You, operator, and good day, everybody. Thanks for joining us on the call. As always, I'll take you through the investor presentation, calling out the page numbers as I move through the deck. And I'm going to start on Page 3, which has some of the highlights for the quarter. I'm pleased to say that the recovery that we've experienced from the lows of COVID last year continued into this quarter further improvement.
There are still certain challenges related to COVID, which I'll talk a little bit more, but we continue the recovery, and I'm pleased with the progress. Firstly, a strong performance from the packaging and specialties, and then dissolving pulp continue to ramp up. What I would say on dissolving pulp is that prices improved significantly during the quarter, but I just want to stress that there is a lag impact related to our contractual pricing and much of that benefit will be felt in future quarters. The graphic papers in Europe continue to be under pressure, and a lot of that was linked to COVID itself. When the 2nd wave came along and renewed lockdowns, we particularly in January February, we saw demand softening a little bit once again, not back to the old levels of the middle of last year, but certainly a slowing of the growth.
Subsequent to that in March, we did see things starting to get a little bit better once again. We did have the challenges of shipping, which is not unique to our industry. It's cutting across many industries across the globe and that caused some delays and some cancellations and impacted our performance. I'm pleased to say that the new covenants for our debt were renegotiated, and those will commence from our Q1 2022 financial period, and we have comfortable headroom incorporated into those new covenants. So pleased with that.
Overall the EBITDA was $112,000,000 that was up from $98,000,000 in the prior quarter. Moving to Slide 4, the earnings bridge quarter on quarter to last sorry, quarter to last year. And last year, we still made 131, but that was still pre COVID. Sales volumes down, predominantly in Graphics and predominantly in Europe, and I've talked already about the slower recovery there. The price box is you can see here is close to 0, but underneath that dissolving pulp prices started picking up.
I've already mentioned that much of the benefit will come in the future, but we started to see some benefit in this quarter. Packaging was down, but this was specifically in Europe, and it relates to a lot of that business is priced on an annual basis. And at the time when the last set of prices where agreed pulp prices were substantially lower. So it's the impact of historically low prices. Obviously, subsequent to that, we've announced price increases and we would expect them to go up going forward.
And then graphics, again, once again, down a little bit, but predominantly linked to COVID and once again historically low pulp prices, we have announced price increases here as well. On the cost side, some of the higher pulp costs starting to come through, fixed costs, some nice savings coming through. And then on the exchange rate, once again, netting off close to 0. But underneath that, sales revenue positive. And the reason for that is that you have a bunch of your sales in Europe and out of South Africa, which are denominated in domestic currencies, which strengthened obviously against the dollar.
Offsetting that is the fact that similarly costs those same costs in those regions get translated into dollars. And specifically, in South Africa, obviously, the rand has strengthened and that's in dollar terms pushes up your cost curve, giving you the $112,000,000 EBITDA. Slide 5 has the product contribution. It's on a last 12 month basis. It's obviously distorted significantly because of COVID.
So it still has packaging as by far the largest, obviously, in time dissolving pulp. We'll go back to what it was and beyond pre COVID times, and Graphics still has to make a recovery. At the moment, Graphics on sales volume represents about half of our volumes, but that's coming down all the time, and we would expect the growth in our growth segments to increase and increase the contribution overall. Slide 6 has the segmental volumes and margins and just talking about each briefly. And graphics, you can see sharp recovery initially after the first wave of COVID, coming back a little bit because of Europe's 2nd wave, but I would expect it to start recovering further as the vaccines take hold and Europe comes out of lockdowns.
Packaging held up pretty well and margins nicely as well. And once again, when we get the higher selling prices out of Europe, the margins will continue to be healthy. Dissolving pulp, initial obviously nice recovery from the lows of COVID and going backwards a little bit in this quarter, but that's purely because you got the higher exchange rate and the higher selling prices have not kicked in yet. Clearly, in Q3 and beyond, that line will go up sharply. Turning to Slide 7, the debt leverage, and you can see now it's peaked at the 6.5%, and that's to be expected because now we're carrying the 4 quarters related to COVID.
With the further improvement in profitability expected in the next quarter and beyond, the leverage ratio now will start to come down quite sharply. Slide 8 has our maturity profile of our debt, and I think a lot of great work has been done here over the last few months, refinancing the 23 bonds. We refinanced the securitization. And really, all major maturities of now 'twenty four or beyond. So it really, really looks good and gives us a clear runway as we continue our recovery.
Slide 9 has the CapEx. And similar to what we had in the last quarter, we're seeing CapEx this year of about 400, a bit higher than we initially said at the beginning of the year, but just to remind you, that is currency related. And there was a wee bit of a delay related to the Saiccor expansion, which was COVID related, but I'll talk about that a little bit more now. Moving ahead, turning to the geographical segments. And firstly, in Europe on Slide 11, it's fair to say that Europe has lagged the rest of the world in terms of recovery.
In terms of our markets, we obviously initially saw Asia starting to rebound and then North America and some of our other export markets, but Europe has lagged the rest. And it's specifically had an impact on graphics. And although we've recovered, the second wave, slowed that somewhat, and we were forced to take 115,000 tonnes of downtime. Export markets, which I had spoken about in the previous quarter, as lagging a little bit. They have now improved, and we are more upbeat about the prospects there.
And then in fact, the logistical challenges that we had actually slowed some deliveries to those regions down a little bit. Otherwise, it could have been a little bit better. The paper selling prices were lower, as I talked about, because of the lower pulp prices. Overall, the markets graphics, coated woodfree and coated mechanical. I'm down about 20%, but it is progressively getting better.
And as I said, hopefully, as the lockdowns are eased in Europe, that, that will continue to proof. In the Packaging segment, paperboard demand was good, and certain of the kind of essential and health related products was good, but other non essential categories also impacted by the lockdowns. Costs up quarter on quarter. We're starting to obviously see the higher pulp prices. Just to remind everybody, our European business is about 55% pulp integrated.
So we have to buy we have to buy pulp, and obviously pulp costs are going up. So we have to offset that by implementing selling price increases. They don't occur immediately. We have to take time to execute on them, but we would expect prices to go up, selling prices to go up to offset that. Moving to Slide 12.
North America, a very good quarter, the performance improvement across the board. The U. S. Economy has rebounded out of the COVID and our businesses continues to strength in packaging volumes up 56% year on year and quarter on quarter an improvement. What I would call out to you is that, as you all know, we converted Somerset PM1 a couple of years back, and now we're getting we're basically full now on the packaging grade.
So extremely successful for us. But what it does mean is you're not going to see that same pace of growth continue because obviously, we don't have the same capacity to enable us to do that. In on pulp, DP prices going up. Similarly BCTMP, which we sell out of our Matanmo, very favorable pricing and continuing to rise. Acquisition that we made now has been very successful for us.
And with the pulp prices going up, the profitability continues to improve. Graphics. It was only 85% of last year, but what I would call out to you is that, that is related the fact that we were transitioning from graphics to packaging. Our machines were completely full, so very successful for us. Costs negatively impacted by the delivery and logistics costs and higher pulp prices coming through.
But once again, we have implemented selling price increases, and it does and we have been successful there. Slide 13, South Africa. Once again, very pleased with the performance. BP. Obviously, we've talked about a couple of times, partially impacted by the oxygen issue that we talked about on the last quarter 23,000 tonnes.
Obviously, the higher selling prices will come through in future quarters. Packaging, very strong as well. And I'm sure many of you have been reading about the higher fruit exports out of South Africa, and we obviously benefit from that some of the other smaller categories impacted negatively that are focused in domestic markets, but those are not material. Our big segments are doing very well. Once again, higher raw material costs starting to come through and similarly the higher freight that I referred to.
Moving then to the markets for us, product segments. And firstly, Slide 14, Dissolving Pulp, it's been a remarkable rise in prices, and demand has been very strong. Price is surged to up $3.40 in the quarter. I would call out to everybody that, that's obviously the starting price to the end price. The average will be somewhere between those numbers, and our contractual pricing is based on averages.
So you can't expect our selling prices to about $3.40 in the next quarter. It's the average. What is contributing to the positive well, huge restocking. A lot of capacity had come out. Inventory levels were low across the supply chain.
We saw prices for alternative fibers rising, paper pulp pricing, everything very, very positive. And at the moment, as we indicated in our results announcement, prices are $1100 a tonne. That's as eyes we've seen in many years. I think to summarize, the short term still looks positive. It may not stay at these elevators, the short term factors continue to be positive.
And even if you look beyond the short term the next couple of years and the market balance. It's still positive. I said on the last results call that I don't expect the prices to remain at $1100 forever, no. The prices will come back. And at the time, I said probably somewhere in the 800s.
But even at those levels, the margins are still good. The dissolving pulp was impacted by the oxygen, which I talked about. And then BCTMP, which is the pulp sold out of Matan. Light dissolving pulp has also surged the pricing and looking very good and production has been good at the mill there. Offsetting that somewhat is the logistical challenges that's caused delays out of our South African mills in terms of exporting.
Not worried about the volumes per se, it's just a timing difference. And then the exchange rate, obviously, the rand it has been stronger. So that squeezes your margins a little bit, and that was what you saw in the earlier graph. Turning to Slide 15 and Packaging, really very strong in North America and South Africa at the moment. Europe, more challenging, but volume demand is picking up.
And as we implement selling prices, we will start to see improvement in margins there. And once again, it's linked to COVID. And as those lockdowns are eased, we're confident about that. Graphics, the recovery that we had the progressive recovery we saw over the last few quarters did slow, and I think there's a graph a little bit later, you'll see it kind of month by month out of Europe. And you'll specifically see the impact of the second wave of lockdowns.
The European market is down approximately 17%. And interestingly, the U. S, down 24%. But what I would call out to you on both of these is substantial capacity came out of the market. In the U.
S, it was more than 25%. So actually, the market is in balance, and Europe continuous recovery. I would it's difficult to estimate exactly now what the haircut is going to be because of COVID because we've still got some more recovery to occur. I've talked in previous quarters about perhaps about a 20%. It's starting to look like it may actually be a little bit less than that if if the markets can recover further as the full economy opens up.
And specifically in Europe, the higher costs will impact in the short term, but we will implement selling price increases. Slide 17. I've touched on it's been a successful quarter on the funding side. We refinanced our 23 bonds with the 28 bonds. Demand was very strong, which enabled us to get a very good rate under of 3.6 2.5%.
We've renegotiated the new covenants. So really, that moves the path now as we continue our recovery, and I think a tremendous job done there. The CapEx at Saiccor is going well. We are substantially complete. A few things obviously still to be done.
Some delays and some cost increases linked to COVID predominantly, but we're still confident of commencement in Q4. And the CapEx numbers that I referred to are obviously the in the CapEx schedule that was on an earlier slide. Just a couple of slides on the recovery itself and specifically in Slide 19. On the left side is the change in retail clothing sales out of the U. S.
There's many different graphs we could have shown you out of other markets or even big retail sellers and the like. And then what they show is a rapid recovery, a little bit of a hiccup as the second wave came on and then renewed growth thereafter. The positive out of this is that the market has strongly recovered, but there's even still a little bit to go as the final lockdowns are eased in the big markets. On the right hand side, you have the dissolving pulp versus viscose pricing. We just we show you that just to show you the strong correlation.
And you can see viscose prices have risen rapidly. In the last few weeks. They've come back a little bit, but they're still at relatively high levels. Slide 20. We like to show you just to kind of just put the dissolving pulp price evolution into perspective, and you can the red lines has the average BCF prices, hardwood prices.
And just looking at a couple of the numbers. You can see that Q1 average jump sharply into Q2 and then similarly up to the $1100,000,000 that it's currently. We're obviously 1 quarter in arrears. And so the nice pricing that occurred during Q2, we'll see in Q3. And similarly, obviously, if prices stay at these elevated levels, we'll see that benefit in Q4.
Slide 21 just shows you the COSI Woodfree in U. S. And in Europe, and you'll see that there was a rapid recovery after the lows in the middle of last year, a little bit of a pause in January February and then renewed upwards sloping in March and hopefully beyond. Slide 22, everybody's read about the delays, and it's not just affecting our industry. It's across many industries, and it was exacerbated by the whole Suez Canal situation.
But in all the major routes, big delays. And what that's meant is that our South African exports and our European exports. There have been delays. In Europe specifically, it's actually meant we've had some cancellations. It has impacted on our performance.
The challenges are still out there. And again, many people are talking about this, not just in our industry, but we are hopeful that we'll start to catch up as we move through Q3. Slide 23 has our 4 pillars of our strategy. I've talked about it in the past, so I don't intend going into any great detail in this discussion, but just to call out a couple of things. Firstly, on sales growth, our focus is on growing our growth segments and in time, obviously reducing exposure to graphics in line with the market declines.
Our financial health has come a long, long way in the course of the last few quarters from the lows of the middle of last year, and I showed you some of the numbers earlier. Operational excellence naturally would be a focus of our attention, efficiencies and costs, but the savings targeted this year of 69. The Saiccor mill expansion will enable us to lower our costs further at our largest DP Mail. And then at the bottom, enhancing trust, and that's ultimately why we're in business with all our stakeholders. We're committed to science based targets.
We're following the task force on climate related financial disclosure recommendations, and we've got a rigorous supplier code of conduct looking at where all our raw materials come from. Slide 24 talks about just summarizes the strategy and just to repeat. In the short term, our focus is on the balance sheet, paying down the debt further, driving up the margin improvements, getting the earnings back to normalized levels. We'll continue to do work on potential longer term opportunities, but we're certainly not going commit to any big CapEx at this point in time. We have to get our balance sheet back to where we want it to be.
Slide 26, sustainability is a big part of our strategy as you would expect. And obviously, with the science based targets and kind of climate change goals and legislation that's coming out. It's a bigger part of our business moving forward. We just felt it was appropriate just to demonstrate our commitment to sustainable growth. One of the strong aspects is our certification of our forests, and that gives us a competitive advantage.
The science based targets. We'll in time, we'll go public with those, and that will have our emission targets for up to 2,030, and we're obviously committed to that. And then on the BEE side, tremendous work done. And we are we have a Level 1 contributor there, and that's all been certified. So road with that progress.
Turning to the outlook on Page 28. In summary, DP, very good I've talked about it, very positive. The lag will come through, and profits will pick up. The packaging continues to be very strong in North America and South Africa, Europe lagging. But as those selling price increases start to take effect, the margins will recover there.
Graphics, again, I link it back to COVID. And I know that Europe has been lagging. But based on our experience in other parts of the world, as lockdowns are eased, we do expect recovery in time, but it does take time to implement the selling price increases. The logistics challenges are still with us, but hopefully, those will start to be eased as we move forward. In terms of our earnings guidance, we're saying that Q3 will be further improvement on Q2.
However, Europe will be lower due to those rising pulp costs and the fact that it takes a bit of time to implement selling price increases. So operator, that's me going through the deck. I'm going to hand it back to you for questions.
Thank you very much, sir.
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The first question comes from James Twyman of Prestient Securities.
Yes, thank you very much. Thanks for the presentation. You just talk about Saiccor in terms of what sort of run rate it was running at last quarter, whether that's changing this quarter with oxygen problems? And whether in Q4, how quickly you can get up to the sort of flat out rate that you would hope to be getting to, whether is it The beginning of the quarter or the end of the quarter, because obviously that's a big quarter for prices. And then secondly, We've seen a coated fine paper price increase for April.
Just wondering in May, whether you think you've seen any further increase And whether speciality is seeing an increase too to reduce the squeeze you're seeing there. Thank you.
Yes, thanks. Just in terms of dissolving pulp and specifically well, just one thing on the oxygen challenge. It didn't actually impact on SCOR. It was actually the Ungodwana mill. In terms of Saiccor and run rate, we are we've got the big shut in this quarter.
But because you've got the lag related to the shipping delays, the sales volumes for this quarter our pretty at normalized levels, close to Q2 levels. Obviously, beyond that, we'll complete the Saiccor project and then there'll be a ramp up period and then you'll start to get the higher volumes after the ramp up period. So I think in summary, James, to your question, the volumes should be reasonably in line with what you saw in the last quarter. The coated selling price increases, I'm going to pass you I'll give you an initial comment, and then I'm going to briefly pass you to Mike in North America and Marco in Europe just to briefly talk about their experiences. But we've announced, obviously, a series of price increases across our product categories.
We've been pretty successful so far. Europe, a little bit slower. However, we are getting some traction. And that's across, obviously, the graphics and in the packaging space. In the packaging space, it's a little bit more challenging because of these annual contracts, and Marco can just refer to you a little bit about the timing of when those contracts annualize.
So I'll go to Mike first. Just Mike, briefly, just you want to just talk about pricing?
Sure, Steve. In North America, we've implemented price increases That went into effect May 1 on most of the grades across North America. So we have not realized that latest price increase in this last quarter. Obviously, as Steve stated, Some of our contracts do have do require implementation over time. So it's not a cut and dry, average the price increase across all the tons, but we'll be implementing that price increase in to date with the assets full on coated freesheet or excuse me, high operating rates in North America.
We expect to realize the majority of that over the course of the remainder of the year.
Great. Thanks, Mike. And Marco?
Yes, Steve. Similar to North America, we have announced our first round of Price increases as well as of April, which we are realizing right now. This is the Q1, the quarter fiscal quarter 3 that we will see price improvements. Momentum is building towards a second necessary price rise in June, July and that's for both the mechanical publishing as well as for the commercial print woodfree business. Asset with the recovery that we hope to see going forward.
We hope that we're cautiously optimistic that, that will support this second price rise in June July.
Thank you, Marco. James?
Yes, thank you very much. So there was a Pricing, the data we've seen shows there was a 2% price increase in Europe in April. So the implication is that You've achieved the same again in May or is it better than that? And How much is the total that you sort of are expecting to get in the next few months?
Yes. Marco,
I don't think you can talk to month by month, but just broadly.
The The range we're looking at is somewhere between 3% to 5% over a quarter. And that will be we will try to repeat that from June, July onwards. You need to take into account, as Steve was rightly saying, that some of the contracts run over multiple quarters, and we've got different phase outs of these 6 and sometimes 12 month quarters. So there is some disturbance from contractual obligations that we have.
Thank you very much.
James, does that conclude your questions?
Yes, thank you.
Thank you. The next question comes from Mikhail Dupele of UBS.
Thank you. Good afternoon, gentlemen. Just starting off with the WP markets and the demand trends that you see there. So I'm wondering if you could talk a bit about that. I mean, What are the growth rates in the markets currently and what's driving that?
When I look at the retail clothing sales, It's essentially only China that has recovered, so other regions are still down clearly. I'm just wondering if it's chasing Xinyang a major driver? And if do you expect any changes to that? So if you could talk a bit about the demand trends you see in the market in terms of growth rates and the dynamics, that Great.
Yes, you got to talk about the short term and the longer term. And obviously, longer term, we've consistently based on all our estimates, we consistently believe that the market will continue to grow at about 5% per annum. Obviously, in the short term, we've had the whole COVID impact. And what happened last year was that everything just stopped and viscose producers stopped producing. The there was force majeure declared inventory levels right down the supply chain all the way through to the retail side drop considerably.
So when lockdowns were initially eased, you had the major restocking going on. And whilst you're right that the volumes of clothing sales are not back to pre COVID levels. They're about, what, 80% or so. That's still a substantial recovery. And with the inventories being so low, it just pushed up the demand for pulp.
At the same time, on the supply side, obviously, you had temporary curtailments and including ourselves. And that meant that it took time for the supply side of the market to get going once again. And then you had that combined with the restocking, it drove up prices very, very shortly. Mohammed, do you just want to talk about a little bit about the demand side and what you're experiencing at the moment.
Yes, Steve. I would just add two points that the other part of the demand side is coming from strong growth in nonwovens where the value of wood based cellulosic fibers is a very good one, especially the biodegradability. And then 2, as you highlighted, Steve, I think there's just been this huge restocking That has pulled through a lot of demand for viscose. And also, you ended up in a situation up until very recently where the relative price position of viscose to cotton and polyester encouraged a greater usage of wood based cellulosic fibers in the textile markets.
And Michael, just to add to what saying, you are right that obviously, textile and clothing sales are not at pre COVID levels, that gives us further comfort. The fact that there's still a little bit of way to go for demand to get back to pre COVID levels. So that's going to help underpin pricing in the short term as we look forward.
And in terms of Xinyang, has that Been a major factor in the market or not?
So you broke up there. In terms of what?
What does the cotton production in Xinyang in China? Has that been a major factor in the market and The demand for VSF or not.
Mohammed, did you want to talk about the cotton side of it in China?
Yes. It certainly, I think, has influenced the sentiment, especially for the major retailers outside of China that relied on garments and textiles coming from China. And I think that did encourage a swing towards more viscose. And also, I think it encouraged a swing towards production of garments outside of China, which benefited places like Indonesia, for example, where there's a big production of visco staple fiber.
Right, right. Okay. That's clear. And then just a follow-up on the supply side, I mentioned briefly before. I guess there was a lot of the Chinese DBP capacity was more or less shut down last summer.
Just wondering if that is now back on stream and what you're seeing in terms of swing mills In the market and maybe also you could talk a bit about the new capacity and what you expect in the next couple of years. Just to get a feel for the supply side of the equation, if that has increased or changed in any way recently.
Yes. Looking at the supply site. You're right, there was there is a bunch of Chinese swing producers. What we've seen in recent months is that some of it has swung back, not all of it, but some. But at the same time, paper pulp prices are also rising significantly as well.
And so there's probably no need necessarily in the short term for prices to sorry, for them to swing back. The second part of your question related to the new capacity coming on board. I mean, obviously, we know about the 2 big projects in Brazil from Lensing and RGE, and we know they're both integrated suppliers, and they're making it for their own use. In terms of market producers, we are not really aware of any other material projects planned for the next couple of years. Mohamed, anything you want to add there?
Steve, just one comment. There was a public announcement by a company based in Finland where they made an announcement that they would be exiting the dissolving pulp supply into the viscose market. So they're not a very big supplier of viscose grade pulp, but a meaningful supplier to some producers in China, and that also should help provide some sort of offset in terms of supply.
The next question comes from Brian Morgan of RMB Morgan Stanley.
Just on your first phase of your strategy is that balance sheet management and the de gearing. Could you just chat to us little bit about that. Are you thinking about it on an absolute or relative basis? Just DWP prices don't have to do much to de get the balance sheet pretty quickly. And then basically, that first leg of the strategy is done.
And then related to that, are you thinking about the reinstating the dividend at some point?
On the leverage, our primary target is a leverage itself, and we've always said that we want to get it below 2%. I think on this results call last time, I was asked about would you want to go below 2%. And certainly with the fact that we're in a cyclical business, it is likely that we would take it down further. Last time, we took it down to about 1.6x and obviously the market turn. So I suspect we would take it down further, but through the cycle, 2 would be our maximum that we would desire it to be.
Dividends, I'll be honest, Brian, it's not something that we've contemplated at this stage. Our primary focus obviously was on recovering from COVID and getting our leverage and profitability back to normalized levels. You are right. Once if we can generate the profitability that we all think we can make in the next 12 or 18 months. The leverage goes down very, very fast.
But we would have to be confident that we can maintain that leverage ratio below our target before the we would pay the dividend.
That's fine. And then just you spoke about story and so pulling out of the DWP market, supply and into the Chinese market. Does that mean that we could see a bit of a squeeze in the DWP spot market? Would those viscose mills have to hit the spot market now To replace that DWP, do you think?
Ryan, what I would say is it's certainly a positive. As you look at all the dynamics that are underway, there are a number of short term positives and that adds to the positive. I mean, obviously, on the negative side a little bit, as you've seen viscose prices come off a tiny amount in recent weeks. But broadly speaking, taking to the point you make, plus all the other positives and hopefully Europe coming out of lockdowns in the next month or 2 and retail sales picking up further. All of those give us cause to believe that in the short term, things are continue to be very positive.
The next question comes from Tim Clark of SVG Securities. My apologies. We seem to have lost him there. Tim, if you are still in line, you're welcome to queue in again. The next question comes from Wade Napier of Avi Capital Markets.
Thanks for the call, guys. I'd just like it if you could give us a little more color on your pulp purchasing dynamics within the sort of graphic paper business. Obviously, we've seen paper pulp prices, the index prices in particular sort of shoot up in the last 3 months. But I assume your average pulp purchasing costs would not have reflected those index price moves yet. So can you maybe just give us a little bit of color as what just sort of average pulp costs maybe went up in this past quarter and potentially what you could see that increase be in the 3rd quarter.
And maybe just give us how much pulp you buy in the quarter. My estimate is around 200,000 to 220,000 tons of pulp, if that's correct?
Yes, on an annual basis based on the current levels, we are and I'm rounding. It's approximately about $800,000 to $900,000 in Europe and $150,000,000 to $200,000,000 in North America. The we don't give the specific pulp increases. Obviously, we buy on the market, so it is linked to market prices. You are correct that we haven't seen the full extent of the increase yet.
Some of it came through in Q2, but the rest like the rest of the pulp markets will flow in this quarter. And as for that reason, I we did call down Europe would be less than the current quarter, albeit that we are implementing selling price increases to offset the higher costs. So wait, my guidance to you would be use the market prices as a proxy and I've given you volumes.
Okay, great. And then maybe just a follow-up question on the downtime taken At Europe, the 115,000 tonnes, could you potentially guide us with the split between wood free and mechanical grades? And Do you think that it may be necessary to sort of reconsider what your sort of Supply looks like at this point in time, potentially over the next 12 months.
Sorry, I'm just filling out a schedule now just to give you that split. Paulie, just give me a sec. It's approximately it's about 80,000 about 80,000 is graphics. And the balance is coated mechanical. The second part of your question.
Sorry, just repeat.
Just considering your capacity at the moment, whether you think you may need to sort of take permanent capacity reductions potentially in the next 12 months or so.
Look, it's a difficult question because our demand for graphics continues to pick up as things are eased and the lockdowns are eased. We don't want to take a decision too soon. We need to assess where this market is going to be as things normalize. I have no doubt there is a haircut. We initially, as you know, talked about a 20% haircut.
We're actually starting to believe that it may be less than that. And with all the capacity that's come out of the market, both in the U. S. And in Europe, Europe, I think it's about 18%, and then the U. S, it's over 25%.
If the demand does continue to recover, and I'm talking specifically in Europe. Then that may enable us to fill up our machines, and we won't need to close capacity in the near future. But it's still a risk because COVID is still with us.
Great. And then maybe a final question on the strategy. You spoke quite positively about DWP markets and sort of talked about Lensing and RGE sort of their DWP capacity, really just integration. And other than that and coupled with Storey ends are leaving the market, you don't necessarily see much market supply coming on board. I mean, when do you think SAPI needs to sort of consider its next large investment in dissolving wood pulp capacity expansion?
And I mean, would the Board prioritize potentially a dividend with, let's say, within the next 2 to 3 years ahead of potentially investing in a DWP expansion longer term because I mean, if we go back probably 3 or 4 years ago now. Safdie was quite close to pulling the trigger on a big DWP mill investments And pulp prices kind of ran away from the business at that point in time and you kind of missed the boat. Would you not want to repeat that mistake again? How are you thinking about that?
Yes, well, I mean, firstly, our priority in the short term is on the balance sheet and getting it down to the levels that we need it to be. As I've indicated earlier, once we're confident we can get it below those levels, we would consider resuming a dividend. In terms of prioritizing that against the pulp investment. That's a hypothetical question. We would obviously have to assess the markets at that point in time.
But as we sit here today, our priority would be on debt reduction and then on resumption of dividends. I your comment is quite an interesting one about us making a mistake. If we were having this conversation 6 months ago, everybody would have been saying what a great decision not to invest in dissolving pulp a couple of years back. So it is a cyclical business. And what's very important is we need to see through the cycles and make a rational decision based on what we believe will be normalized pricing and normalized returns.
That's not our priority at the moment. Our priority at the moment is on debt reduction.
The next question comes from Ross Kruger of JPMorgan.
Thanks and good afternoon everyone. Just a couple from me. Firstly, on graphic paper in Europe. It sounds like potentially the price hikes that you talk about in June July could be premised on demand improving further. So I just wanted to check if that's the correct read.
And then maybe if you can and commenting on that, talk a bit about where industry operating rates are in Europe. And then secondly, just on dissolving pulp, just more modeling question. If you could comment on what the average price was for Actual dissolving pulp in the quarter versus BCTMP. Thanks.
Yes, on graphic paper, I mean clearly, if demand is then it makes it easier to implement selling price increases. So I would argue that as demand continues to pick up and resume that upward path, it is going to make the implementation of the next selling price increase easier than the last one. So yes, I would confirm that. In terms of operating rates at the moment, but bear in mind, the numbers are going up. This is historical.
At the moment, the coated wood industry operating rates are in the mid-80s. But if that demand curve can get higher relative to what it was pre COVID, then if we can get operating rates back above 90, then the market's back and balanced once again. Ross, just your last question, were you asking about the link of BCT and fee prices to DWP?
No, Steve. Sorry, just to We know the volumes. We know the revenue for DWP segment. I'm just trying to work out what the actual realized For the BCTMP volumes versus dissolving pulp volumes.
We don't specifically give that, Ross. But what I would say is that BCTMP on a relative basis, those prices are increasing by as much as dissolving pulp. So you can almost think about it collectively.
Okay. Thanks, Steve. Can I just follow-up on the graphic side? So I understand the logic. I'm just we're talking about a demand improvement that has not yet been realized.
So I mean, you talk about the fact that you expect demand to improve once backings roll out and Europe opens up. But As we sit today, we're not seeing that. So at this point in time, until we see that, is it fair to say that we shouldn't see those extra price hikes? Look,
Ross, all I can say is that we look at this on a day by day basis. And you can see from that one graph in the presentation, March was much better. And we obviously know what happened in April. So you're looking at it collectively for the quarter. January February were tough, but March April have been better, and that's going to help us with our selling price increases.
Okay, perfect. Thanks a lot, Steve. Understood.
Thank you. The next question comes from Sean Ongren of Products Research.
Afternoon, guys. Thanks. Quick one for myself. In terms of just to carry on or labor on Ross' point about, I guess, credit paper demand in Europe. So I mean, obviously, the exit run rate for March still in the negative, but obviously considerably improved.
I mean, can you Maybe give a little bit more color, I mean, on April or maybe order books for May, shall I say, versus what we compared to last year. And then just sort of on current market conditions. I mean, obviously, it's normally Q3 is seasonally weakest in Europe, but I think obviously, like for like with COVID last year, That will distort things quite a bit. But as we stand right now, will you guys be needing to take any commercial downtime in Europe? That's it.
Thanks.
I'll let Marcos just add to what I say. But we're obviously measuring ourselves now against 2019 because the base of 2020 is completely distorted. And based on what we're seeing in the market. The recovery is now heading above 80% in the market. But on top of that, obviously, substantial capacity has come out.
So in terms of market balance, we are we're getting closer to we always talk about getting it above 90%. Marco, do you just want to just talk and without giving too specific, but just generally about the order book in the last you don't have to do it month by month, but just broadly on the last couple of months how the order book is looking.
Yes. Steve, I think you make a very valid comment that comparing it to April last year It's not the right comparison dates, but to 2019. We're indeed seeing better numbers than we initially said. That was around the 20% mark less than 2019. That seems to be slightly better.
April, May June, the coming quarter. We see every week and thereby every month an uptick in absolute volumes. You're right that quarter 3 is usually not our strongest quarter, but it certainly further supports the momentum that has been ongoing for the last 2 months. Maybe to add, Steve, that to the previous question, that part of the pulp price increases will still need to be absorbed in our variable costs. So it is the increased demand that certainly will support, but it's also the necessity of increased further increased variable cost in the coming quarter that makes the price rise so necessary.
Sean? Sean, does that conclude your question?
Alan, sorry. And then just in terms of based on some current market conditions,
Is it fair to say
that there's no downtime or sort of required commercial downtime, that is?
Yes, Based on where we're currently standing, it will be substantially less than Q2 in Europe. But we're still anticipating about yes, I can't give a specific number, but it will be substantially less than Q1 Q2.
Okay, excellent. Thanks, Steve.
Thank you. The next question comes from Bartik Patzwa of Schroders.
Hello. Good afternoon. If I may sort of try to recapture maybe It's been said on your graphics papers and for you to sort of give some one line color. We all you said and your input costs seem to be rallying really, really strongly and your price increase is only 3%, 5%. Can we expect EBITDA section of your graphics?
I'm looking at Page 20 of your presentation. For this current quarter sort of to be even positive? Or is this really dipping into negative for 1 quarter here? The first question.
Are you talking specifically segmental or the region?
Yes, yes. Just looking at your Page 20 where you break it down by segments, I've another one on dissolving wood pulp, but just to get the graphics out of the way first.
No, no. We're not anticipating it to be negative, the graphics now.
Right. Okay. Secondly, on your on dissolving wood pulp, just Looking at that. The increase in prices is dramatic. That would suggest you would overshoot the prior kind of year, probably above €100,000,000 for your dissolving water pump in the quarter.
But looking back to just looking at the difference in prices, but looking back '18 and 'nineteen, similar volume, similar prices, and you only made €90,000,000 €80,000,000 €90,000,000 on dissolving wood pulp. Is there has anything changed in the business since then so dramatically that or am I doing something wrong with my rough calculations?
Yes, look, it obviously depends on the average prices, but yes, your logic is not it takes time the prices to pick up, and it's a quarterly in arrears. But if the averages are the same, your logic holds true. I just recall just to recap earlier, and I said it in my presentation that the the prices moved up what was about $3.40 a quarter. It's an average increase. So you've got to obviously, the average will come through in Q3 and then the balance in Q4.
The other factor at play. Obviously, as you look back on Slide 20 is exchange rates. And obviously the rent in recent quarters has strengthened. So that does offset some of the benefits.
Okay. Okay. I guess that sums it up. Thank you then.
Thanks. Bye.
Thank you. The final question comes from Warren Riley of Baffrayo Capital.
Hi, guys. Just a question on your South African packaging business. The volumes there at plus 28% looked really strong. We do flag the strength in agriculture, but can you just talk to some of the other dynamics you're seeing there and perhaps some comment on current market conditions if you're taking market share and tightness in the containerboard market. Just some more color overall there, please.
Yes, you're right. It's been very strong. And I've got Alex here with me. Just he can talk about the market a little bit more Thanks, Steve. Certainly, agricultural growth is very strong on the back of exports.
I think more demand for fruit in the world. And then certainly, I think the whole movement from plastics to more green economy is driving a demand for packaging. We are seeing that sitting on the containerboard side. We have grown market share by roughly 4 percentage points in the virgin containerboard side.
Thank you. Gentlemen, that's for the final question. I'd like to hand the bat back to Mr. Steve Binnie for closing comments.
Thank you, operator. I just want to thank everybody for joining us on the call today and we look forward to discussing our results at the end of Q3. So thank you.