions from recycled container board into the fine paper market. Have you seen any impact on the market from this conversion, and how do you view the market balance in China in terms of fine papers?
Market balance has been pretty okay at this stage. We have been running in a high operating rate in China.
Okay. Have you seen any impact of new capacity in the market?
Not that much. I guess that the market, this has been quite strong, stable market.
Okay. That's very clear. Those were my questions. Thank you very much.
Thank you. Our next question comes from the line of Justin Jordan of Exane. Please go ahead. Your line is open.
Thank you. Good afternoon, everyone. I've got two separate questions. Firstly, on your exciting new biochemical announcement day. I appreciate 14% return hurdle is what you have for biorefining as a division, and I'm sure as you lightly said, I'm sure it's not a ceiling on your returns aspiration for the project. From its kind of initial commencement of operation in, let's say, very end of 2022. When perhaps should we envisage you might make that 14% return? Is that perhaps something in 2024? How quickly might this business ramp up to that potential target, as it were? That's my first question, please.
Justin, when it is fully optimized.
Okay. Can you give us some timeline as to when fully optimization might happen?
When it is fully optimized.
Okay, no problem. Don't blame me for trying.
Yeah.
Secondly, now I'm really not trying to trivialize this, but clearly, in recent weeks, there has been a coronavirus issue, and I'm sure developing as we speak, frankly, in China. When I think about UPM-Kymmene, you have three business units in Raflatac, Specialty Paper, and clearly Pulp and Biorefining with major operations in that country. In a real-life situation, have you seen any impact on UPM-Kymmene , as yet, in any of those divisions? When I think about, I guess, consensual expectations of maybe global pulp prices rising in calendar 2020, does the tragic events that we're seeing potentially defer or potentially moderate some of those aspirations for rising pulp prices?
Well, first of all, in terms of our operations, obviously where we do have operations in terms of manufacturing or production in China, it is in Jiangsu at our paper mill and Raflatac for pulp, obviously, then we are selling into China. Of course, let's say, for us as for anybody, maybe the question is more around what kind of impact this virus might have for the economy in China in general, and therefore for the end demand of different products, consumer products, which are, let's say the fundamentals for our business, in China, including obviously let's say pulp as well as you say. It's early to say about that, but the impact comes obviously from the possible sort of effect on the general economy and private consumption in China.
In terms of our own operations in Jiangsu, our paper mill is running because it was running throughout the holidays. Therefore, it is permitted to run at the moment as well. No sort of direct impact yet there for us. Again, we will see then during the coming days how the situation evolves.
Okay. Is there anything you could add on any indication or impact on pulp demand or expectations on pricing?
I can't sort of speculate on that, I think much better than you can.
Okay. Thank you, Tapio.
Thank you. Our next question comes from the line of Markku Järvinen of Handelsbanken. Please go ahead. Your line is open.
Yes, good afternoon. I still had a few more questions. I guess, starting with fiber cost, do you see pulpwood prices coming down in any of your production locations? And, if any which? On the other hand, recycled fiber prices seem to have come down quite a bit. What kind of impact if any does that have on you?
I'd say as starting from the last question, RCP, as we already discussed earlier during this call, we have been let's say seeing the benefit of the lower RCP price already. I think that obviously is something kind of coming into the beginning of this year from last year. Pulpwood price also there, let's say prices have started to sort of moderate down.
Okay, good. On the maintenance activity, I think you've said in the past that pulp mill maintenance will have a sort of EUR 20 million-EUR 30 million negative impact per pulp mill. Is that sort of correct magnitude or what are we talking about?
Sorry, yes it's the magnitude. As I said, this Fray Bentos impact in the fourth quarter was about EUR 20 million, and obviously includes the fixed cost coming from the maintenance shutdown and then some impact in a sense of lost margin, which margin impact depends on the pulp price. Now we have the two shutdowns in the second quarter of this year. It could be, let's say similar scale in terms of impact per mill. Again, the figure then depends on exactly what the pulp margin is at that time.
Okay. Good. Then the Specialty Papers, you now have the investments ramping up. What kind of a ramp-up curve do you expect here? What sort of impact on earnings this year from the Nordland conversion? Is that going to be sort of negative still this year or how do you expect that to proceed? What's the sort of timeline on that?
We do not close that information, but obviously as soon as possible we are trying to get that ramped up and optimized again. That takes time, but there's no guidance for the earnings.
In terms of the commercial ramp-up, how is the demand situation at the current? You're adding quite a bit of capacity. Is the market going to consume that quite soon, or what's the expectation there?
That is something that we see as a quite nicely growing market. Obviously we have a good position there, and I think that Nordland will be well-positioned on that market.
Okay. Thank you.
Thank you. Our next question comes from the line of Linus Larsson of SEB. Please go ahead. Your line is open.
Thank you very much. A good day to everyone. Looking at your paper divisions, you're doing very well. EBITDA per ton is higher than it's been for a very long time, actually in both paper divisions. I appreciate you benefit from lower fiber costs in the fourth quarter, but at the same time, you're talking about only moderate price declines in the first quarter. Why is that is my question, or am I misinterpreting your wording here? That's my first question.
Well, as we said, moderate meaning mid-single digit, which again, I think you can see from the public sources as well. That is what we see as far as the price is concerned.
Sorry, that would be mid-single digit for the Communication Papers division or.
Yes. That's, well, let's say for moderate for both divisions, but for Communication Papers as well. That is coming from the fourth quarter to the first quarter.
Thanks for clarifying that. Then on Specialty Papers, are you seeing the same magnitude price decline as in Communication Papers?
Well, as I said, similar. Yes, that moderate decline for both.
Okay. Then also, if you could also just help me, did I get that right that so now the CapEx guidance for 2020 is EUR 1.3 billion? Did I get that right, that the biochemical investment is only EUR 100 million in 2020? If so, should we then spread the balance of that EUR 550 million investment on the two following years, 2021 and 2022?
Yes, I would say that's correct. That what we obviously did guide is that this decision increased by EUR 100 million the guidance for this year as far as CapEx is concerned. I think it's for the time being probably a kind of a good working hypothesis to sort of divide the rest evenly then for the remaining two years.
Excellent. Great. The base load CapEx, is that going to remain the same? I think you've detailed the Uruguay CapEx, and there's no change to that phasing, is it?
No. Let's say you can see from the slide in the materials we have indicated kind of Uruguay part there. As Jussi mentioned, there's this couple of hundred million or slightly less for maintenance CapEx and then the sort of differences for, let's say, other focused projects, and sort of smaller operative investments that we have ongoing, including, for instance, the decision that we announced last year concerning the boiler in Nordland.
Great. Just one final from me regarding the biofuels investment that you're also looking at. How far progressed is that? When should we expect to go ahead and CapEx on that one?
That is still a work in progress. We will come back to that later on.
Okay. That's fine. Thank you very much.
There are no further questions at this time. Please go ahead, speakers.
Thank you, ladies and gentlemen. It has been great one hour with you guys. Thank you for being with us, and have a nice day. Thank you. Bye.